State corporate income tax law changes for the second quarter of 2026

Arizona advances conformity to the IRC and updates foreign income treatment

On June 13, 2026, Arizona Gov. Katie Hobbs signed House Bill 4168, advancing Arizona’s conformity to the IRC as amended and in effect on Jan. 1, 2026 (from Jan. 1, 2025), effective for tax years beginning from or after Dec. 31, 2025. The legislation adopts provisions effective during 2025, including retroactive provisions, but excludes changes enacted after Jan. 1, 2026. For tax years beginning prior to Dec. 31, 2025, Arizona conforms to the provisions of the One Big Beautiful Bill Act (P.L. 119-21, OBBBA) that are retroactively effective to prior taxable years.

House Bill 4168 also decouples from section 168(n) bonus depreciation on qualified production property (QPP) for tax years beginning on or after Dec. 31, 2025. Additionally, the bill removes references to global intangible low-taxed income (GILTI) and updates the statute to allow income described in section 951A (net controlled foreign corporation tested income, or NCTI) to qualify for the state’s dividends received deduction.

Arkansas enacts future corporate income tax rate reduction

On May 6, 2026, Arkansas Gov. Sarah Huckabee Sanders signed House Bill 1001, which reduces the top corporate income tax rate to 4.1% (from 4.3%) for tax years beginning on or after Jan. 1, 2027, for Arkansas net income exceeding $11,000.

California extends cap on credit utilization

On June 29, 2026, California Gov. Gavin Newsom signed Senate Bill 122, extending the temporary $5 million cap on credit utilization for an additional three years, through the 2029 tax year. Taxpayers may continue to elect a refundable credit equal to 20% of the credits that would have been available but for the limitation. Consistent with current law, the refundable credit amount is available three years after the election is made, and any unused credits affected by the limitation would receive an additional year of carryforward for each year the limitation applies.

Beginning in the 2030 tax year, California establishes a permanent limitation allowing business tax credits up to the greater of $5 million per company or 70% of tax liability. Taxpayers may continue to claim refundable credits generated under the prior year temporary limitations in addition to the credit cap beginning in 2030.

Colorado adopts worldwide combined reporting and revises group inclusion rules

On June 4, 2026, Colorado Gov. Jared Polis signed House Bill 1289, making significant changes to the state’s combined reporting regime. Beginning with tax years on or after Jan. 1, 2027, Colorado will require worldwide unitary combined reporting, with an option to elect water’s-edge reporting. The election must be made on a timely filed original return and is binding for 10 years. 

The legislation repeals the state’s ‘80/20’ rule that excludes from the combined return any corporation conducting business outside the U.S. to the extent that 80% or more of the corporation’s payroll and property is outside the U.S. Instead, under a water’s-edge election, a non-U.S. corporation is included if 20% or more of its payroll and property is located in the United States.

House Bill 1289 also includes guidance on calculating income for non-U.S. entities, and further lists which affiliated group members are includible in a combined return. The legislation addresses relevant intercompany eliminations of foreign income (e.g., Subpart F, NCTI) between members of a combined group and makes changes to the state’s tax haven rules. House Bill 1289 also modifies or repeals certain tax credits.

Connecticut decouples from OBBBA provisions affecting depreciation and research and experimental (R&E) costs

On May 26, 2026, Connecticut Gov. Ned Lamont signed Senate Bill 1, decoupling Connecticut from several OBBBA provisions.

The state decouples from section 168(n) for certain QPP for tax years beginning on or after Jan. 1, 2026. For domestic R&E costs, Senate Bill 1 disallows deductions under section 70302(f) of P.L. 119-21 (no acceleration of prior year amortized domestic costs) and delays conformity with section 174A until tax years beginning on or after Jan. 1, 2026. Senate Bill 1 provides relief from penalties and interest related to additional tax associated with these changes.

