State Tax Changes Taking Effect January 1, 2026

Eight states have individual income tax rate reductions taking effect on January 1, 2026: Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio, and Oklahoma. Oklahoma’s six tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. will be consolidated into three, and Ohio will transition to a flat-rate income tax, joining 14 other flat income tax states.

Montana will expand its earned income tax credit (EITC), and New York will expand its child tax credit (CTC). Alabama will expand filing and withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount the employee requests. thresholds for non-resident workers. While Ohio’s tax rate decreases in 2026, there is tightened eligibility for certain credits and exemptions. Two states—Arizona and Michigan—are updating their taxation of veterans’ pensions and social security income.

State Individual Income Tax Rate Changes

Top Marginal Rates, 2025 and 2026

Three states have corporate income tax rate reductions taking effect on January 1, 2026: Nebraska, North Carolina, and Pennsylvania.

Arkansas will continue to phase out its throwback rule, adopt market-based sourcing, and adopt an economic nexus threshold for non-resident corporations.

Delaware S corporations and partnerships will officially decouple from §168(k) and § 168(n), regarding immediate expensing for machinery and equipment and for select structures.

Louisiana will officially phase out its capital stock (franchise) tax in 2026, and Mississippi will continue a planned phase-down of its capital stock tax. Pennsylvania will begin a phased increase of the cap on net operating loss deductions.

State Corporate Income Tax Rate Changes

Top Marginal Rates, 2025 and 2026

A handful of states will be implementing meaningful changes to their sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.  bases.

Arkansas’s state sales tax on groceries has been repealed, but groceries will continue to be subject to local sales taxes. The state sales tax on groceries will be eliminated in Illinois, but counties and municipalities will be able to replace the state sales tax with their own 1 percent local sales tax on groceries. In Missouri, machinery and equipment used to provide broadband services will be exempt from state and local sales and use taxes.

Ohio repealed several sales and use tax exemptions, including loaner car rentals, refrigerated vending machine food items, items related to advertising materials, items used for providing information electronically, and qualified call center telecommunication services.

Illinois will eliminate its transaction economic nexus threshold for remote sellers, retaining just its sales threshold.

A variety of excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. changes will take effect in January. Several states will see changes in their fuel taxes, including Michigan, Minnesota, Oregon, and Utah. Residents in Michigan, New Hampshire, and Washington will all see increased motor vehicle fees. Washington’s new rental car sales tax rate will become the highest rate in the nation.

Tobacco taxes are increasing in Hawaii, Maine, and Minnesota. Maine’s tax on alternative nicotine products will increase, while Nebraska, Oregon, and Washington will impose new taxes on alternative nicotine products.

Alabama will impose a new excise tax on consumable hemp, and Tennessee will restructure its taxation of hemp-derived cannabinoids. In Maine, the excise tax on cannabis will decrease, while the sales tax on cannabis will increase. Michigan will impose a new wholesale tax on cannabis.

Prepaid wireless surcharges set to expire in California will be extended to 2031, and prepaid wireless surcharges will increase in Mississippi.

Rhode Island will begin imposing a new tax on the short-term rental of whole homes.

Various property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. relief measures will take effect with the 2026 tax year. Certain qualified veterans will be fully exempt from property taxes in Arizona. Arkansas will allow property owned by trusts or limited liability companies to qualify as a homestead for property tax exemptions for disabled veterans in certain circumstances. Missouri expanded its property tax credit for seniors. Indiana is revamping its homestead exemption; providing a new homestead credit as well as credits to qualified seniors, disabled homeowners, and disabled veterans; and allowing a new property tax deductionA tax deduction allows taxpayers to subtract certain deductible expenses and other items to reduce how much of their income is taxed, which reduces how much tax they owe. For individuals, some deductions are available to all taxpayers, while others are reserved only for taxpayers who itemize. For businesses, most business expenses are fully and immediately deductible in the year they occur, but ot for agricultural land and non-homestead property.

Under sweeping property tax changes in Montana, a tiered-rate system will go into effect for owner-occupied property, while second homes and rental properties will face a separate, higher rate.

Arizona, Indiana, and Wyoming are increasing their de minimis exemptions for business personal property, and Texas voters approved a measure to establish a new exemption.

These and other tax changes taking effect on January 1 are detailed below. Many states have routine or less notable tax changes taking effect that are not mentioned here. These include, but are not limited to, annual adjustments to income tax brackets, standard deductions, and personal exemptions; automatic formula-based changes to unemployment insurance taxes; changes in interest rates on taxes owed; administrative changes; and changes to tax credits and other narrow-based taxes or tax provisions.

