Shifting Tax Rules, Federal Penalty Relief and OBBBA Impacts: Tax News Brief

Tax News Brief: 2026 Second 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 evolving state and local tax developments, federal uncertainty around COVID-19 pandemic penalty relief and the One Big Beautiful Bill Act (OBBBA)-driven changes affecting fixed assets, international tax planning and credits. It also covers severance tax incentives, corporate alternative minimum tax (CAMT) reporting considerations and updated guidance shaping compliance, reporting and planning across jurisdictions.

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

• Wyoming enacted legislation creating a sales and use tax exemption for machinery used to produce value-added manufactured products within newly established industrial sovereign zones and extended the state’s broader manufacturing sales tax exemption through December 31, 2042.
• A Texas appellate court upheld a $3.17 million sales tax refund for returnable “porta-feed” containers, concluding the containers qualified for the broader manufacturing exemption because they were used in pollution control, quality control and regulatory compliance activities.
• Washington enacted technical corrections to its expanded sales and use tax rules for services, clarifying the taxability, sourcing and definitions applicable to advertising, IT and support services, while separately repealing many of the service expansions other than advertising, effective January 1, 2029.
• Michigan upheld the denial of a sales tax exemption where invoices failed to clearly distinguish taxable property from nontaxable labor at the time of sale, reinforcing the importance of contemporaneous documentation and accurate recordkeeping during audits.
• Indiana announced a tax amnesty program running from July 15 through September 15, 2026, allowing eligible taxpayers to resolve pre-2024 liabilities for various tax types with waived penalties, interest and collection fees, while also updating withholding rates and certain county tax rates.
• In PLR 26-003, the Colorado Department of Revenue ruled that a back-end payment processing and fraud detection provider was not required to collect Colorado sales tax because it did not control sales, inventory, pricing or customer-facing transaction terms, clarifying nexus and facilitator standards for similar e-commerce service providers.
• The Washington Department of Revenue concluded that professional implementation services and related travel reimbursements are subject to retail sales tax when provided in connection with a digital automated service, reinforcing the broad application of sales tax to SaaS-related implementation charges unless clearly excluded and separately stated.

Income Franchise Tax

• Rhode Island adopted permanent regulations confirming its decoupling from certain federal tax changes enacted under the OBBBA for tax years beginning on or before January 1, 2025, requiring taxpayers to add back affected federal income, deductions and allowances when calculating Rhode Island taxable income.
• The Texas Comptroller issued updated guidance clarifying that taxpayers with qualifying assets may claim the new franchise tax depreciation adjustment for the 2026 report year, regardless of whether the assets were disposed of during the report period.
• A New York administrative law judge held that self-created goodwill from a deemed asset sale under Internal Revenue Code (IRC) Section 338(h)(10) qualified as investment income rather than business income, resulting in mandatory New York S-corporation treatment and limiting the entity’s liability to the fixed dollar minimum tax, while still subjecting the gain to tax at the shareholder level on New York individual returns.
• The Pennsylvania Board of Finance and Revenue held that an out-of-state aircraft parts provider was protected from Pennsylvania corporate net income tax under P.L. 86-272 because its in-state activities were limited to solicitation, with no property, employees or post sale service activities conducted in the state.
• Maine’s highest court ruled that an out-of-state company had sufficient nexus for Maine income tax purposes because it stored inventory in in-state warehouses, reinforcing that holding inventory in a state may create income tax filing obligations even when sales activities are limited.

Federal Taxes

• A recent federal court decision interpreting COVID-19 pandemic disaster relief has raised questions about whether certain 2020-2022 late filing and late payment penalties may be eligible for refund treatment, though the IRS has not adopted this position. Taxpayers with potential exposure may need to consider protective refund claims before July 10, 2026 to preserve potential rights as the issue remains unsettled.

Fixed Asset/Cost Segregation

• Revenue Procedure 2026-17 allows taxpayers to withdraw prior Section 163(j) real property trade or business and controlled foreign corporation (CFC) group elections, potentially restoring bonus depreciation eligibility and increasing allowable interest deductions under revised adjusted taxable income (ATI) rules introduced by the OBBBA.
• IRS guidance under Revenue Procedure 2026-17 also provides a limited opportunity for certain taxpayers to revisit prior Section 163(j) elections made in 2022-2024, potentially reopening access to accelerated depreciation and 100% bonus depreciation.
• Notice 2026-16 provides guidance on qualified production property under the OBBBA, allowing certain manufacturing and production facilities to qualify for 100% bonus depreciation if placed in service within the applicable window, subject to integration rules and potential 10-year recapture if qualifying use ceases.

