The Washington Court of Appeals held that, for purposes of the Business and Occupation (B&O) Tax, a law firm’s gross income from insurance litigation services were properly sourced to the state where litigation occurred. A law firm with offices in Washington and Oregon that provides insurance defense litigation sought a refund of B&O Tax on the basis that its insurance litigation and defense service receipts were apportionable to the insurance company customers’ legal departments’ billing addresses, rather than the state where the litigation occurred. The taxpayer appealed the Washington Department of Revenue’s denial of its refund request.

To compute the B&O Tax, taxpayers must apportion their gross income such that the tax applies to only gross income apportioned to Washington. In 2010, the Washington legislature changed the method of apportioning gross income from services from where the services were performed to where the customers received the services’ benefit. The court held that the gross income related to Washington litigation was properly soured to “where the case is litigated” (i.e., Washington) because the benefit of the litigation is “immediately realized upon disposition of the case,” not “once the legal department of the insurance company is made aware of the results.”

Betts Patterson & Mines, PS v. Washington Department of Revenue, No. 86756-3-I (Wash. Ct. App. Nov. 3, 2025) (unpublished).

On January 20, 2026, New York Governor Kathy Hochul released her FY 2027 Executive Budget proposal. Unlike prior years’ proposals seeking sweeping tax reforms, the FY 2027 proposal contains more narrowly targeted changes to New York’s Tax Law. A focus of the proposal is the decoupling from certain Internal Revenue Code provisions enacted by H.R. 1 (OB3), as well as maintaining policies from prior years.

The Governor’s proposal decouples from OB3’s provisions allowing immediate expensing for qualified production property, as provided in IRC §§ 168(a) and (n), and domestic research and experimental (R&E) expenditures under IRC § 174A.  When calculating entire net income for tax years beginning on or after January 1, 2025, the Executive Budget proposes to maintain New York’s current treatment of depreciation for qualified production property and allows deductions for both qualifying foreign and domestic R&E expenditures over the same 5-year term.  In contrast, New York does not conform to IRC § 168(k), which federally provides for accelerated depreciation of certain qualified property in the year it was placed in service, and, instead, provides for depreciation deductions consistent with the iteration of IRC § 167 in effect as if the property were purchased on September 10, 2001.  Per the revenue estimations featured in the Executive Budget Briefing Book, the Governor’s proposal to decouple from OB3 is estimated to save the state $1.68 billion during FY 2027.

The New York State legislature controls New York City’s corporate franchise tax law, so the Executive Budget likewise proposes to decouple New York City’s corporation franchise tax’s entire net income computation from OB3.  Under the Executive Budget, New York City would (i) allow both foreign and domestic R&E expenditures to be deducted over a 5-year period, (ii) maintain the City’s current treatment of qualified production property, business interest expenses, and depreciable business assets, and (iii) decouple from OB3’s deduction limit increase for qualifying equipment and software purchases.

Governor Hochul’s FY 2027 Executive Budget also extended the current Article 9-A Franchise Tax rates for three more years, declining New York City Mayor Mamdani’s invitation to raise the state’s corporate franchise tax rates.  The FY 2022 budget established a temporary tax rate for corporations with business income bases over $5 million and reinstated the capital base tax rate in the same year.  These rates were also extended in the FY 2024 budget.  In addition to maintaining the current corporation franchise tax rates, the Executive Budget also did not change the state’s personal income tax rates.

Other notable components of the proposal include:

  • Eliminating state income taxes on tipped wages, consistent with OB3 and the federal level elimination of income tax on tipped wages.  Here, employees will not be subject to income tax on tips up to $25,000 per taxable year for single filers earning $150,0000, and joint filers earning up to $300,000;
  • Establishing a sales tax exemption on the retail sale of electricity by commercial EV charging stations; and
  • Preserving the deductibility of charitable contributions to certain tax-exempt entities at risk of losing their IRC § 501(c)(3) tax-exempt status.