Florida advances IRC conformity and decouples from several OBBBA provisions

On June 11, 2026, Florida Gov. Ron DeSantis signed House Bill 7031, advancing the state’s conformity to the IRC as amended and in effect on Jan. 1, 2026 (from Jan. 1, 2025).

The legislation decouples Florida from several provisions of the OBBBA. Specifically, the state conforms to sections 168(k), 174(a), 163(j), 274 and 179 of the IRC as in effect on Jan. 1, 2025, and entirely decouples from 168(n) and 174A. These changes are retroactive to Jan. 1, 2026.

Georgia accelerates corporate income tax rate reductions

On May 11, 2026, Georgia Gov. Brian Kemp signed House Bill 463, reducing the corporate income tax rate (tied to the individual tax rates) to 4.99% (from 5.19%) for tax years beginning on or after Jan. 1, 2026. The legislation also accelerates future contingent rate reductions. Beginning Jan. 1, 2027, the rate may be reduced by 0.125% annually until it reaches 3.99%, subject to specified revenue thresholds.

Hawaii advances IRC conformity and decouples from select provisions

On May 26, 2026, Hawaii Gov. Josh Green signed House Bill 2329, advancing the state’s conformity to the IRC as in effect and amended on Dec. 31, 2025 (from Dec. 31, 2024), effective for tax years beginning after Dec. 31, 2025. The legislation also decouples the state sections 168(n) and section 174A and maintains conformity with section 174 as in effect on Dec. 31, 2024.

Iowa clarifies NCTI deduction eligibility

On May 15, 2026, Iowa Gov. Kim Reynolds signed Senate File 2492, amending Iowa’s statute to allow a deduction for NCTI. Previously, Iowa guidance indicated that NCTI would not qualify for the state’s dividends received deduction for tax years beginning on or after Jan. 1, 2026 because the statute specifically referenced GILTI (and not NCTI) under section 951A. Senate File 2492 removes the reference to GILTI and allows a subtraction for income under section 951A, ensuring that NCTI is eligible for the state’s dividends received deduction.

Illinois makes changes to net operating loss (NOL) deductions

On June 16, 2026, Illinois Gov. JB Pritzker signed Senate Bill 3019, modifying the state’s NOL deduction rules. For tax years ending on or after Dec. 31, 2027, NOL deductions are limited to the greater of $500,000 or a percentage of net income. The limitation begins at 15% for tax years ending on or after Dec. 31, 2027, and increases annually until reaching 80% for tax years ending on or after Dec. 31, 2031. The NOL carryover period is extended by one year for each year that the limitation applies.

Kentucky advances IRC conformity, decouples from OBBBA provisions and delays the deferred tax liability deduction

On April 14, 2026, Kentucky enacted House Bill 757, without Gov. Andy Beshear’s signature. For tax years beginning on or after Jan. 1, 2026, House Bill 757 advances Kentucky’s conformity to the IRC as of Dec. 31, 2025 (from Dec. 31, 2024), exclusive of any subsequent amendments, other than those to extend provisions in effect on Dec. 31, 2024 that would otherwise terminate.

Kentucky also decouples from certain OBBBA provisions and instead conforms the state to section 163(j) and section 174 as in effect on Dec. 31, 2024, effective for tax years beginning on or after Jan. 1, 2026.

House Bill 757 also delays Kentucky’s deferred tax liability deduction for publicly traded corporations. The deduction, originally enacted with Kentucky’s mandatory combined reporting regime, is now delayed to tax periods beginning on or after Jan. 1, 2028, from Jan. 1, 2026.

Maine updates IRC conformity and phases in federal treatment of R&E expenditures

On April 10, 2026, Maine Gov. Janet Mills signed H.P. 1491, updating Maine’s conformity to the IRC as in effect on Dec. 31, 2025 (from Dec. 31, 2024) effective for tax years beginning on or after Jan. 1, 2025.