Alabama Tax Changes Effective January 1, 2026

HB445 imposed strict regulations on the sale of hemp and THC products effective July 1, 2025. Effective January 1, 2026, HB445 will impose a new 10 percent excise tax on the sale of all permissible consumable hemp products.

HB379 establishes a 30-day safe harbor filing rule for non-resident employees and corresponding withholding relief for their employers beginning January 1, 2026.

Arizona Tax Changes Effective January 1, 2026

SB1749, Arizona's budget bill, contained several provisions pertaining to veterans. It made changes regarding the determination of veterans' income. As of the 2026 tax year, payments from any veterans’ pensions, not just veteran disability pensions, will be excluded from the calculation of income from all sources for the purpose of the exemption income cap.

SB1749 also included property tax provisions for veterans. The property of a veteran with a service-connected disability whose Veterans Affairs (VA) disability rating is 100 percent will now be fully exempt from property taxes. The provisions also allow the surviving spouse of a veteran with a service-connected disability whose VA disability rating is 100 percent to continue to claim the full property tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. if the spouse does not remarry and the property is used as the spouse's primary residence. Additionally, it removes the requirement that the property of a veteran with a service or nonservice-connected disability be valued below the statutory property assessment limit of $31,347 to qualify for the exemption.

Under SB1749, the total amount of adoption expenses, including unreimbursed medical and hospital costs, adoption counseling, legal fees, and agency fees, that can be subtracted to determine Arizona adjusted gross incomeFor individuals, gross income is the total of all income received from any source before taxes or deductions. It includes wages, salaries, tips, interest, dividends, capital gains, rental income, alimony, pensions, and other forms of income. For businesses, gross income (or gross profit) is the sum of total receipts or sales minus the cost of goods sold (COGS)—the direct costs of producing goods will increase from $3,000 in 2025 to $5,000 for a single individual or head of household and $10,000 for a married couple filing a joint return in 2026.

SB1749 also reduces tax and compliance burdens for many Arizona businesses as the business personal property tax exemption increases from $269,905 to $500,000 in 2026.

Arkansas Tax Changes Effective January 1, 2026

Under Act 485 of 2023, Arkansas is phasing out its throwback rule in an attempt to encourage investment in Arkansas by multistate enterprises. For tax year 2026, throwback sales are sourced 57.13 percent within Arkansas and 42.87 percent outside of Arkansas, compared to 71.42 percent within Arkansas and 28.58 percent outside of Arkansas in 2025. Sales are to be sourced 100 percent outside of Arkansas as of January 1, 2030.

2025’s SB567 adopts market-based sourcing provisions in lieu of the current cost-of-performance (COP) methodology for receipts other than tangible personal property (services and intangibles) for purposes of the Arkansas corporate income tax sales factor. Under COP, receipts are sourced to Arkansas if the income-producing activities, measured by costs, are performed in Arkansas. Market-based sourcing shifts the focus from where the service is performed to where the customer receives the benefit (the market).

Additionally, SB567 adopts an economic nexus threshold providing that non-resident corporations without a physical presence in the state will be subject to the state’s corporate income tax only if Arkansas-sourced receipts exceed $250,000 annually.

Under HB1685, the Grocery Tax Relief Act, food and food ingredients will be exempt from state sales tax effective January 1, 2026, but these items will remain subject to local sales tax.

HB1809 allows for property owned by a trust or a limited liability company to qualify as a homestead for purposes of the property tax exemption for disabled veterans and surviving spouses and minor dependent children of disabled veterans in certain circumstances beginning in 2026.

California Tax Changes Effective January 1, 2026

SB1215 from 2022 imposes a new covered battery-embedded (CBE) waste recycling fee beginning January 1, 2026. A CBE product is one that contains a battery that is not designed to be easily removed by the user with common household tools. Smartphones are expected to represent over 65 percent of the new revenue. The fee is imposed on consumers and collected by retailers at the time of the retail sale or lease of a CBE product and has been set at 1.5 percent of the retail sale price up to $15 per product. Manufacturers will be required to send notices to all California retailers.

AB330 delays the sunset of the state’s Local Prepaid Mobile Telephony Services (MTS) Collection Act that was set to expire on January 1, 2026, to January 1, 2031. The act requires retailers to collect surcharges for local emergency services, such as 911 and 988.

