KBF State Income Tax Newsletter – 2nd Quarter 2025
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KBF’s quarterly newsletter updates clients on state and local income/franchise tax news, developments, and trends. Please note that this information is for discussion purposes only and does not constitute specific tax advice.
The second quarter of 2025 was a busy one with a number of jurisdictions enacting a variety of pivotal changes. Research and development dominated legislative activity, with Alabama allowing immediate deduction of R&D expenses by decoupling from federal Section 174, while Connecticut, Minnesota, and Texas each enhanced their respective R&D credit programs through increased recovery rates, partial refundability, and expanded eligibility.
Apportionment reforms continued reshaping interstate commerce taxation as Arkansas implemented market-based sourcing with bright-line nexus standards, Kansas adopted market-based sourcing and moved to single sales factor methodology, and Illinois adopted the Finnigan approach for combined reporting. These changes reflect states’ efforts to modernize decades-old allocation formulas.
Tax rate competition intensified with Georgia implementing immediate corporate rate reductions and planning further decreases contingent on revenue targets, while Philadelphia announced the multi-year phase-out of its gross receipts tax and a gradual reduction of its income tax rate. Additionally, Connecticut extended its corporate tax surcharge while New York decided not to extend theirs.
Read more about these updates by downloading the newsletter here. For more information or specific tax guidance, please contact Nick McMahon at [email protected] or connect with a KBF professional here.