The ABA Tax Section’s 2025 Midyear Meeting, held at the JW Marriott in Los Angeles L.A. Live, was an important gathering for state and local tax (SALT) professionals, bringing together leading attorneys, policymakers, tax executives, and academics to examine recent developments, legal challenges, and trends in state taxation.

ConNexus, the newsletter of the ABA Tax Section’s SALT Committee, covered a range of noteworthy tax issues, legislative updates, litigation trends, and policy shifts. The discussions emphasized growing state tax enforcement, apportionment complexities, digital economy taxation, and the effects of federal tax changes.

Main Themes from the Meeting

1. States Expanding Tax Enforcement

• States continue to look for additional revenue sources, especially after the economic shifts caused by the pandemic, remote work, and evolving business models.
• Tax authorities are redefining nexus, residency, and apportionment rules to capture more tax revenue.
• Several states are moving away from cost-of-performance sourcing rules in favor of market-based sourcing, affecting businesses with multistate operations.

2. Federal Tax Developments Influencing State Taxation

• The Bipartisan Budget Act (BBA) partnership audit rules are creating new challenges for pass-through entities, as states determine how to apply federal audit adjustments at the state level.
• States continue to debate how to tax foreign income, including GILTI (Global Intangible Low-Taxed Income) and foreign dividends.
• The Supreme Court’s recent decision to overturn the Chevron Doctrine in Loper Bright has led some states to reduce reliance on administrative guidance, while others are establishing private letter ruling programs to improve taxpayer certainty.

3. Changing Apportionment Rules

• Many states have fully adopted or are considering single sales factor apportionment, but concerns remain about whether this approach unfairly increases tax burdens for certain businesses.
• Businesses are challenging tax assessments by seeking alternative apportionment, but states vary in their willingness to approve modifications.

4. Expanding Taxation of the Digital Economy

• The Multistate Tax Commission (MTC) is working on defining and expanding taxation of digital goods and services, which may lead to broad-based digital taxes in multiple states.
• Topics of concern include:
  
  • How digital products should be categorized for tax purposes (e.g., cloud computing, streaming services, digital advertising).
  • Bundling concerns (tax treatment of combined taxable and non-taxable services).
  • Possible conflicts with the Internet Tax Freedom Act (ITFA).

5. Limited Supreme Court Involvement in SALT Cases

• The U.S. Supreme Court has declined to hear several significant SALT cases, including:
  
  • Zilka v. Philadelphia, a case concerning state residency taxation.
  • Disney/IBM state tax disputes, involving sourcing and apportionment conflicts.
• Without SCOTUS intervention, state courts and tax agencies are becoming more assertive in interpreting tax laws to favor state revenue collection.

Panels & Discussions

1. Who Wants to Be a Millionaire – State Taxation of Foreign Income Edition

• This game-show-style session examined the way states approach foreign income, including:
  
  • Taxation of repatriation income and foreign dividends (and whether states allow factor representation).
  • GILTI (Global Intangible Low-Taxed Income) – how states allocate and apportion it.
  • The possibility that mandatory worldwide combined reporting will return.
• Moderator: Masha Yevzelman (Fredrikson & Byron, P.A.)
• Panelists: Experts from Anheuser-Busch, Kean Miller LLP, and the Council on State Taxation.

2. Partnership Audit Rules (BBA) – Federal and State Tax Considerations

• The IRS’s Bipartisan Budget Act (BBA) partnership audit rules have state tax implications for pass-through entities.
• Topics explored:
  
  • How states handle federal audit adjustments and apply them to state tax returns.
  • Entity-level taxes and their interaction with federal audits.
  • The MTC’s Partnership Tax Project, which aims to streamline state responses to federal partnership audits.
• Moderator: Christi Mondrik (Mondrik & Associates)
• Panelists: Tax professionals from Baker Tilly, Covington & Burling LLP, and Jones Walker LLP.

3. Single Sales Factor Apportionment & Alternative Apportionment

• This session revisited Moorman Manufacturing Co. v. Bair and the broader consequences of single sales factor apportionment.
• Issues explored:
  
  • How single sales factor apportionment can create distortions in tax liability.
  • Strategies for proving and obtaining alternative apportionment relief.
  • Differences in state approaches to alternative apportionment requests.
• Moderator: Jennifer Karpchuk (Chamberlain Hrdlicka)
• Panelists: Professionals from Deloitte Tax LLP, Dakessian Law, and Jones Walker LLP.

4. State Income Taxation of Nonresident Individuals

• With remote work and interstate business operations, nonresident taxpayers face increased scrutiny from state tax agencies.
• Discussion points:
  
  • How remote workers and business travelers are taxed across multiple states.
  • Determining the sourcing of gains from sales of pass-through entity interests.
  • Tax credits for state taxes paid to nonresident jurisdictions.
• Moderator: John A. Biek (Neal, Gerber & Eisenberg LLP)
• Panelists: Experts from Sullivan & Worcester LLP and Hodgson Russ LLP.

Legislative & Policy Developments

1. Expanding Sales Tax on Digital Products – MTC Project

• The MTC is drafting new rules for state taxation of digital goods and services, potentially increasing the sales tax base in multiple jurisdictions.
• The proposed “Automated Digital Products” definition includes:
  
  • Cloud computing and data storage.
  • Streaming services and digital advertising.
  • Social media platforms and user data sales.
• Concerns: This could lead to higher compliance costs for digital businesses and legal challenges over ITFA compliance.

2. State Tax Guidance After Chevron

• Following the overturning of the Chevron Doctrine, states are reconsidering how much weight to give agency guidance.
• Some states are reducing their reliance on administrative rulings, while others (such as Minnesota) are introducing new private letter ruling programs.

3. SALT Litigation & the Role of the Supreme Court

• With SCOTUS declining to take several high-profile state tax cases, legal uncertainty is growing.
• Practitioners believe more federal oversight is needed, as state tax agencies become increasingly aggressive.

Upcoming Conferences & Announcements

• ABA/IPT Advanced Tax Seminars – March 10-14, 2025, New Orleans, LA.
• 2025 May Tax Meeting – May 8-10, 2025, Washington, DC.
• 2025 Virtual Fall Tax Meeting – October 13-17, 2025.
• 2026 Midyear Tax Meeting – January 15-17, 2026, San Diego, CA.

The 2025 ABA Midyear Tax Meeting emphasized significant shifts in state and local taxation, including aggressive enforcement, digital tax expansion, and uncertainty due to limited federal guidance. SALT practitioners must be proactive, balancing compliance, advocacy, and strategic planning to address these evolving challenges.

© 2025 Jeanette Moffa. All Rights Reserved.