Governor Hochul’s Executive Budget is only the first step in the New York budget process. The legislature will now analyze the Governor’s budget, hold public hearings, and seek out further information from state agencies.  After such review, both houses of the legislature must reach an agreement on spending and revenue recommendations that may result in an amendment of the Governor’s proposed appropriations bill and other related legislation.

It is possible that some significant tax proposals could arise during this process. New York’s fiscal year begins April 1, 2026, thus, the timeline for the legislature to review and approve the Executive Budget is limited. The Eversheds Sutherland SALT team will continue to monitor the Executive Budget and keep you apprised of any relevant updates as it progresses through the legislature.

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: The Maine Taxation Committee recently held a hearing for a bill that would impose what type of income tax reporting requirement for certain corporations?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

We’re pleased to share our recap of 2025’s state and local tax highlights, as featured in Tax Notes State.

This year’s Most Interesting State Tax (MIST) developments showcase the expanding scope of state income taxation, new constitutional tests, and the broadening reach of digital goods taxation.

Curious about what’s ahead for SALT in 2026? We’re watching closely.

Read the full article here.

In this episode of the SALT Shaker Podcast, Partner Jeff Friedman takes over as host and sits down with newly promoted Partners Jeremy Gove and Chelsea Marmor to celebrate their career milestones and reflect on the journeys that brought them here.

Jeff guides Chelsea and Jeremy through a conversation about their distinct professional paths, the value of in‑person collaboration, and the satisfaction that comes from navigating complex client matters. They also look ahead, offering their perspectives on the developments they expect will reshape the practice of state and local tax in the years to come.

The episode closes with the classic overrated/underrated segment – this time tackling award shows. Are they overrated or underrated?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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The New York Tax Appeals Tribunal affirmed its prior decision, upholding an Administrative Law Judge’s issuance of a subpoena requiring three Department employees to appear, and for the Department to produce documents for in-camera review, which included third-party tax information. The Tribunal rejected the Department’s request for re-argument because the Department presented no new issues, only re-asserting that the Tribunal misapplied its legal authority in compelling the testimony of the Department employees and ordering the production of privileged documents. While the documents and testimony include third-party tax information, the Tribunal found that Administrative Law Judges have historically allowed in-camera review of materials and documents when determining if the Department’s claim of privilege is warranted.

In re 123 LINDEN, LLC, Nos. 830249, 830866, (N.Y. Tax App. Trib., Oct. 30, 2025).

The Washington Court of Appeals held that a Washington-based consulting firm was not entitled to a refund of Washington Business and Occupation (B&O) Tax because the taxpayer failed to show that the benefit of services provided to its client were received outside of Washington.

The taxpayer provided technology information services to a number of software companies, such as “translating client websites into foreign languages, creating and updating customer-facing websites, providing support for product launches in foreign markets, merchandising support, and website management.” During the tax years at issue, over 85% of the taxpayer’s gross income was attributable to services performed for one client. The taxpayer and its client entered into a contract outlining their business relationship; however, certain assignments were specified in statements of work. For taxable years beginning January 2011 through March 2015, the taxpayer remitted nearly $455,000 in B&O Tax. The taxpayer sought a nearly $404,000 refund, arguing that for the taxable years at issue, the Department failed to apportion its gross income properly. The taxpayer based its refund claim on the “reasonable proportional method” of attributing receipts under Washington Admin. Code 458-20-19402, which treats Washington’s single sales factor apportionment statute, Wash. Rev. Code Ann. § 82.04.462. On this basis, the taxpayer apportioned its revenue based on internet usage data.

The Audit Division for the Washington Department of Revenue requested and obtained further information on the statements of work, concluding that the taxpayer’s services rendered to its client related to “localization services” provided to a specific team located in Washington. The auditors determined that the taxpayer’s client received the benefit of such localization services in Washington, and, as a result, the services rendered were subject to tax in Washington. The taxpayer sought review at the Washington Board of Tax Appeals, which deemed most of the localization services taxable in Washington. The taxpayer sought review at the Washington Court of Appeals.