The legislation decouples from certain OBBBA provisions, including section 168(n), and phases in conformity for domestic R&E expenditures beginning in 2026, with full conformity achieved in 2030. Taxpayers must add back the following percentages of federal domestic R&E costs:

• 100% for 2025
• 70% for 2026
• 50% for 2027
• 30% for 2028
• 10% for 2029

The legislation clarifies that the decoupling for domestic R&E also applies to section 70302(f)(2) of P.L. 119-21 (no acceleration of prior year amortized domestic costs) for most taxpayers. However, the decoupling provisions for domestic R&E costs (both prior years and current costs) do not apply to qualified small business taxpayers that meet the gross receipts test under section 448(c) of the IRC.

Maryland modifies bonus depreciation rules

On April 8, 2026, Maryland Gov. Wes Moore signed Senate Bill 284, decoupling Maryland from section 168(n) and reducing allowable bonus depreciation under section 168(k) for qualified manufacturers to 20% of the adjusted basis of the qualified property. The changes apply to tax years beginning after Dec. 31, 2025.

Massachusetts updates general IRC conformity and delays OBBBA adoption

On June 12, 2026, Massachusetts Gov. Maura Healey signed House Bill 5470, modifying the state’s conformity to the IRC and delaying conformity to several OBBBA provisions.

The legislation addresses the following provisions:

• Section 168(n): Decouples from bonus depreciation on qualified production property.
• Section 163(j): Decouples from the OBBBA change requiring adjusted taxable income to be determined based on earnings before interest and taxes (EBIT).
• Section 179(b): Decouples from the increased deduction limitation for certain depreciable business assets.
• Section 174A: Decouples from domestic R&E expensing and transitional rules, requiring taxpayers to continue capitalizing and amortizing R&E expenditures under section 174, as in effect on July 3, 2025.

The decoupling from sections 163(j), 168(n) and 179(b) is effective for tax years 2025 and 2026, delaying conformity until the 2027 tax year. For section 174A, Massachusetts conforms to the federal treatment of domestic R&E beginning with tax years on or after Jan. 1, 2026.

House Bill 5470 also modifies the state’s general IRC conformity rules. Federal amendments that affect Massachusetts’ taxable income in the enactment year or any prior year generally do not apply unless the commissioner determines, within 90 days of the enactment, that the estimated increase or decrease to tax revenue is less than $20 million based on a rolling three-year average. This change applies to tax years beginning on or after Jan. 1, 2026.

Minnesota updates IRC conformity and revises treatment of key provisions

On May 27, 2026, Minnesota Gov. Tim Walz signed House File 2438, updating the state’s conformity to the IRC as of May 1, 2026 (from May 1, 2023). Minnesota’s IRC conformity also includes any uncodified provisions in federal law that relate to federal provisions that are adopted by Minnesota. The conformity update generally applies retroactively at the same time the incorporated federal changes were effective for federal purposes.

House File 2438 decouples from several OBBBA provisions for corporations, including:

• Section 174A and retroactive deductions: Minnesota decouples from section 174A and related provisions allowing immediate or retroactive expensing of domestic R&E costs. Corporations must add back 80% of the immediate federal deduction under section 174A(a) and the retroactive deduction under section 70302(f)(1) of P.L. 119-21. In each of the following four tax years, taxpayers may subtract one-fourth of the addback amount.
• Accelerated R&E deductions: Minnesota requires a 100% addback for accelerated deductions claimed under section 70302(f)(2) of P.L. 119-21. The corresponding subtraction equals the deduction that would have been allowed if the taxpayer had not made the accelerated election.
• Section 168(k): By advancing fixed-date conformity, Minnesota conforms to 100% bonus depreciation under section 168(k), but it continues to require an 80% addback of federal bonus depreciation, followed by ratable subtraction over the next five years.
• Section 951A: The legislation modifies Minnesota’s treatment of NCTI by decoupling from certain federal calculation changes under the OBBBA, while continuing to allow NCTI to qualify for the state’s dividends received deduction.