International Taxes

• Non-U.S. investments can add valuable diversification to a portfolio, but they can also introduce complex U.S. tax considerations. One of the more commonly misunderstood regimes in international tax is the Passive Foreign Investment Company (PFIC) regime. Weaver’s step-by-step guide helps identify PFIC exposure and related tax considerations.
• As a result of the OBBBA removing one benefit of the CFC group election — namely the ability to increase ATI for certain CFC inclusions — and the reinstatement of depreciation and amortization addbacks to ATI, taxpayers may want to reassess whether an existing CFC group election continues to provide value. Revenue Procedure 2026-17 offers a limited opportunity to revoke an existing election without being subject to the 60-month limitation rule. This allows taxpayers to realign their international interest limitation strategy with the revised statutory framework.
• The OBBBA is prompting multinational companies to reevaluate global tax structures with increased focus on entity classification, CFC planning and cross-border modeling to assess the impact of U.S. incentives on overall tax efficiency.
• The IRS recently released Notice 2026-17 announcing the U.S. Treasury Department’s intention to simplify the Section 987 regulations that were finalized in 2024 for taxpayers with foreign branches or other qualified business units (QBUs) using a different functional currency than their owners.
• Notice 2026-17 introduces an elective “equity and basis pool” method, modeled on the 1991 proposed regulations, that is intended to provide a more administrable way to compute Section 987 taxable income or loss and Section 987 gain or loss. The notice also proposes to ease several of the more burdensome aspects of the 2024 final regulations by narrowing the current loss-suspension rules, simplifying the recognition-grouping rules, modifying when Section 987 gain or loss may be deferred upon termination of a QBU and changing the definition of qualifying Section 987 hedges.
• Notice 2026-17 provides an election allowing CFCs to not recognize Section 987 gain or loss with respect to their owned QBUs. Overall, Notice 2026-17 is considered a welcomed simplification of the existing rules, though not a replacement of the 2024 final Section 987 regulations.
• In Varian Medical Systems, Inc. v. Commissioner, the U.S. Tax Court resolved two follow-up issues from its earlier 2024 decision on the Section 245A dividends received deduction (DRD). First, the court held that Varian could not claim the full DRD for Section 78 deemed dividend amounts tied to lower-tier CFCs because it failed to satisfy the holding-period requirements of Section 246(c)(5), which the court interpreted as requiring direct ownership.
• The court also held in Varian Medical Systems, Inc. v. Commissioner that, for purposes of calculating the foreign tax credit (FTC) disallowance under Section 245A(d)(1), the disallowance formula includes the Section 965(c) amount in the denominator.
• The Office of Associate Chief Counsel (International) issued Chief Counsel Advice (CCA) 202617012 providing clarifications for foreign-owned small businesses that may have missed their Form 5472 filing obligations. Form 5472 is an information return required of any U.S. corporation that is at least 25% foreign-owned, and the penalty for failing to file starts at $25,000 per year — a number that can add up quickly for a business that simply didn’t know the requirement existed.

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.

Tax Credits & Incentives

• Rising compensation for technical talent is increasing IRS scrutiny of Research Tax Credit (RTC) claims under Section 41. Taxpayers must clearly substantiate qualified research activities for highly compensated individuals through detailed time allocations, technical narratives and supporting artifacts to withstand IRS examination.
• George v. Commissioner reinforces that RTC claims under Section 41 depend on contemporaneous documentation, with supply qualified research expenses (QREs) allowed independently but poorly supported trials and base period estimates disallowed due to insufficient substantiation and flawed methodologies.

Tax Provisions

• The CAMT is becoming an increasingly important driver of ASC 740 tax provision complexity, with growing implications for financial reporting, disclosures and effective tax rate volatility. As companies move beyond initial implementation, attention is shifting to forecasting, credit carryforwards and the interaction between CAMT and deferred tax accounting under ASC 740.

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