This Week in State Tax

In a recent decision issued by the New York City Tax Appeals Tribunal, four Broadway production companies challenged New York City’s imposition of the commercial rent tax (CRT) on payments they made to third‑party billboard companies for advertising their respective Broadway shows. In New York City, the CRT is imposed on the “rent” paid by tenants for “taxable premises.” The term “rent” is defined as the “consideration paid or required to be paid by a tenant for the use or occupancy of premises,” and “taxable premises” as “any premises in the city occupied, used or intended to be occupied or used for the purpose of carrying on or exercising any trade, business, profession, vocation or commercial activity.” An administrative rule defines “taxable premises” to include advertising signs on top or outside of buildings or otherwise unoccupied land.

As summarized by the Administrative Law Judge, the case hinged on whether the contracts between the production companies and the billboard owners were “simply about providing advertising services … or whether these contracts granted [the taxpayers] the use of the [billboards].” The ALJ ultimately agreed with the production companies that the payments were for advertising services, not “rent” for the use or occupancy of real property. In examining the contracts, the ALJ found that the billboard companies retained possession and control of the billboard structures, selected and managed the locations, installed the copy, and handled all maintenance and operational decisions. The production companies had no physical or virtual access to the billboard space and could not independently enter or control the premises.

The ALJ distinguished these facts from prior cases cited by the Department of Finance in which the payors clearly had access to, and a degree of control over, the underlying premises (such as garages, heliports, or sports facilities). In contrast, the production companies here purchased advertising services delivered via billboards owned and controlled by the billboard companies. The production companies did not have a lease, license, or other agreement granting them use or occupy the billboard space, meaning the payments did not qualify as “rent” for CRT purposes. Accordingly, the ALJ cancelled the Notices of Determination, holding that the billboard advertising payments at issue were not subject to the New York City CRT. For additional questions on In re The Phantom Company LP or other questions on the CRT or New York City indirect tax matters, please reach out to Judy Cheng and Jenn White. 

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The Ohio Board of Tax Appeals (BTA) has issued its ruling in Cincinnati Federal Savings & Loan v. Harris, following a remand of the case from the Ohio Supreme Court in 2022. The matter involved the taxpayer’s claim for a refund of sales tax paid on certain bank account processing services it purchased. The Ohio Supreme Court had determined that the BTA, in its first review of the matter, did not apply the “true object” test correctly when evaluating whether the services the taxpayer purchased from a financial technology provider were properly characterized as taxable automatic data processing (ADP) and electronic information services (EIS), or as nontaxable personal or professional services. On remand, the BTA reviewed testimony from multiple witnesses and the underlying contracts and invoices to determine the true object of the purchase.

The BTA concluded that the true object of the contracts was to obtain daily, real‑time, automated access to its account and transactional data that was processed by and stored on the provider’s systems. The record showed that the provider’s role was automated, there was no ongoing personal or professional review of the processed data and accounts. The BTA found that these services met statutory definitions of taxable ADP and EIS and did not amount to separately provided personal or professional services. Any software “tweaking” or parameter changes to the software were incidental to the core ADP and EIS services. Accordingly, the BTA affirmed the Tax Commissioner’s decision and denied the refund claim. For further questions regarding this case or other Ohio tax matters, please contact Dave Perry. 

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Oklahoma recently enacted House Bill 1371, which creates a special process for unpaid mineral proceeds and accrued interest as an alternative to the state’s general unclaimed property rules. The new rules become effective November 1, 2026; they make the following changes to the process for unclaimed mineral proceeds. 

• The law establishes a minimum timing rule. There can be no requirement that mineral interest proceeds be reported or remitted as unclaimed property earlier than six months after the date of first sale from the applicable well.
• The dormancy period for mineral proceeds will be 36 months, rather than the general five‑year period that applies to most other intangible property. Unpaid mineral proceeds that remain with the payor and are not otherwise remitted to a newly formed “Mineral Owners’ Fund” are presumed abandoned 36 months after they were first due under the oil and gas law and must be reported and remitted as unclaimed property.
• The State Treasurer is required to establish a new escrow account, the Mineral Owners’ Fund, in the state treasury. A payor may remit mineral proceeds that remain unpaid for 36 months after they first became due, when the payor has had contact with the owner, to this Fund instead of including them in its traditional unclaimed property report.
• Upon the transfer of an owner’s proceeds and any accrued interest to the Fund, the payor must send written notice to the last-known address of the owner legally entitled to proceeds informing the owner such proceeds were remitted to the Fund and identifying the statutory basis for the remittance. For such funds, owners must claim their funds through the Treasurer’s Mineral Owners’ Fund process rather than through the unclaimed property claims process.

For questions regarding HB 1371, please contact Will King, Karen Anderson, or another professional of the KPMG Unclaimed Property practice.

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A pair of bills signed into law in Arkansas reduce personal and corporate income tax rates. For individuals, for years beginning on or after January 1, 2026, the bill creates a revised graduated rate structure for taxable income of $94,700 or less, with the rates ranging from 0 to 3.7 percent. For individuals with more than $94,700 in taxable income a separate two-tier rate table applies. For these taxpayers, all taxable income of $4,700 or more will be taxed at 3.7 percent, and income below that at 2 percent. For corporations, the bill also revises the graduated rate structure and reduces the top corporate tax rate from 4.3 percent to 4.1 percent; it is effective for years beginning on or after January 1, 2027. Contact Asad Markatia with questions about H.B. 1001 and S.B. 1.

A Hawaii bill currently before Governor Green would establish a new personal income tax bracket for household taxable income exceeding $1 million. For tax years beginning after December 31, 2026, such income would be taxed at a rate of 13 percent (compared to the current highest personal income tax rate of 11 percent.) Contact Julie Quick with questions about S.B. 3125.

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As state legislative sessions begin to wind down, more states have issued guidance on conformity to the Internal Revenue Code (IRC) in the wake of One Big Beautiful Bill Act (P.L. 119-21) (OB3).

Hawaii: Both chambers of the Hawaii Legislature recently passed HB 2329, which would update the state’s conformity to the IRC. The bill would update the fixed date of conformity to the IRC as amended as of December 31, 2025. Additionally, the bill would decouple from IRC section 174A (full expensing of domestic research and experimental expenses) and IRC section 168(n) (bonus depreciation for qualified production property). As it relates to domestic research and experimental expenses, Hawaii would instead conform to IRC section 174 as those provisions existed on December 31, 2024 (i.e., the TCJA version). HB 2329 is currently pending signature from Governor Green, and if signed, would be effective for tax years beginning after December 31, 2025. Please contact Julie Quick and Reid Okimoto with questions about HB 2329.

Arizona: Governor Hobbs has once again vetoed a bill which would update the state’s conformity to the IRC for tax year 2025. Earlier this year, Governor Hobbs also vetoed two similar bills put forth by the Arizona Legislature. [Please see our TWIST of Jan. 26, 2026 and our TWIST of Feb. 23, 2026 for additional details.] Like the previous bills vetoed by the Governor, the most recent conformity bill would have updated the state’s fixed date of conformity to January 1, 2026 with specific language to incorporate provisions that became retroactively effective in 2025, thus conforming the state to all the provisions of OB3. Please contact Alexander Townsend and Ashley De Rada with questions about HB 4152, and ongoing conformity developments in Arizona.

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In response to the federal phase-out of the penny, states are continuing to provide guidance for taxpayers on handling the application of sales tax to transactions that require rounding because of the inability to make exact change. We will continue to track these through TWIST, providing a list of the states as well as links to where you can find the direct guidance.

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