On Appeal, the taxpayer argued that its client did not receive the benefit of the services provided in Washington, but, instead, received such benefit in every country where the client’s products were marketed, and, therefore, its numerator for Washington purposes should have been zero. The taxpayer further asserted that the Department incorrectly calculated its sales factor denominator, arguing that it had no throw out income. Note, for state corporate tax purposes, certain states may opt to “throw-out” or remove income from the sales factor denominator when such income is not subject to tax in another state, which, in effect, operates to increase a taxpayer’s apportionment percentage as a whole.

Ultimately, the Washington Court of Appeals affirmed the Board of Tax Appeal’s decision, holding that 1)  the taxpayer failed to show where its client received the benefit of its services, and, in the alternative, if the client received the benefit of the taxpayer’s services in more than one state, the taxpayer also failed to show where the client primarily received the benefit of the taxpayer’s services; and 2) the taxpayer failed to demonstrate that service receipts included in its denominator were subject to tax in another state.  

Valente Solutions, LLC v. Washington Department of Revenue, No. 87280-0-I (Wash. Ct. App. Dec. 22, 2025).

Calling all trivia fans! Don’t miss out on a chance to show off your SALT knowledge!

We will award a prize for the smartest (and fastest) participant.

This week’s question: In which state did the Court of Appeals recently rule that an online ticket seller was required to collect sales and use tax even before the state enacted its marketplace laws, because the marketplace laws were merely a “clarification rather than substantive change”?

E-mail your response to SALTonline@eversheds-sutherland.com.

The prize for the first response to today’s question is a $25 UBER Eats gift card. This week’s answer will be included in our SALT Shaker Weekly Digest, distributed on Saturday. Be sure to check back then!

The Alabama Tax Tribunal (Tribunal) determined that a wastewater treatment facility was entitled to a sales and use tax exemption for equipment purchased for use in its wastewater treatment business because the equipment was used primarily for exempt pollution control purposes.

The taxpayer, a privately owned entity that provided wastewater collection and treatment services, had previously received exemption certificates from the Alabama Department of Revenue (the Department) to purchase pollution control equipment and materials tax free (e.g., pumps, pipes, valves, fittings, etc.). been allowed to purchase equipment tax free.

In 2023, the taxpayer applied for another exemption certificate, but the Department only partially granted the request, limiting the exemption to certain specified pieces of equipment, while denying the exemption for certain materials that transported wastewater from homes and other properties to sewer lines. The taxpayer appealed the denial, and during the appeal, the Department provided a similar partial grant for the taxpayer’s 2024 exemption certificate request. 

The taxpayer argued that under both the statute and the regulation the materials were exempt devices used to control water pollution, whereas the Department asserted that the materials in question were not purchased for pollution control purposes, but were purchased to fulfill contracts with its customers as a part of the taxpayer’s profit-motivated business. The Tribunal concluded that because 1) wastewater is a form of water pollution and 2) the taxpayer’s wastewater treatment plants were built for the sole purpose of treating wastewater, the taxpayer was entitled to the full exemption certificate.  The Tribunal also noted that the regulation acknowledges that an incidental or secondary purpose does not deprive the taxpayer of the exemption.

Baldwin Cnty. Sewer Serv. LLC v. State of Alabama Dep’t of Revenue, No. S. 23-654-JP (Ala. Tax Trib. Oct. 21, 2025).

In this episode of the SALT Shaker Podcast, SALT Partners Jeremy Gove and Chelsea Marmor kick off 2026 with a lightning round of their favorite SALT issues from 2025.

They cover market-based sourcing, tax base expansions, remote worker litigation, and the classification of streaming services as tangible property. The conversation also touches on federal intervention in AI regulation, the ongoing relevance of federal limits on state taxing power, and emerging local tax trends.

This week’s overrated/underrated segment asks: Are New Year’s resolutions overrated or underrated?

For questions or comments, email SALTonline@eversheds-sutherland.com. Subscribe to receive regular updates hosted on the SALT Shaker blog.

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