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Ext. PublicationYear-End Tax Planning for SALT: Key 2025 OBBBA Provisions and Strategies
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As federal changes under the One Big Beautiful Bill Act (OBBBA) ripple through the tax landscape, state and local tax (SALT) planning has become increasingly complex. From evolving conformity decisions and property tax reforms to renewed debates over the SALT deduction and pass-through entity taxes (PTETs), businesses and individuals alike should take stock of how their state-level obligations are shifting. Here’s what taxpayers should know and how to prepare for the year ahead.
State Budgets and Conformity in Flux
Most states enter 2026 with healthy rainy-day funds, but slower growth and lower revenues are on the horizon. States including Illinois, Maryland, New York, Pennsylvania, Colorado and Washington are already facing significant budget challenges. In response, many states are looking to broaden their tax base rather than enact politically unpopular tax rate increases.
One major way states plan to increase their respective tax bases is to delay or decouple from many of the OBBBA provisions. Twenty-four states automatically conform to the currently enacted Internal Revenue Code (IRC), although many have state specific modifications that will disallow many of the beneficial OBBBA provisions. The remaining states have fixed date conformity, which requires the state legislation to change the date of conformity. Many states are expected to update their conformity dates, but the timing is not clear. Notably, California recently updated its IRC conformity to January 1, 2025, which ironically does not include the OBBBA provisions.
Planning tip: Don’t assume automatic conformity. Model year-end provisions state by state, especially for depreciation, R&E and interest expense deductions.
Expanding the Tax Base: Incentives and Enforcement
States are approaching revenue generation with both a “carrot” and a “stick”:
- Incentives (the carrot): Some states, like New Jersey, have rolled out large credit packages for manufacturing and job creation. Others, including Oregon, New York and Maine, are fast-tracking renewable energy permits to allow companies to make large capital investments in their states before key federal deadlines.
- Enforcement (the stick): The Multistate Tax Commission (MTC) recently broadened its interpretation of “doing business” to include remote internet-based activities like warranty support, job postings and cookie-based analytics. This reinterpretation, adopted in states like New Jersey, New York and Massachusetts, erodes federal protections under Public Law 86-272 for companies selling tangible goods online.
Planning tip: Evaluate where your business may have created nexus under new MTC guidance and confirm filing positions and/or potential exposures.
Pass-Through Entity Taxes and the SALT Cap
The SALT deduction cap was expanded under OBBBA to $40,000 in 2025 before phasing back down. This has renewed attention on PTET elections as a planning tool. The PTET allows pass-through businesses to pay state income taxes at the entity level, shifting deductions from individual owners to the entity, effectively allowing state tax deductions that would have been limited.
While PTETs can reduce federal taxable income, they also create complexity:
- Election timing varies. For example, New York and New Jersey require elections within 2.5 months of the tax year start, while California requires an estimated payment midyear.
- State treatment of PTET credits for residents differs, potentially creating double taxation.
- Graduated tax rates may make PTET elections less beneficial for some owners.
Planning tip: Review PTET deadlines and model both entity-level and individual outcomes before making elections or estimated payments.
Residency and Mobility Audits on the Rise
High-income earners continue to relocate from high-tax states to low- or no-tax jurisdictions, raising scrutiny from revenue authorities. States like New York and California have intensified audits of domicile changes, while new taxes, including Washington’s capital gains tax and New Jersey’s “mansion tax” on high-value real estate transfers, may accelerate mobility trends.
Planning tip: For individuals changing their state of residency, document intent thoroughly. Maintain evidence of physical moves, community ties and financial relocation to withstand residency audits.
Property Tax Developments Across the States
Property tax remains one of the most visible and variable components of SALT planning. Each state (and often each county) operates under its own system for assessment, appeal and collection.
Recent legislative highlights include:
- Alabama and Indiana: Large increases in business personal property exemptions (to $100,000 and $2 million, respectively)
- Florida: Discussions about replacing property taxes entirely — a move that could create massive revenue gaps
- Texas: Voters approved three constitutional amendments in November 2025 expanding exemptions:
- Proposition 11: Raises the school tax exemption for elderly and disabled homeowners
- Proposition 13: Increases the school tax exemption for homeowners to $140,000
- Proposition 9: Exempts up to $125,000 of business personal property
While these measures provide near-term relief in Texas, they could reduce state revenues by more than $4 billion in FY2026-27, potentially prompting future valuation increases or alternative taxes.
Planning tip: Understand your property tax cycle and deadlines. Proactively review valuations early in the year to preserve appeal rights and prevent overassessment.
Other State-Level Tax Trends
- Sales and use taxes: Tariffs are generally included in the taxable base for sales tax but not for use tax when the taxpayer is the importer of record.
- Energy taxes: States reliant on severance and motor fuel taxes (e.g., Alaska, New Mexico, Wyoming) are watching declines in energy prices closely. Many are implementing higher EV registration fees to offset lost gas tax revenue.
- Digital services taxes: States such as Maryland are experimenting with new taxes on technology and digital advertising, mirroring trends in Europe.
Action Steps Before Year-End
- Evaluate state conformity to federal OBBBA provisions for depreciation, R&E and interest deductions.
- Assess PTET opportunities and confirm deadlines for elections and estimated payments.
- Document residency changes and travel patterns for individuals relocating.
- Review property tax valuations and plan for exemption filings or protests.
- Model cash flow impacts of new state-level incentives and credits before finalizing capital investments.
The Bottom Line
State and local tax planning in 2025 requires close coordination between federal and state provisions. OBBBA’s ripple effects, new conformity decisions and evolving property tax and residency rules can all influence a taxpayer’s year-end position. By reviewing elections, documenting moves and monitoring state legislation, taxpayers can minimize surprises and position themselves for smoother compliance in 2026.
Weaver’s state and local tax professionals can help assess multistate exposure, evaluate planning opportunities and manage filing complexities across jurisdictions. For information or assistance, contact us.
©2025
Year-End Tax Planning Series
The tax landscape in 2025 has shifted with The One Big Beautiful Bill Act, introducing important changes across individual, business and state and local tax areas. Weaver’s 2025 Year-End Tax Planning blog series delivers insights and practical guidance designed to help you navigate these updates and prepare for a successful year ahead.