New Jersey temporarily limits NOL deductions

On June 30, 2026, New Jersey Gov. Mikie Sherrill signed A5322, temporarily limiting the state’s NOL deduction. For tax years ending on or after July 31, 2026 and before July 31, 2030, NOL deductions are limited to $1 million of allocated net income. Any portion of the NOL deduction affected by the limitation may be carried forward and utilized in future tax years. Specifically, for tax years ending on or after July 31, 2030 but before July 31, 2032, taxpayers may claim NOL deductions previously limited by the temporary cap, up to 75% of allocated net income. Any NOL deduction affected by the limitation may be carried forward for six additional tax years after it otherwise would have expired.

The legislation provides limited penalty and interest relief for payments due after Dec. 31, 2025 and before Jan. 1, 2027 due to the NOL limitation.

New York enacts budget containing multiple changes for New York State and New York City

On May 28, 2026, Gov. Kathy Hochul signed S.9009/A.10009, making several corporate income tax changes for New York State and New York City. Notably, some decoupling provisions differ between state and city regimes.

• Corporate tax rate: New York State extends the 7.25% corporate tax rate for taxpayers with business income exceeding $5 million through tax years ending before Jan. 1, 2030. The 6.5% rate remains applicable for taxpayers below the $5 million threshold.
• Section 168(n): New York State and New York City both decouple from bonus depreciation on QPP.
• Section 163(j): New York City decouples from the OBBBA changes that modify adjusted taxable income by allowing addbacks for depreciation, amortization and depletion. Similar changes were not enacted for New York State.
• Section 179: New York City decouples from certain OBBBA changes for expensing certain depreciable business assets. Similar changes were not enacted for New York State.
• Sections 174A and 174: New York State decouples from the federal treatment of R&E costs incurred on or after Jan. 1, 2025, requiring both domestic and foreign R&E expenses to be amortized over a 60-month (five-year) period. Additionally, New York State decouples from the transition rules for costs incurred prior to Jan. 1, 2025, requiring taxpayers to continue to deduct both domestic and foreign R&E costs consistent with the amortization rules of section 174 as in effect on Jan. 1, 2022.

New York City decouples from section 174A for domestic R&E expenses incurred on or after Jan. 1, 2025, requiring capitalization and amortization over five years. Foreign R&E expenses continue to follow the federal 15-year amortization period under section 174, and the legislation does not address the federal transition rules for New York City.

Unless otherwise noted, the changes are retroactively effective for tax years beginning on or after Jan. 1, 2025. The legislation provides limited interest and penalty relief where an underpayment is attributable solely to the retroactive decoupling provisions and the taxpayer timely files a validly extended 2025 return.

For more information on the New York budget, and other legislative changes, please refer to our article, New York budget addresses federal conformity, rates and property tax.

New York court upholds P.L. 86-272 regulation

On May 7, 2026, the New York Supreme Court, Appellate Division upheld the trial court’s decision rejecting a facial challenge to New York’s P.L. 86-272 regulation, concluding that the regulation is not preempted by federal law as written. However, the New York Department of Taxation and Finance did not appeal the trial court’s finding that the regulation cannot be applied retroactively. Recall that the department previously issued final regulations adopting an expanded interpretation of unprotected internet activities under P.L. 86-272 that are largely in line with guidance from the Multistate Tax Commission (MTC).

The decision is American Catalog Mailers Ass'n v. Dep't of Tax’n and Fin., N.Y. App. Div. (3d Dep’t), No. CV-25-0865. An appeal of the decision is pending with the New York Court of Appeals.

Oregon updates IRC conformity date and decouples from section 168(k)

On April 9, 2026, Oregon Gov. Tina Kotek signed Senate Bill 1507, updating Oregon’s conformity to the IRC to Dec. 31, 2025 (from Dec. 31, 2023). Oregon generally adopts the IRC as of a specific date or, if related to the definition of taxable income, the tax year of the taxpayer.