Colorado Tax Changes Effective January 1, 2026

Colorado’s HB25-1296 ends the income tax credit for business personal property taxes paid, effective as of the 2026 tax year.

HB25B-1001 permanently extends the requirement that taxpayers add back their federal section 199A qualified business asset investment (QBAI) deduction for small business income when calculating their Colorado taxable income. Because of its federal taxable income starting point, Colorado would have incorporated this Tax Cuts and Jobs Act (TCJA) provision absent its addback, whereas it was never part of the tax code in most states.

HB25B-1002 changes how Colorado treats certain foreign income beginning in 2026. The state expanded its list of tax havens to include Hong Kong, Ireland, Liechtenstein, the Netherlands, and Singapore. The law also requires corporations to add back the federal deduction for foreign-derived income. Originally created under the TCJA as the foreign-derived intangible income (FDII) deduction and renamed the foreign-derived deduction-eligible income (FDDEI) deduction under the One Big Beautiful Bill Act (OBBBA), the provision will no longer reduce Colorado taxable income starting January 1, 2026.

Connecticut Tax Changes Effective January 1, 2026

Connecticut’s budget bill, HB7287, contained income tax provisions beginning January 1, 2026. Eligible farmers and corporations will be entitled to a 20 percent refundable investment tax credit against corporate and personal income tax. An eligible farmer can receive the 20 percent investment tax credit on machinery and equipment acquired by purchase on or after January 1, 2026, as well as buildings and structural components of buildings that meet certain eligibility requirements. Federal gross income from farming must be at least two-thirds of excess federal gross income to qualify for the credit.

The bill also establishes a $500 income tax credit for any taxpayer who owns a state-licensed “family childcare home."  If the credit exceeds the eligible taxpayer’s income tax liability in a given taxable year, the excess amount is treated as an overpayment and is to be refunded without interest.

HB7287 extends the 10 percent corporation business tax surcharge (which increases the corporate income tax rate) for an additional three years, to the 2026 through 2028 tax years. However, under the act, the surcharge that applies to the capital base (capital stock) tax component of the corporation business tax applies only for the 2026 and 2027 tax years because that component is scheduled to be eliminated starting in 2028.

Delaware Tax Changes Effective January 1, 2026

Delaware passed HB255, which decouples from some of the expensing provisions of the OBBBA, particularly § 168(k), which allows for permanent full expensingFull expensing allows businesses to immediately deduct the full cost of certain investments in new or improved technology, equipment, or buildings. It alleviates a bias in the tax code and incentivizes companies to invest more, which, in the long run, raises worker productivity, boosts wages, and creates more jobs. for machinery and equipment, as well as § 168(n), which allows for full expensing for qualified production property. While the decoupling from §§ 168(k) and 168(n) is effective for tax year 2025 for C corporations, the decoupling does not take effect for S corporations and partnerships until January 1, 2026.

The Hazardous Substance Cleanup Act tax is levied on the gross receipts from sales of petroleum or petroleum products. The rate of the tax is adjusted automatically in proportion to collections in a lookback period of the previous year relative to $15 million. Beginning January 1, 2026, the tax will increase from 1.12 percent to 1.1902 percent.

Florida Tax Changes Effective January 1, 2026

Florida’s HB7031 included several tax provisions that go into effect on January 1, 2026. It created the Home Away from Home Tax Credit program to provide $13 million in annual tax credits to Florida businesses that contribute to charitable organizations that house families of critically ill children at little or no cost to the family while traveling so the child can receive care. Credits can be applied to corporate income, insurance premiums, or beverage taxes.

HB7031 also amended the definition of “corporation” so that charitable trusts are no longer treated as taxable corporations for Florida corporate income tax purposes.

Additionally, under HB7031, jet fuel, undyed kerosene, and aviation fuel will no longer be subject to the tax of 4.27 cents per gallon.

New language in HB7031 treats certain leased flight simulation training devices used in pilot training (where a government entity ultimately becomes the owner under the lease/contract) as exempt from ad valorem taxation.

Hawaii Tax Changes Effective January 1, 2026

SB1396 will increase the state’s transient accommodations tax (TAT) from 10.25 percent to 11 percent beginning January 1, 2026. The 0.75 percent additional tax, the "green fee," will be used to fund efforts to respond to climate change-related disasters and environmental improvement efforts. It applies to hotels, short-term vacation rentals, timeshares, and similar accommodations rented for less than 180 consecutive days, as well as cruise ship fares.

HB441 increases the cigarette tax from $3.20 to $3.60 per pack, effective January 1, 2026.

