State and Local Business Tax Insights and Updates for New York, Texas, and Virginia4 Min Read

New York

New York Decouples from Federal Treatment of R&E Expenditures and Accelerated Depreciation for Qualified Production Property

Effective for tax years beginning on or after Jan. 1, 2025, New York has decoupled from federal provisions allowing accelerated depreciation for qualified production property and from the federal treatment of research and experimental expenditures. As a result, taxpayers must make specific additions, subtractions, and other modifications when computing New York taxable income. The Tax and Finance Department notice provides reporting instructions for individuals, partnerships, corporations, S corporation shareholders, and other affected taxpayers and explains how the required state adjustments should be reflected on 2025 New York tax returns. The guidance announces New York’s departure from selected federal tax provisions and establishes compliance requirements for affected taxpayers, effective for the 2025 tax year.

If taxpayers have already filed their 2025 NY returns, an amended return must be filed to report the changes noted above.

Penalty and interest relief are available for taxpayers who report the modifications on a timely filed or amended return.

Texas

Texas Comptroller Amends Rules Regarding Cost of Goods Sold

The Texas Comptroller of Public Accounts adopted amendments to regulations on the calculation of cost of goods sold for franchise tax margin purposes. The regulations implement several legislative changes, including provisions for expenses paid with qualifying broadband deployment grants and COVID-19 relief funds, and clarifications for television and radio broadcasting entities. The amendments take effect June 21, 2026 and include that beginning with the 2026 franchise tax report, the regulations allow taxable entities to use current-year federal tax law instead of the 2007 Internal Revenue Code when determining allowable depreciation amounts from federal tax returns, and provide for a one-time net depreciation adjustment on the 2026 report for qualifying assets placed in service prior to the 2025 accounting period.

Virginia

Virginia Approves First-of-Its-Kind Energy Tax on Data Centers

Virginia has finalized a two-year budget that creates a first-of-its-kind statewide electricity consumption tax on data centers while preserving the industry’s existing sales and use tax exemption. From July 1, 2026, through June 30, 2028, data centers will be assessed a $0.011-per-kilowatt-hour fee on electricity consumed, with projected annual revenue of up to $600 million. The measure reflects growing scrutiny of data centers’ impact on electricity demand, infrastructure costs, and local power costs in Virginia, the nation’s largest data center market, while giving lawmakers additional time to study whether broader tax policy changes are needed.

Illinois

Illinois DOR Clarifies Remote Retailer Sales Tax Thresholds

The Illinois Department of Revenue (DOR) issued a general information letter regarding remote retailer sales tax obligations. DOR clarified that effective Jan. 1, the 200-transaction threshold test no longer applies to determine whether a remote retailer is engaged in the occupation of selling tangible personal property at retail in Illinois. Under the new rule, the only threshold for determining sales tax obligations for remote retailers is whether the retailer has cumulative gross receipts of $100,000 or more from sales of tangible personal property to purchasers in Illinois during the preceding 12-month period.