2025 State Legislative and Case Updates

2025 State Legislative and Case Updates

From retail delivery fees in Colorado and Minnesota to new court rulings in Texas, New York, and South Carolina, 2025 is already reshaping the state and local tax landscape. Legislatures are experimenting with digital services taxes, expanding sales tax bases, and introducing new compliance hurdles, while courts weigh in on everything from marketplace facilitator liability to the reach of information services. For businesses, lawyers, and tax professionals, staying ahead means understanding not just what passed, but why states are pushing these changes — and how those efforts will impact future tax enforcement.

Retail Delivery Fees and EV Taxes

States continue experimenting with retail delivery fees (RDFs). Colorado and Minnesota now impose fees on motor-vehicle deliveries of tangible personal property, with proposals pending in Connecticut, Hawaii, Indiana, Maryland, and Vermont. While often small in amount, RDFs create compliance challenges — especially when layered with sales tax nexus thresholds.

Electric vehicles (EVs) are also drawing new tax attention. Pennsylvania implemented a road user charge effective April 2025, imposing annual fees of $200 for EVs and $50 for plug-in hybrids, indexed to inflation in future years. Georgia has approved an alternative fuel tax effective January 2026, applying a per-kilowatt-hour charge at charging stations. States are experimenting with whether EV charges are treated as electricity sales or unique taxable services, leaving businesses facing compliance uncertainty.

Tariffs and the Sales Tax Base

Tariffs are once again raising questions about sales and use tax treatment. States vary in whether tariffs passed along to end consumers are included in the taxable sales price. South Carolina includes tariffs in the taxable sales price when passed through to customers. Illinois excludes tariffs as nondeductible costs of doing business in certain contexts. Washington explicitly includes tariffs in the value of imported property subject to use tax. For importers, resellers, and end consumers, clarity remains inconsistent across jurisdictions.

Expanding the Sales and Use Tax Base

Several states are considering or enacting expansions to their sales tax bases, especially targeting digital products and technology services.

• Louisiana HB 8 & HB 10: Expands sales tax to cover digital audio works, streaming, apps, prewritten computer access services, and certain information services. Exemptions exist for commercial use, health care facilities, and FDIC-insured institutions.
• Maryland HB 352: Proposes taxing data processing, hosting, IT consulting, system design, and related NAICS-based technology services.
• Washington SB 5814: Effective October 1, 2025, expands taxable services to include IT training, website development, security services, staffing, live presentations, advertising, and custom software access.

Digital Advertising and Services Taxes

Maryland’s digital advertising tax remains in litigation, with evidentiary hearings scheduled for July–August 2025. At the federal appellate level, the Fourth Circuit is considering whether restrictions on tax pass-throughs violate the First Amendment.

Meanwhile, more than 20 states have proposed taxes targeting digital advertising, social media, and data sharing. Proposals in California, Montana, New York, Rhode Island, Tennessee, and Washington highlight the political appeal of taxing large technology companies, but compliance challenges and litigation risks remain high.

Notable Court Cases in 2025

• Geo Group v. Hegar (Texas, March 2025): The Texas Supreme Court ruled that a private prison operator was not a government instrumentality, making its purchases taxable.
• Dynamic Logic v. Tax Appeals Tribunal (New York, April 2025): The Court of Appeals held that digital advertising effectiveness services qualified as taxable information services because benchmarking data was substantially incorporated into client reports.
• Amazon Services v. South Carolina DOR: The South Carolina Supreme Court granted review on whether Amazon was obligated to collect sales tax on third-party marketplace transactions prior to the state’s 2019 marketplace facilitator law.

Other Legislative Updates

• Washington HB 2081 & SB 5794: Adjust business & occupation (B&O) tax rates and remove various preferences while adding self-storage rentals to the taxable category.
• Alabama HB 191: Limits automatic application of state-level sales tax exemptions to local taxes unless ratified by counties or municipalities.
• Illinois & Maine Leasing Rules: Beginning January 1, 2025, lessors are no longer considered the consumer of leased property and must collect tax on lease streams.
• New Jersey Pilot Mediation Program: A two-year mediation program for sales tax disputes over $5,000 begins in October 2025, offering an alternative to traditional appeals.
• Texas Data Processing Rule: The Comptroller abandoned the “essence of the transaction” test for bundled services, shifting to a separability analysis.

Conclusion

The pace of change in state taxation is accelerating. Legislatures are expanding sales tax bases, targeting digital services, and introducing new compliance obligations, while courts continue to refine the boundaries of taxable transactions. Businesses and professionals must stay alert — the landscape is shifting quickly, and today’s proposals often become tomorrow’s enforcement priorities.