Idaho Tax Changes Effective January 1, 2026

HB329 was signed into law on March 27, 2025. This proposed legislation would replace the property tax on electric utilities with a tax based on kilowatt hours sold, and it would replace the property tax on gas companies with a tax based on therms (a measurement equivalent to 100,000 BTUs) sold effective January 1, 2026. Tax proceeds will be distributed to counties and other taxing districts based on the number of line miles in each taxing district. While property owners will see a slight reduction in their property tax bills, they will see a new line item on their utility bills.

Illinois Tax Changes Effective January 1, 2026

Illinois’s 1 percent statewide sales tax on groceries will be eliminated, effective January 1, 2026, as a result of H.B. 3144, enacted in August 2024. However, many counties and municipalities have decided to replace the statewide sales tax on groceries with their own local levies, which is permitted by the law, with many of those taxes taking effect on the same date that the statewide tax will be eliminated.

Additionally, effective January 1, 2026, Illinois will eliminate its 200-transaction economic nexus threshold for remote sellers, retaining just its $100,000 sales threshold, as a result of H.B. 2755, enacted in June 2025.

Indiana Tax Changes Effective January 1, 2026

Indiana’s flat-rate individual income tax will decrease from 3 percent to 2.95 percent as of January 1, 2026, because of legislation passed in 2023 (HB1001), with a further rate reduction to 2.9 percent on January 1, 2027. On April 16, 2025, SB451 was signed into law, representing a continued commitment to reducing tax burdens for its residents by lowering its flat individual income tax rate to a potential 2.55 percent in 0.05 percent increments in even-numbered years beginning January 1, 2030, provided revenue thresholds are met.

HB1427 increases the business personal property tax exemption from $80,000 to $2 million.

SB1 phases down the current standard homestead deduction (currently $48,000 or 60 percent of assessed value, whichever is less) to $40,000 in 2026, with a phaseout in 2030. This phaseout reflects a transition to the supplemental homestead deduction, which increases from the current 35 percent of assessed value to 43 percent in 2026, further increasing to 66.7 percent through 2031.

SB1 provides for an additional homestead credit equal to 10 percent of an owner’s property tax bill up to $300 beginning with the 2026 tax year.

SB1 also provides for new stackable credits of $150 for qualifying fixed-income seniors, $125 for blind and disabled homeowners, and $250 for disabled veterans beginning with the 2026 tax year.

Additionally, SB1 adds a new property tax deduction for agricultural land and non-homestead property. For 2026, the rate will be 7 percent of assessed value, with a continued phase-up occurring through 2031, up to 33.3 percent.

Iowa Tax Changes Effective January 1, 2026

SF605 provides that winnings from sports wagering are considered earned income. The bill requires the withholding of state income tax from such winnings by payors if federal income tax withholding is also required under the Internal Revenue Code.

The state's franchise tax is imposed on the income of state banks, national banking associations, trust companies, federally and state-chartered savings and loan associations, financial institutions chartered by the Federal Home Loan Bank Board, and production credit associations. SF2367, passed in 2022, phases down the original rate of 5 percent to a rate of 3.8 percent in 2026 and to a permanent rate of 3.5 percent for tax year 2027 and beyond.

Additionally, pass-through entities are required to remit Iowa composite tax on their nonresident members’ Iowa-source income from the pass-through entity. This composite tax represents Iowa income or franchise tax paid on behalf of the nonresident member, and each nonresident member receives a refundable Iowa tax credit for the tax paid. Like the franchise tax, the composite tax is set to be reduced to 3.8 percent for tax year 2026 and then 3.5 percent for tax year 2027 and beyond.

Kansas Tax Changes Effective January 1, 2026

As of 2026, Kansas will no longer levy statewide property taxes to finance the Kansas educational building fund or the state institutions building fund. Instead, beginning in FY 2027, these expenses will be financed through the state general fund as a result of S.B. 35, enacted in April 2025.

Kentucky Tax Changes Effective January 1, 2026

Kentucky’s individual income tax rate will decrease from 4 to 3.5 percent on New Year’s Day as a result of tax triggers originally adopted in 2022. The triggered rate reduction to 3.5 percent was proactively approved by the legislature and governor with the enactment of H.B. 1 in February 2025, since Kentucky’s triggers require ratification at each stage.

HB 5, passed in 2023, provides a partial exemption from state and local property taxes on distilled spirits inventory beginning January 1, 2026. This is set to increase every year through 2043 until the tax is entirely phased out.

