You would possibly assume that tax regulation modifications are “over and performed” this time of yr. In spite of everything, the GOP reconciliation laws, nicknamed the ‘One Massive Lovely Invoice’ (OBBB), establishes a number of provisions that all states should abide by. Proper?
Properly, really, some state lawmakers are already in search of methods to keep away from a few of the coverage revisions enacted within the OBBB — and so they would possibly achieve this as early as their subsequent state legislative session.
For example, whereas the OBBB phases out the federal electrical car (EV) tax credit score very quickly, California officers try to enact a state EV tax break that would assist counteract the elimination.
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In the meantime, many states have handed workarounds to the federal state and native tax (SALT) deduction cap, and nonetheless others could by no means settle for the OBBB as a part of their state tax code.
What does all of this imply for you and your tax invoice? Right here’s extra of what you want to know.
Gavin Newsom requires EV tax credit score alternative
The most recent problem to the brand new Trump tax regulation started earlier than the OBBB was formally signed into regulation on July 4, 2025.
In June, President Trump enacted three resolutions stopping California from setting stricter emissions requirements than these established by the federal authorities.
Governor Gavin Newsom issued an government order in response (along with a lawsuit), directing California companies to plan methods for selling zero-emission automobiles. And late final month, the California Air Sources Board (CARB) delivered on that directive.
CARB, which is tasked with the state’s public welfare and ecological sources, has outlined a method to assist clear transportation manufacturing. The report contains:
- Backfilling federal tax credit. CARB intends to maintain gross sales of recent and used zero-emission electrical automobiles by using state funds for point-of-sale rebates, vouchers, and different credit.
- Creating extra academic pathways to EV jobs. The plan additionally goals to facilitate equitable entry to varsity programs, apprenticeships, and certification packages inside the clear transportation sector.
If achieved, the gadgets outlined within the CARB report might counteract the expiring EV tax credit within the OBBB. So even when the federal EV tax credit score goes away, California residents should still reap the advantages of a state tax break if it turns into regulation.
SALT deduction cap: State workarounds
The OBBB briefly raises the SALT deduction cap to $40,000 from $10,000. This implies itemizing eligible taxpayers beneath a sure revenue restrict could solely deduct as much as this quantity on their federal revenue tax return till 2029 (with an annual 1% enhance starting in 2026).
After that point, the cap reverts to the Tax Cuts and Jobs Act (TCJA) cap of simply $10,000.
Nevertheless, many states have sought methods to bypass the SALT cap ever because the TCJA set a restrict. The principal avoidance technique is thru Cross-By means of Entity Taxes (PTETs).
- PTETs allow companies like restricted legal responsibility corporations, S companies, and partnerships to pay state taxes on the entity stage as a substitute of on the particular person stage.
- This successfully bypasses the SALT cap of $10,000, as this restrict doesn’t apply to entity-level returns.
- In response to the Tax Basis, 36 states have adopted PTETs since 2018, the yr the TCJA was enacted.
As reported by Kiplinger, taxpayers in high-property tax states are sometimes hit the toughest by a SALT deduction cap. And as property taxes are one of many high hidden dwelling prices amongst patrons with regrets, states could proceed to seek for methods to bypass the federal SALT restrict.
Does my state have to just accept Trump’s tax regulation?
Although the OBBB is federal regulation, it doesn’t need to be a part of state tax legal guidelines. That’s as a result of states have three choices in terms of adopting present federal tax coverage:
- Rolling conformity. States can routinely observe the most recent federal guidelines for the present tax yr. There are roughly 20 states and the District of Columbia that observe this customary.
- Static conformity. About 17 states at the moment conform to federal tax regulation as of a selected date, based on the Tax Basis. Usually, static states replace their conformity date yearly by way of laws.
- Selective conformity. 4 states can select to have selective conformity, that means they’ll “decide and select” which elements of the federal tax regulation to observe, slightly than adopting the tax code in its entirety.
The states with selective conformity — Arkansas, Mississippi, New Jersey, and Pennsylvania — have essentially the most relative leeway in figuring out how a lot of the federal tax code to just accept of their state particular person revenue tax codes. They might select “one of the best elements” of the OBBB for his or her constituents, whereas leaving the remainder on the desk.
And though most state legislature periods had closed by the point OBBB was handed, that hasn’t stopped some states, like Colorado and Louisiana, from calling particular periods to debate the implications of the brand new federal tax regulation on state taxpayers.
Throughout state legislative particular periods, lawmakers can enact new legal guidelines to typically reduce the impression of recent federal laws.
With many states having depleted COVID-era federal assist, and the OBBB doubtlessly reducing state income projections, 2026 might be an attention-grabbing (and maybe tumultuous) yr for state tax laws. Keep tuned.
