The 2025 state and local tax (SALT) season has officially wrapped up, and it brought a mix of familiar challenges and new developments for taxpayers and businesses alike. From evolving apportionment rules to ongoing debates over digital services taxes, this year's landscape was anything but static. Here's a breakdown of the most significant trends and what they mean for your tax planning strategy.

Major SALT Developments in 2025

This year, states continued to refine their tax codes in response to economic shifts and federal policy changes. While the federal government remained relatively quiet on SALT-related reforms, state legislatures were active, introducing and passing measures that impact both individual and corporate taxpayers.

One notable trend was the expansion of digital services taxes (DSTs), as more states sought to capture revenue from tech giants and remote transactions. This has created compliance headaches for multi-state businesses, which must now track and remit taxes across an increasingly fragmented patchwork of rules.

Remote Work and Nexus Rules

The post-pandemic remote work revolution continued to influence SALT policy. States like New York and California have been aggressive in asserting nexus over out-of-state employees, leading to disputes over income sourcing and withholding obligations. This year, several court cases highlighted the tension between state tax authorities and taxpayers over the 'convenience of the employer' rule.

  • New York's convenience rule remains a flashpoint, impacting remote workers who live in states with no income tax.
  • Some states, including Massachusetts, have shown willingness to compromise, offering safe harbor provisions for telecommuters.
  • Businesses are advised to review their payroll practices and ensure compliance with each state's specific requirements.

Corporate Tax Changes and Apportionment

Corporate taxpayers faced a shifting landscape as states modernized their apportionment formulas. The trend toward single-sales-factor apportionment continued, with more states adopting this method to encourage local investment and job creation. However, this has also led to increased complexity in calculating tax liability for companies operating across multiple states.

Additionally, the treatment of pass-through entities (PTEs) remained a hot topic. Following the federal cap on state and local tax deductions, many states implemented PTE-level taxes to allow owners to bypass the $10,000 SALT deduction cap. In 2025, more states fine-tuned these regimes, and some even expanded them to include additional entity types.

Market-Based Sourcing for Services

Another key development was the continued shift toward market-based sourcing for service revenue. This method, which allocates income based on where the customer receives the benefit, is now the standard in most states. However, disputes over how to determine 'market' in the digital age have led to increased litigation and administrative guidance.

For businesses offering SaaS or cloud-based services, the question of where the service is 'used' has become a central issue, requiring careful analysis of customer locations and contracts.

Compliance and Enforcement Trends

State tax authorities ramped up enforcement efforts in 2025, using data analytics and third-party information to identify non-compliance. This has led to a rise in audits and notices, particularly targeting remote sellers and marketplace facilitators. Many states have also increased penalties for late filings and underpayment, making it crucial for taxpayers to stay ahead of deadlines.

At the same time, states have improved their amnesty programs and voluntary disclosure options, offering taxpayers a chance to come into compliance with reduced penalties. These programs can be a lifeline for businesses that have unwittingly accumulated multi-state tax exposure.

Technology and Tax Administration

The adoption of technology in tax administration accelerated, with more states rolling out modernized filing platforms and real-time audit capabilities. While this improves efficiency, it also means errors are more likely to be caught quickly, increasing the importance of accurate data reporting.

  • States are increasingly requiring electronic filing for all returns, including amendments and extensions.
  • Some states have begun using AI-driven tools to flag anomalies in returns, leading to more targeted audits.
  • Taxpayers should invest in robust tax software and consider consulting with specialists to navigate these new technologies.

Key Takeaways

As the 2025 SALT season concludes, the key themes are clear: digitalization, remote work, and aggressive enforcement are reshaping the state tax landscape. Taxpayers must remain vigilant, proactively managing their nexus footprint and staying informed about legislative changes. With the possibility of federal SALT reforms on the horizon, staying flexible and adaptable will be more important than ever.

Whether you're an individual dealing with state deductions or a corporation navigating apportionment, the time to review your 2025 filings and plan for 2026 is now. Consult with a tax professional to ensure you're not leaving money on the table—or, worse, exposing yourself to penalties.