2025 SALT Tax Changes: 9 Key Updates for Business Growth and Multistate Compliance

State and local tax developments in 2025 present opportunities for businesses to refine planning and maximize benefits. From updated economic nexus thresholds to expanded deductions and streamlined property filings, understanding these changes allows you to make informed decisions and coordinate personal and business tax matters efficiently. This recap highlights key SALT updates that may help you optimize deductions, strengthen compliance, and position your business for continued growth across jurisdictions.

Top Nine Highlights of 2025

1. NY Domicile Ruling: Lessons from Hoff for Residency and Tax Planning

New York’s domicile ruling in Hoff v. New York Tax Appeals Tribunal reinforces that changing state residency for tax purposes requires more than formal declarations. Even after registering in Florida, the taxpayers’ ongoing time, business, and social ties to New York led the tribunal to sustain a domicile assessment. The decision underscores that states examine the full pattern of daily life including work, home use, and personal connections when determining residency. For individuals planning a move to a lower-tax state, deliberate, consistent actions that clearly shift professional and personal life are essential to minimize audit risk and establish a new tax domicile.

2. Massachusetts Sets $500K Threshold for Corporate Nexus

Massachusetts adopted Regulation 830 CMR 63.39.1, establishing a $500,000 sales threshold for economic and virtual nexus. Corporations may now fall under the corporate excise tax even without physical presence, including those with online sales, intangible property, or partnership interests.

The regulation outlines what creates nexus and where exceptions apply. Online activity, intangible property, and in-state visits usually count, while property in transit and activities shielded by Public Law 86-272 do not. Companies with limited or virtual connections to Massachusetts may need to reassess exposure under the new threshold.

3. Sales Tax Compliance for Ecommerce Sellers

Kelly Zack, MST, leader of AAFCPAs’ SALT practice, joined the Connex eCommerce Podcast to discuss how online sellers may navigate sales tax obligations. The conversation covered common misconceptions about nexus and marketplace rules while exploring strategies to simplify reporting and reduce compliance risk through automation.

The podcast provides practical guidance for ecommerce businesses looking to manage sales tax efficiently while focusing on growth. Listeners may gain insights into structuring operations and leveraging technology to stay compliant in a complex and evolving state sales tax environment.

4. What SaaS Companies Need to Know About State Tax Obligations

As SaaS companies expand across state lines and shift to subscription models, tax obligations grow increasingly complex. States differ in how they treat digital goods, with some taxing software as tangible property and others exempting it entirely. Economic nexus thresholds and remote team members may also trigger obligations even without a physical presence.

Companies may face additional obligations, including franchise, gross receipts, or net worth taxes. Bundled offerings and billing structures can affect taxability, making regular contract reviews essential. Proactive compliance through nexus studies, technology, and voluntary disclosure programs helps reduce risk and ensures businesses remain prepared as operations evolve.

5. Does Your Website Create Tax Exposure: Understanding California’s PL 86-272 Guidance

California is signaling a shift in how Public Law 86-272 applies to online activity. Certain website features, including customer logins, interactive chats, and return-processing tools, may exceed the law’s protection for solicitation of tangible goods, potentially creating a taxable connection even for out-of-state businesses.

While the guidance has faced legal challenges and is not currently binding, it reflects the state’s enforcement posture. Companies with significant California sales or interactive online platforms should assess whether their web presence could trigger income tax obligations and monitor developments in other jurisdictions following California’s approach.

6. OBBB Creates More Deduction Room for Middle-Income Filers

The One Big Beautiful Bill Act of 2025 raises the federal, state, and local tax deduction cap to $40,000 for most filers, offering relief for middle-income taxpayers in high-tax states. For the 2025 tax year, this temporary increase boosts the federal SALT deduction from $10,000 to $40,000, restoring some value to itemized deductions lost after the prior cap was instituted in 2017. Higher earners face a gradual phase-out, while pass-through entities may elect to pay state taxes on behalf of owners to maximize deductions.