Senate Bill 1507 decouples Oregon from federal bonus depreciation under section 168(k) for property placed in service in tax years beginning on or after Jan. 1, 2026. Taxpayers must add back the difference between the federal section 168(k) deduction and the deduction allowed under section 168(k) as in effect on Dec. 1, 2017. Taxpayers may then subtract the depreciation deduction that would have been allowed under section 168(k) as in effect on Dec. 1, 2017.

Although Oregon decouples from section 168(k), the legislation does not decouple from section 168(n) as enacted by the OBBBA.

For more information on Senate Bill 1507 and other Oregon legislative changes, please refer to our article, Oregon decouples from federal bonus depreciation; extends PTET.

Rhode Island decouples from select OBBBA provisions

On June 12, 2026, Rhode Island Gov. Dan McKee signed House Bill 7127A, decoupling Rhode Island from several provisions of the OBBBA:

• Section 174A: For tax years beginning on or after Jan. 1, 2026, add back to federal taxable income the deduction for domestic R&E expenditures under section 174A, less the amount of the deduction that would have been allowed under section 174 immediately prior to the enactment of the OBBBA.
• Section 163(j): For tax years beginning on or after Jan. 1, 2027, add back to taxable income the amount of any deduction for depreciation, amortization or depletion under section 163(j)(8)(A)(v).

Rhode Island previously paused automatic conformity to OBBBA provisions for the 2025 tax year where those provisions affected Rhode Island taxable income. Accordingly, Rhode Island decouples from these OBBBA provisions for 2025. The state’s permanent decoupling from section 174A begins in 2026, while decoupling from section 163(j)(8)(A)(v) begins in 2027.

Vermont advances IRC conformity and modifies several other provisions

On June 18, 2026, Vermont Gov. Phil Scott signed House Bill 933, updating Vermont’s IRC conformity to Dec. 31, 2025 (from Dec. 31, 2024) and decoupling Vermont from several provisions of the OBBBA. The changes are retroactively effective to tax years beginning on or after Jan. 1, 2025. Specifically, House Bill 933 modified conformity to the following provisions of the OBBBA, applicable for tax years beginning on or after Jan. 1, 2025, unless noted otherwise:

The legislation addresses the following areas:

• Section 168(n): Vermont decouples from bonus depreciation for certain QPP.
• Section 174A and transition costs: Vermont decouples from the federal treatment of domestic R&E expenditures under section 174A. Taxpayers must add back deductions for domestic R&E expenditures under section 174A and section 70302(f)(2) of P.L. 119-21. A subtraction is allowed for domestic R&E expenses under section 174 as in effect on Dec. 31, 2024.
• Eligible taxpayer exception: The R&E decoupling does not apply to ‘eligible taxpayers’ meaning certain small businesses that meet the gross receipts test under section 448(c). For 2025, this generally applies to taxpayers with average annual gross receipts of $31 million or less for the prior three tax years.
• Retroactive election limitations: Eligible taxpayers making a retroactive federal election under section 70302(f)(1) may deduct remaining unamortized prior-year amounts either in full in the first taxable year beginning after Dec. 31, 2024, or ratably over the first two taxable years beginning after that date. Vermont amended returns are not allowed for the retroactive election.
• Section 250 deductions and factor representation: Vermont decouples from the section 250 deduction for GILTI/NCTI and foreign-derived intangible income (FDII)/foreign-derived deduction eligible income (FDDEI). Vermont guidance indicates that the full amount of GILTI income included in the Vermont tax base will be included in the sales factor denominator.
• Research and development (R&D) credit: Vermont increases the R&D credit to 75%, from 27%, of the federal credit for eligible R&D expenditures made in Vermont. The increase applies to tax years beginning on or after Jan. 1, 2027.