State Tax Changes, International Tax and ASC 740 Updates: Tax News Brief

Tax News Brief: 2026 Third Quarter

Weaver’s specialty tax services newsletter covers the key developments across our Specialty Tax Services practice, including state and local taxes (SALT), fixed assets, transaction tax advisory, tax provisions, tax credits and international taxes.

This quarter’s tax news brief highlights new state tax developments, including changes affecting digital assets, targeted advertising and federal tax conformity. It also covers international tax developments involving Section 245A, Section 898 and proposed regulations, along with fixed asset planning, severance tax incentives, Research Tax Credit (RTC) developments and ASC 740 considerations for umbrella partnership C-corporation (Up-C) transactions.

If you have questions about how these developments may affect your organization, contact us to discuss next steps.

©2026

State & Local Taxes

Sales & Use Tax | Income Franchise Tax

Sales & Use Tax

• Illinois enacted new taxes on targeted advertising and digital asset business activity, including a 0.2% digital asset tax on qualifying transactions, beginning January 1, 2027.
• Washington established temporary penalty relief for businesses affected by the 2025 expansion of retail sales tax to certain services, allowing qualifying businesses to voluntarily report and pay tax for periods through December 31, 2026, without certain penalties.

Income Franchise Tax

• Arizona updated its conformity to the federal Internal Revenue Code (IRC) and adopted many of the One Big Beautiful Bill Act (OBBBA) provisions, with changes applying retroactively to taxable years beginning after December 31, 2024.
• Florida changed its conformity to the federal IRC and decoupled from certain OBBBA provisions, including domestic research and experimental (R&E) expensing and qualified production property depreciation, for tax years beginning in 2026.
• Massachusetts partially conformed to certain OBBBA provisions while temporarily decoupling from federal business interest, depreciation and expensing changes and limiting Qualified Opportunity Zone (QOZ) treatment to Massachusetts zones.
• New York issued guidance on its retroactive decoupling from certain OBBBA provisions, including qualified production property depreciation and R&E deductions, requiring taxpayers to report state-specific adjustments for 2025 tax returns.
• Rhode Island decoupled from certain OBBBA provisions, including domestic R&E expensing and depreciation adjustments, and created a new 1% surtax on individual taxable income exceeding $1 million beginning in 2027.

Fixed Asset/Cost Segregation

• A federal court vacated IRS Notice 2025-42, restoring the potential use of the Five Percent Safe Harbor for wind and solar projects seeking clean electricity credits, subject to further legal or administrative action.
• Cost segregation can accelerate deductions, but a repair study may offer a more tax-efficient strategy for property owners planning a sale by generating current deductions while potentially reducing future Section 1245 recapture.

International Taxes

• In Siemens Medical Solutions USA, Inc. & Consolidated Subsidiaries v. Commissioner, 167 T.C. No. 5 (July 15, 2026), the Tax Court held Treas. Reg. Section 1.245A-5T invalid to the extent that its “extraordinary disposition rules” disallowed 50% of the dividends-received deduction that IRC Section 245A grants for the foreign-source portion of dividends from a specified 10%-owned foreign corporation. The regulation was Treasury’s attempt to close a gap created by the mismatched effective dates of Section 245A (distributions after December 31, 2017), the Section 965 transition tax and the Section 951A GILTI regime (controlled foreign corporation (CFC) years beginning after December 31, 2017), under which certain fiscal-year earnings escaped both Section 965 and GILTI yet remained eligible for the Section 245A deduction on later distribution.
• The tax court found the text of Section 245A unambiguous and ruled that neither the specific grant in Section 245A(g) nor the “general authority” in Section 7805(a) permits the Treasury to impose a limiting condition Congress did not enact. Applying the post-Loper Bright Enterprises v. Raimondo framework (no Chevron deference), the Court reasoned that “Treasury, not Congress, was concerned” about the tax-free gap and that policy concerns cannot override the statute’s plain meaning. The result was a full Section 245A deduction for Siemens and reversal of roughly $315 million in disallowed deductions, consistent with the Tax Court’s earlier reasoning in Varian Medical Systems, Inc. v. Commissioner.
• The OBBBA eliminated the provision under IRC Section 898(c)(2), whereby a specified foreign corporation (SFC) could elect a taxable year beginning one month earlier than that of the majority U.S. shareholder. Per the OBBBA, no such deferral is allowed for tax years beginning after November 30, 2025. The SFC’s tax year must now conform to the tax year of the majority U.S. shareholder. Proposed regulations were issued on July 31, 2026, which provide guidance with respect to the transition rules for those taxpayers affected by the repeal of the one-month deferral election, including guidance regarding allocating foreign taxes paid or accrued between the SFC’s first required tax year and succeeding taxable year. The proposed regulations also provide guidance related to foreign tax credit disallowances under Section 960(d)(4) for credits related to distributions of previously taxed earnings and profits.
• Transfer pricing issues can emerge during merger and acquisition transactions and influence purchase price negotiations. A recent Weaver success story illustrates how transfer pricing support helped identify and address these considerations before closing, preserving millions in transaction value.

Severance Taxes

• Wyoming enacted legislation creating a five-year severance tax incentive for qualifying tertiary enhanced oil recovery projects certified between July 1, 2026, and July 1, 2031, exempting applicable production from a portion of the state’s severance tax to encourage reinvestment in mature oil fields and long-term production growth.
• A Texas oil and gas operator generated approximately $70,000-$80,000 in monthly severance tax savings by identifying and claiming eligible deductions before returns were filed, reducing reliance on lengthy refund claims.
• Louisiana set the natural gas severance tax rate at 15.14 cents per thousand cubic feet (MCF) for production from July 1, 2026, through June 30, 2027.

Tax Credits & Incentives

• Texas taxpayers with RTC from multiple statutory regimes may be able to offset more than 50% of their franchise tax liability, as Comptroller guidance confirms the 50% limit applies separately to each RTC vintage.
• Smith v. Commissioner shows that contract terms can directly affect RTC eligibility, with payment terms and rights to research results determining whether research is considered funded and therefore eligible for the credit.

Tax Provisions

• Up-C transactions can create significant ASC 740 complexities, including deferred tax assets and tax receivable agreement liabilities that require careful accounting, tax provision and financial reporting considerations.

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