Louisiana Tax Changes Effective January 1, 2026

HB3 repeals Louisiana’s capital stock (franchise) tax effective January 1, 2026.

Louisiana has subjected S corporations to the corporate income tax but excluded income passed through to the shareholder, which then became taxable at the personal income tax rate of 3 percent. Effective with the 2026 tax year, HB567 recognizes S corporations as pass-through entities in the same manner as the federal government, with all income passed through to the shareholder. This bill also extends the filing and withholding threshold for nonresident workers from 25 days to 30 days.

HB325 established a 50 cent cap on the tobacco tax on premium cigars beginning January 1, 2026, though it is set to end December 31, 2027.

Maine Tax Changes Effective January 1, 2026

LD936 reforms Maine’s mining excise tax laws by establishing a new excise tax calculation for mining companies, which will now be calculated as 5 percent of their gross process effective January 1, 2026.

Maine’s budget bill, LD210, includes several excise tax changes. Effective January 5, 2026, the tax on cigarettes will increase from $2.00 to $3.50 per pack; the tax on smokeless tobacco will increase from $2.02 to $3.54 per package; and the tax on other nicotine products, including vapor, will increase from 43 percent to 75 percent of the cost price.

Additionally, LD210 makes changes to the taxation of cannabis. The excise taxes on adult-use cannabis will decrease on January 1, 2026. The per pound tax on cannabis flower will decrease from $335 to $223, the tax per pound of cannabis trim will decrease from $94 to $63, the tax on immature cannabis plants or seedlings will decrease from $1.50 to $1.00, the tax on mature cannabis plants will decrease from $35 to $23, and the tax on cannabis seeds will decrease from 30 cents to 20 cents. At the same time, the sales tax on cannabis will increase from 10 percent to 14 percent.

Maryland Tax Changes Effective January 1, 2026

Several provisions in Maryland's budget bill, HB352, have already taken effect, but on January 1, 2026, Marylanders will pay an increased tire recycling fee of $1 per tire in addition to a new $5 fee on all new tires sold as part of new or used motor vehicles, trailers, farm implements, and similar machinery. The fees will be adjusted every two years for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin.

Michigan Tax Changes Effective January 1, 2026

On October 7, 2025, Michigan’s fiscal year 2025-2026 budget bill, HB4961, was signed into law. The finalized budget decouples from several provisions of the OBBBA to which Michigan had previously been conformed, including § 168(n), § 174, and § 179. Michigan's allowable bonus depreciationDepreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income. Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing), depreciation requires deductions to be taken over time, reducing their value and disco will continue to phase out over the following two years, meaning only 20 percent bonus depreciation is available for 2026 machinery and equipment purchases, and no bonus depreciation is available in 2027 and thereafter.

The bill also creates temporary state income tax deductions from Michigan's 4.25 percent personal income tax rate for tipped income and overtime pay for tax years 2026 through 2028.

Additionally, HB4961 reverses the requirement to offset the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. Taxpayers who take the standard deduction cannot also itemize their deductions; it serves as an alternative. by the deduction taken for Social Security income for taxpayers born after 1952 who have reached the age of 67. This reversal applies for tax years 2026 through 2028. The result is that these taxpayers may receive the benefit of both the standard deduction and the Social Security deduction in tax years 2026 through 2028.

A package of four bills was signed into law that changes how Michigan taxes gasoline and diesel beginning January 1, 2026. HB4180 amends the General Sales Tax Act to exempt motor fuel from state sales tax. HB4181 amends the Streamlined Sales and Use Tax Revenue Equalization Act to exempt interstate motor carriers from the state sales tax on motor fuels and alternative fuels. HB4182 amends the Use Tax Act and exempts motor fuel from the state use tax. HB4183 amends the Motor Fuel Tax Act to increase the tax on gasoline and diesel fuel from 31 cents per gallon to 51 cents per gallon, with adjustments for inflation in future years. Under Michigan state law, plug-in hybrid electric vehicle and electric vehicle registration fees increase by $2.50 and $5.00, respectively, for each 1 cent increase above 19 cents per gallon.

HB4951 takes effect on January 1, 2026, and imposes a new 24 percent wholesale tax on cannabis.

Minnesota Tax Changes Effective January 1, 2026

Excise taxes on fuel will increase on January 1, 2026. For gasoline and diesel, the tax will increase from 31.8 to 32.6 cents per gallon. Alternative fuels will also see corresponding tax increases.

