2026 is shaping up to be a fascinating year for companies filing income tax returns in multiple states. States are still in the process of modifying and finalizing their One Big Beautiful Bill Act (“OBBBA”) conformity provisions, all while trying to understand the monetary impacts of that significant legislation. At the same time, states are looking to raise revenues while simultaneously easing tax burdens for their resident taxpayers. Here are five topics to watch as we head into the final quarter of 2026.
Among income tax compliance challenges, OBBBA conformity has become the primary focus of taxpayers and tax preparers. A company’s state tax position can no longer be determined by a single conformity chart. Determining state adjustments requires a deeper state-by-state analysis that spans all the major tax provisions, including §163(j), §168(k), §168(n), §174 and §174A. Further, in some states, individual and corporate tax conformity can differ, so it is also critical to review conformity guidance by specific tax type.
Public Law 86-272 is a long-standing Federal law that protects a company from a state’s net income tax if its only activity in the state is the solicitation of sales of tangible personal property, and orders are approved and fulfilled from outside the state. Over the past few years, we have seen the states become more aggressive in their interpretation and enforcement of P.L. 86-272. The primary point of dispute is around internet sales activities, such as website chat features and non-solicitation cookies. These technological advancements were not available to businesses when P.L. 86-272 was enacted in 1959. Sellers of tangible personal property should regularly evaluate their income tax nexus positions and review their website and app functions on a state-by-state basis.
We continue to see state income tax cases around the question: business or nonbusiness income? States are closely reviewing large dollar transactions and gains to determine tax treatment. In recently decided Hudson v. United States Beef Corporation (2026 Ark. 63), the Arkansas Supreme Court ruled that the gain from the sale of a complete business liquidation was nonbusiness income allocable to the taxpayer’s commercial domicile. In Ohio, we continue to see cases that involve the sale of an interest in a business, particularly those involving the sale of an equity interest in a C corporation. Additionally, in Ohio, there is a new deduction for capital gains from the sale of an ownership interest in a business. This deduction is allowed for taxable years beginning in and after 2026 and should be impactful to Ohio taxpayers.
The OBBBA raised the individual SALT deduction cap to $40,000 ($20,000 for married filing separately) for 2025, subject to a phase-down once modified AGI exceeds $500,000. For 2026, the cap is $40,400 ($20,200) with a modified AGI threshold of $505,000. The higher SALT cap does change the value of pass-through entity tax (PTET) elections. However, these elections are still valuable and remain attractive for higher-income pass-through entity owners. Tax planning and modeling are an effective way for businesses to determine which PTET elections will be most beneficial for 2026.
Over the past few years, we have seen a general movement toward lower and flat individual income tax rates and lower corporate income tax rates. However, there are caveats to that movement, including several new or extended surcharges on high-income taxpayers. There have been many headlines in 2026 regarding Washington’s Millionaires Tax and California’s Billionaire Tax. States will continue to monitor these developments, as well as their fiscal impacts in those states, for a potential roadmap for the future.
The final quarter of 2026 brings uncertainty with the midterm elections and several key tax issues on the November ballot nationwide. GBQ’s State and Local Tax team continues to monitor these developments. If you would like to learn more about any of the above topics, reach out to Sara Goldhardt or John Petzinger.