The change opens planning opportunities for individuals and business owners, particularly in states such as New York, California, and Massachusetts. Coordinating personal and entity filings and reviewing overall tax liability can help taxpayers fully leverage the higher cap while remaining compliant with federal and state rules.

7. Court Upholds Massachusetts Tax on Business Gain After Owner Relocates

The Massachusetts Appeals Court ruled that a tech founder’s $4.7 million stock sale may be subject to state income tax, despite his move to New Hampshire. The court found the gain was tied to his prior employment and active role in the company, treating it as Massachusetts-source income rather than a purely passive investment.

The decision highlights potential tax risks for entrepreneurs selling company interests after relocating. Founders and executives should review equity agreements and consider planning strategies to address sourcing rules, as Massachusetts may assert jurisdiction over gains connected to business activities conducted in the state.

8. Massachusetts to Automate Penalties on Late Advance Payments Starting July 2025

Beginning July 1, 2025, Massachusetts will automatically assess penalties on businesses that miss required advance tax payments. The rule applies to businesses with more than $150,000 in annual liability for certain indirect taxes, including sales, meals, room occupancy, and marijuana retail taxes. Previously self-assessed, the five percent underpayment penalty will now be applied automatically if payments are late or miscalculated.

Businesses should review monthly remittance procedures to avoid penalties, as taxes collected from customers are held in trust and carry fiduciary responsibilities. Ensuring timely and accurate payments is essential to limit exposure, particularly for industries with high indirect tax liabilities such as cannabis retail.

9. MA Form 3ABC Due by 3/1 to Avoid Local Property Taxes

Charitable organizations in Massachusetts must file Form 3ABC by March 1 to qualify for local property tax exemptions. The return, filed with each city or town where property is owned, requires copies of the organization’s most recent Form 990 and Form PC, unless not applicable. Eligible property includes personal property, registered vehicles, and real estate used for charitable purposes, including property held for future use. AAFCPAs advises that clients track filing deadlines carefully to avoid unnecessary taxes and ensure compliance with state and local requirements.

Additional Developments

Other notable state and local tax activity in 2025 includes Maryland’s and Washington’s expanded sales tax on specified services. AAFCPAs monitors emerging guidance and regulatory updates to help clients remain compliant, optimize deductions, and plan proactively for future growth.

Maryland Expands Tax on Digital and IT Services

Starting July 1, 2025, Maryland will impose a three percent sales and use tax on a wide range of digital and technology-related services, including data services, IT support, software publishing, and web hosting. The state will also repeal the exemption for custom software, making fully customized solutions taxable. Businesses should review operations and contracts to assess exposure and prepare for compliance.

Washington Expands Sales Tax to Additional Services

Effective October 1, 2025, Washington will apply retail sales tax to select services including advertising, IT support, custom website development, live presentations, security, temporary staffing, and custom software. Some previously excluded digital automated services are now taxable, while telehealth remains exempt. Businesses providing or purchasing these services should update invoices, contracts, and tax reporting to reflect the changes.

How We Help

AAFCPAs helps businesses navigate the growing complexity of state and local tax obligations with practical, solutions-driven guidance. We provide multistate nexus analysis, apportionment studies, and compliance support across corporate income, sales and use, property, and other jurisdiction-specific taxes. Our team also assists with pass-through entity taxes, tax credits, economic incentives, and due diligence for mergers and acquisitions. By combining technical expertise with collaborative planning, we help you reduce risk, streamline reporting, and make informed decisions that support growth. Whether entering new markets, expanding operations, or addressing multistate compliance, our approach keeps your focus on business objectives while ensuring taxes are managed efficiently and strategically.

These insights were contributed by Kelly Zack, MST, Partner, State & Local Tax (SALT) and Brian O’Hearn, CPA, MSA, Tax Manager.

Questions? Reach out to our authors directly or your AAFCPAs partner.

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