The Petroleum Tax Tank Cleanup Fee is set to expire temporarily on January 1, 2026, as that is when the current four-month period ends. This 2 cents per gallon fee will no longer be collected, but will return for another four-month period when the Petroleum Tank Fund falls below $4 million again.

The sales tax on cigarettes will increase from 78.6 cents per pack to 84.0 cents per pack of 20 cigarettes on January 1, 2026. The additional $3.04 per pack excise tax will not change, bringing the total tax per pack from $3.826 to $3.880.

Mississippi Tax Changes Effective January 1, 2026

Mississippi will implement several tax changes impacting individual taxpayers and businesses. The state will make a final reduction as part of a scheduled multiyear phase-down of its individual income tax from 4.4 percent in 2025 to 4 percent as of January 1, 2026. Future rate reductions are possible under separately enacted tax triggers.

Mississippi is also phasing out its economically harmful corporate franchise tax, a capital stock tax, which affects firms with significant property held within Mississippi. The 2025 corporate franchise tax rate of 75 cents per $1,000 in excess capital will decrease to 50 cents per $1,000 of capital in excess of $100,000 as of January 1, 2026. This reduction continues the gradual elimination of the tax, with full repeal scheduled for tax years beginning on or after January 1, 2028.

SB2835 levies an emergency communications service charge for prepaid wireless telecommunications services purchased in a retail transaction. The current prepaid wireless telecommunications charge of $1.00 per transaction is repealed as of December 31, 2025, and is replaced with a new $2.00 per transaction fee beginning with retail transactions occurring on or after January 1, 2026.

Missouri Tax Changes Effective January 1, 2026

HB594, passed in 2025, made Missouri the first income-taxing state in the nation to repeal its tax on capital gains, effective January 1, 2025. The passage of HB754 additionally repeals the taxation of capital gains on the sale or exchange of specie (currency made of precious metals such as gold and silver) as of January 1, 2026.

Additionally, HB754 establishes that Missouri resident irrevocable trusts and estates will no longer be subject to state income tax on income (ordinary and capital gains) that is not sourced from Missouri.

Numerous changes to the Senior Property Tax Credit are included in HB594. Those changes include increases in the income limits that qualify for the credit, increased credit awarded amounts, inflation adjustments to the income limits and credit amounts, and changes to the formula calculating the credit awarded.

HB594 also grants a state and local sales and use tax exemption for all machinery and equipment used to provide broadband communication services.

Beginning January 1, 2026, Missouri’s excise tax on beer and malt liquor will be reduced significantly for beer or malt liquor made within the US. Domestically made beer will be taxed at 2 cents per gallon rather than 6 cents per gallon as a result of the passage of HB1041.

Montana Tax Changes Effective January 1, 2026

HB337 makes several changes to Montana's individual income tax code. The top marginal rate of 5.9 percent will be reduced to 5.65 percent in 2026, with a further reduction to 5.4 percent in 2027. The lower rate, 4.7 percent, remains unchanged. The bill also expands the bracket for the lower rate. (Beginning in 2028, a modified inflation factor will be used to adjust brackets.) Also in 2026, the earned income tax credit will increase to 20 percent (from 10 percent) of the federal credit. The rates on long-term capital gains remain at 3.0 percent and 4.1 percent; however, HB337 adjusts the brackets to match the new thresholds for ordinary income.

In an attempt to provide property tax relief, Montana lawmakers further split the state’s property tax roll with the passage of two bills, HB231 and SB542. The package introduced a progressive property tax structure with lower-valued properties paying a lower rate, and, conversely, higher-valued properties paying a higher rate as of the 2025 property tax year. Beginning in 2026, owner-occupied primary residences and long-term residential rental properties will receive preferential treatment under the split roll, while second homes, cabins, and short-term rentals will see a tax increase relative to previous years. What was intended to be property tax relief actually resulted in a shifted burden and a less competitive property tax system.

Nebraska Tax Changes Effective January 1, 2026

Starting January 1, 2026, Nebraska will see a significant reduction in its top individual income tax rate, which will be lowered from 5.2 percent to 4.55 percent. This is part of an ongoing phase-down to gradually reduce the top rate to 3.99 percent by 2027. Additionally, the 5.2 percent flat corporate income tax rate will also be reduced to 4.55 percent.

LB9 expands the definition of alternative nicotine products to include nicotine analogues and imposes a tax rate of 20 percent of the purchase price.

Nevada Tax Changes Effective January 1, 2026

Nevada’s unemployment insurance taxable wage base will be $43,700 effective January 1, 2026, up from $41,800 for the 2025 tax year.

