March brought a wave of significant activity in state and local tax policy, enforcement, and litigation. Legislatures advanced or finalized major changes, including the elimination of agency deference in Kentucky and tax relief in Utah. Meanwhile, litigation involving Microsoft and NBCUniversal illustrated the increasing complexity of apportionment and nexus analysis. Local governments, including Philadelphia, proposed meaningful reforms, while tax professionals expressed concern about the potential downstream impact of dramatic federal staffing cuts. Below is a detailed summary of the most important developments.

Legislative and Administrative Shifts

Kentucky Ends Judicial Deference to Administrative Agencies

One of the most notable developments came from Kentucky, where the legislature overrode Governor Andy Beshear’s veto of Senate Bill 84, enacting a law that bars state courts from deferring to the legal interpretations of state agencies—including the Department of Revenue.

The override passed with strong Republican support: 74–18 in the House and 32–6 in the Senate. The new law mandates de novo judicial review of legal questions, effectively shifting interpretive authority back to the courts and away from agencies.

Critics, including Senate Minority Caucus Chair Reginald Thomas, argue that the law threatens judicial independence by dictating how judges must approach legal interpretation. Governor Beshear echoed these concerns, labeling the law unconstitutional and asserting that only the judiciary has the authority to determine legal standards.

Supporters view the measure as part of a national movement to curb administrative overreach, aligning Kentucky with states like Florida, which have enacted similar anti-deference statutes.

Impact: Taxpayers may see greater success in challenging agency interpretations, but this also creates potential uncertainty as long-settled administrative interpretations come under renewed judicial scrutiny.

Utah Enacts Broad Tax Relief Measures

Utah took a comprehensive approach to tax relief this month, with Governor Spencer Cox signing two significant bills:

• H.B. 106 lowered both corporate and individual income tax rates from 4.55% to 4.5%. It also created nonrefundable credits for employer-provided child care expenditures and expanded the state’s child tax credit to include children under six.

• S.B. 71 increased the income phaseout threshold for the Social Security benefits tax credit, raising the limit for joint filers from $75,000 to $90,000.

According to fiscal estimates, the changes could reduce state income tax fund revenues by over $124 million in FY 2026 alone. Both bills take effect May 7, 2025, but apply retroactively to January 1.

Impact: These measures reflect Utah’s continued effort to position itself as a taxpayer-friendly state. Businesses and families with young children are among the biggest beneficiaries.

Local Tax Reform Proposals

Philadelphia Mayor Proposes Incremental Cuts to Business and Wage Taxes

In her FY2026 budget proposal, Philadelphia Mayor Cherelle Parker introduced a plan to gradually reduce the city’s business income and receipts tax (BIRT) and wage tax by 2030. The proposal follows recommendations from the city’s Tax Reform Commission, which in February cited high tax burdens as a key factor driving population decline.

Under Parker’s plan:

• The BIRT would drop from 5.81% to 5.5%.

• The resident wage tax would decrease from 3.75% to 3.7%.

• The nonresident wage tax would fall from 3.44% to 3.39%.

Although the proposed reductions are more modest than those recommended by the commission—which urged complete elimination of the BIRT—Parker defended the plan as fiscally responsible.

“This is what we can afford to do,” Parker said. “And I shall not be moved on this delicate balance of enacting business tax reform while protecting our fiscal stability as a city.”

Impact: Businesses may benefit from lower costs over time, but pressure remains on the city to take bolder steps to remain competitive with lower-tax jurisdictions in the region.

Litigation Watch: Corporate Tax Disputes Advance

Microsoft’s Michigan Apportionment Dispute Moves Forward

The Michigan Tax Tribunal denied summary disposition in a high-stakes apportionment case involving Microsoft’s inclusion of cost-sharing receipts in its sales factor denominator. The case centers on Microsoft’s transfer pricing structure involving cost-sharing arrangements (CSAs), which allow foreign affiliates to share in R&D costs in exchange for the right to exploit developed intangible property in their territories.

Microsoft argued that its foreign controlled corporations (CFCs) reimbursed it for R&D under a CSA, and that these payments qualified as gross receipts from the licensing of intangible property, includable in the denominator of its sales factor under Michigan’s single sales factor apportionment formula. Microsoft contends that it retained ownership of the IP and licensed it to its CFCs—making these payments apportionable receipts.

However, the Michigan Department of Treasury countered that the arrangement did not constitute a license, but rather cost reimbursement, relying on federal interpretations of CSAs under IRC §482. The state argues that if Microsoft’s affiliates co-own the IP, then there was no license, and thus, no “sale” under Michigan law.

Judge Michael R. Bannasch found that the record contained material factual disputes, particularly:

• Whether Microsoft or its affiliates owned the resulting IP.

• Whether the payments constituted sales or mere reimbursements.

• What amount of tax was actually at stake.

These issues, the tribunal concluded, preclude summary judgment and require a full trial.

Impact: The case may become a bellwether for how states handle CSA-related receipts in apportionment, especially as more states scrutinize multinational tech companies’ intangible income structures. The ruling could influence future audits and refund claims across jurisdictions that conform to federal principles but apply their own sourcing rules.

NBCUniversal Loses Oregon Nexus Case

The Oregon Tax Court held that NBCUniversal had substantial nexus in Oregon from 2006 to 2010 despite lacking a physical presence. The ruling was based on the company’s contractual relationships with seven in-state affiliate stations and the revenue it earned from licensing programming and advertising targeted at Oregon consumers.

NBCUniversal had argued that it did not maintain a sufficient presence to be taxed in Oregon, but the court found the company’s activities amounted to a “continuous and systematic” exploitation of the state’s market. Specifically:

• NBCUniversal licensed broadcast rights to local affiliates, who aired programming within Oregon.

• The company earned advertising revenue tied directly to Oregon’s viewership base.

• Oregon consumers formed a significant part of the revenue stream, and NBCUniversal tailored its content distribution strategy accordingly.

The court emphasized that economic presence, not physical presence, is the modern constitutional standard under both the Due Process and Commerce Clauses, citing U.S. Supreme Court precedents and post-Wayfair interpretations.

The magistrate division rejected NBCUniversal’s claim that Oregon’s apportionment formula violated the Constitution, concluding that the company’s use of the state’s economic infrastructure—without paying taxes—would create unfair market advantages.

Impact: The case reinforces Oregon’s expansive economic nexus position and adds to a growing body of post-Wayfair jurisprudence that supports state taxing authority over out-of-state media, tech, and service companies. Multistate businesses with affiliate-driven delivery models should be prepared for similar challenges in other states.

Conclusion

March 2025 demonstrated that both state legislatures and courts are shaping the future of tax administration in significant ways. Businesses and practitioners should take note of the shifting legal landscape—from anti-deference legislation and state tax reform proposals to increasing reliance on economic nexus and the possibility of more aggressive state audits. As federal uncertainty looms, staying ahead of state-level changes will be more critical than ever.