New Hampshire Tax Changes Effective January 1, 2026

HB2, signed into law on June 27, 2025, increases motor vehicle registration and license plate fees across the board as of January 1, 2026. Annual vehicle and emissions testing, which comes with a $3.25 fee, will no longer be mandatory for most passenger vehicles after January 31, 2026.

New Jersey Tax Changes Effective January 1, 2026

New Jersey enacted SB3189 in 2025, which makes changes to the Angel Investor Tax Credit Program effective January 1, 2026. The program award amount will increase from 20 percent to 35 percent of the qualified investment made by an investor in a New Jersey emerging technology business. The tax credit award may receive an increase of 5 percent if the business is certified minority or women-owned or located in either an Opportunity Zone or New Markets Tax Credit Census Tract for a total award of up to 40 percent. The total amount of Angel Investor Tax Credit Program awards that can be approved annually will be reduced from a maximum cumulative total of $35 million in any calendar year to a maximum cumulative total of $25 million in any calendar year.

As part of the FY 2026 budget (A4455), New Jersey adopted a Qualified Small Business Stock (QSBS) exclusion, similar to federal rules (IRC § 1202), which provides a capital gains exemption on the sale of eligible small business stock, effective January 1, 2026.

New York Tax Changes Effective January 1, 2026

The 2025 budget bill, A3009, includes several income tax changes effective January 1, 2026, including further extension of the temporary surtaxes on high earners. Additionally, the child tax credit increases to $1,000 per child up to three years old and $500 per child aged 4 to under 17, for tax years beginning on or after January 1, 2026, and before January 1, 2028.

The threshold for the mandatory first installment of estimated tax payments for corporate taxpayers increases from $1,000 to $5,000.

The Metropolitan Commuter Transportation Mobility Tax (MCTMT) threshold for self-employed individuals increases to net earnings over $150,000, with rates of 0.60 percent in Metropolitan Commuter Transportation District Zone 1 and 0.34 percent in Zone 2.

North Carolina Tax Changes Effective January 1, 2026

North Carolina previously passed legislation establishing a plan to gradually reduce the individual income tax rate to a flat 3.99 percent. January 1, 2026, marks the final rate reduction as the individual income tax rate will be reduced from 4.25 percent to 3.99 percent.

The corporate income tax rate will be reduced from 2.25 percent to 2 percent starting January 1, 2026, the latest step in a planned complete phaseout by 2030.

Ohio Tax Changes Effective January 1, 2026

Several major state tax changes for 2026 were enacted under Ohio's main budget bill, HB96. On January 1, 2026, the individual income tax moves to a flat rate of 2.75 percent for all nonbusiness income over $26,050. While the bill reduces the overall tax rate, it tightens eligibility for certain credits and exemptions. In 2026, the joint filing credit and personal and dependent exemptions will be available only to taxpayers with modified adjusted gross income (MAGI) of $500,000 or less.

The school district income tax on estates is repealed effective January 1, 2026.

Several sales and use tax exemptions are repealed as of January 1, 2026, including loaner car rentals, sales of refrigerated food vending machines; advertising materials and items used for printing and receiving orders; property used in acquiring, formatting, editing, storing, and disseminating information by electronic publishing; qualified call center telecommunication services; and the 25 percent refund of the sales tax paid by electronic information service providers to purchase computers and related electronic equipment.

Oklahoma Tax Changes Effective January 1, 2026

HB2764 collapses Oklahoma’s six individual income tax brackets into three brackets and reduces the top marginal rate from 4.75 percent to 4.5 percent, effective January 1, 2026. The brackets are not indexed for inflation. HB2764 also establishes a rate reduction trigger mechanism to phase out the personal income tax by 0.25 percentage point increments when revenue conditions are met.

Oregon Tax Changes Effective January 1, 2026

HB3991 increases the payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. to 0.2 percent as of January 1, 2026, and then decreases it to 0.1 percent as of January 1, 2028.

HB3991 also makes significant changes to transportation funding in Oregon. Beginning January 1, 2026, the tax on fuels will increase from 40 cents to 46 cents, and diesel will be subject to the motor vehicle fuel tax.

HB3940 levies a new tax on oral nicotine products beginning January 1, 2026, at 3.25 cents per unit with a 65 cents per package minimum.

It also increases the Forest Products Harvest Tax from $0.625 to $1.00 per thousand board feet beginning January 1, 2026, for the payment of benefits related to fire suppression. This tax will also begin to be automatically adjusted for consumer price inflation. Other surcharges related to fire suppression and preparedness will also increase.

Pennsylvania Tax Changes Effective January 1, 2026

As part of a scheduled series of reductions, Pennsylvania’s corporate income tax rate will decrease to 7.49 percent on January 1, down from 7.99 percent in 2025. The rate is set to decline to 4.99 percent by 2031.

Pennsylvania corporations with net operating losses (NOLs) have historically been able to carry those losses forward for up to 20 years, but the annual deduction has been capped at an amount equal to 40 percent of taxable income. In 2024, Pennsylvania’s budget bill (SB654) provided for a phase-up in the cap for post-2024 losses, reaching 80 percent of taxable income for tax years beginning in 2029. The phase-up of the NOL cap begins in 2026, allowing total NOL usage up to 50 percent of taxable income for post-2024 losses (with pre-2025 losses still capped at 40 percent).

Beginning January 1, 2026, there will be a new bailment warehousing fee on wine and spirits imposed by the Pennsylvania Liquor Control Board. The fee will be $1 per case.

Rhode Island Tax Changes Effective January 1, 2026

Under H 5076, a new 5 percent tax on short-term rentals of whole homes will be collected, and the statewide local hotel tax rate will increase from 1 to 2 percent.

Additionally, the bill increases the Research and Development Expense Credit carryforward period from 7 to 15 years, while other tax incentives will be eliminated, including the Jobs Growth Act Tax Credit, Specialized Investment Tax Credit, Employment Tax Credit, and others.

Tennessee Tax Changes Effective January 1, 2026

Effective January 1, 2026, HB1376 replaces the 6 percent retail sales tax on hemp-derived cannabinoids with a new wholesale tax of 2 cents per milligram of hemp-derived cannabinoid, $50 per ounce of hemp plants or flowers, or $4.40 per gallon of liquid hemp-derived cannabinoid products.

Texas Tax Changes Effective January 1, 2026

HJR1 was approved by Texas voters on November 4, 2025. As a result, $125,000 of the appraised value of business personal property will be exempt from taxation as of January 1, 2026.

Utah Tax Changes Effective January 1, 2026

Effective January 1, 2026, the tax on gasoline and diesel will decrease from 38.5 to 37.9 cents per gallon. The tax on natural gas and hydrogen will increase from 20.7 cents to 21.2 cents per gallon equivalent.

Vermont Tax Changes Effective January 1, 2026

H493 repeals the Alternative Telephone Gross Revenues Tax as of January 1, 2027, and any taxpayer who paid the Alternative Telephone Gross Revenues Tax prior to its repeal will become subject to the income tax beginning with the taxpayer’s first income tax year starting on or after January 1, 2026.

Virginia Tax Changes Effective January 1, 2026

Under current law, pass-through entities (PTEs) can choose to pay Virginia income tax at the entity level, and eligible owners of the PTE can receive corresponding credits. The elective pass-through entity tax (PTET) and the corresponding refundable PTET credit were set to expire on January 1, 2026, but provisions in budget bill HB1600 extended the sunset date to January 1, 2027. While the sunset of the elective PTET is extended, multistate pass-through owners will no longer be able to claim the out-of-state credit for PTET paid to another state, as the credit is set to expire on January 1, 2026.

Washington Tax Changes Effective January 1, 2026

SB5801 changed several aspects of transportation funding in Washington beginning January 1, 2026. Passenger vehicle weight fees, passenger truck weight fees, title fees, and registration fees will all increase. The per tire fee will increase from $1 to $5 per tire.

SB5801 also increases the sales and use tax on rental cars from 5.9 percent to 11.9 percent, making Washington’s taxes on rental cars the highest in the nation. Additionally, it imposes an additional 8 percent luxury vehicle tax on vehicles, including motor homes, priced over $100,000.

SB 5814 amended the definition of “tobacco products” to include nicotine products like oral nicotine pouches beginning January 1, 2026, which will subject them to the state’s 95 percent tax on tobacco products.

Wisconsin Tax Changes Effective January 1, 2026

Starting on January 1, Wisconsin will no longer collect local property taxes on radio, cellular, and telecommunication towers that are used for the sole purpose of supporting equipment that provides telecommunications services or that are used as digital broadcasting equipment for radio, television, or video services. This change is the result of S.B. 45, enacted in July 2025.

Wyoming Tax Changes Effective January 1, 2026

SF0048 increases the property tax exemption for business personal property (BPP) from $2,400 to $75,000.