As the third quarter of 2026 draws to a close, several state tax developments deserve attention from businesses operating across state lines. States expanded the taxation of certain digital products and services, reconsidered the treatment of data centers, and continued to diverge from federal income tax rules. A significant decision concerning Maryland’s digital advertising tax also shows that these changes can produce substantial litigation.
States expand taxation of digital products and services
Beginning January 1, 2027, California’s definition of tangible personal property will include certain digital products and associated copyright or patent interests. The change principally affects prewritten software, whether delivered on physical media, electronically, or through remote access, including software as a service. The California Department of Tax and Fee Administration has identified exclusions and exemptions and is developing implementing guidance. Sellers and purchasers should review how particular products are classified before the new rules take effect.
Kentucky made a more immediate change. Effective August 1, 2026, data brokering services became subject to the state’s sales and use tax. The Kentucky Department of Revenue advises providers selling these services to Kentucky customers to register and collect the 6% tax. Businesses that sell data or related services should review whether their transactions fall within the new category.
Other states are examining existing rules or considering future changes. Nevada requested a bill draft concerning retail sales of certain digital products for its 2027 session. In Texas, the Comptroller announced a comprehensive review of how the state applies its sales tax to data processing services after hearing concerns from affected businesses. Neither step has itself changed the applicable tax rules.
Louisiana continued rulemaking on its sales tax exemption for qualifying digital tools used by businesses, financial institutions, and healthcare providers. Purchasers relying on the exemption should monitor the final rule and maintain records supporting the qualifying use of their purchases.
Maryland’s digital advertising tax faces an appeal
In August, the Maryland Tax Court ruled for Apple, Google, and Peacock in three challenges to the state’s digital advertising tax. The court found grounds to invalidate the tax, including a conflict with the federal Internet Tax Freedom Act, reversed the refund denials, and ordered refunds with interest. Maryland has appealed the decisions. Businesses affected by the tax should follow the litigation and evaluate their own filing and refund deadlines rather than assume the tax has ceased to apply generally.
The decisions provide a counterpoint to the expansion of digital taxation elsewhere: the scope of a state’s taxing authority remains a live question even after a digital tax has been enacted and collected.
Data center incentives warrant a fresh review
North Carolina repealed its sales and use tax exemptions for electricity used at certified data centers. The repeal applies beginning with the first electricity billing period starting on or after August 6, 2026. Exemptions for certain other items used at qualifying data centers remain available. Operators must also report the amount of tax paid on electricity within 30 days after each quarter; the first report is due October 30, 2026.
The change illustrates why a data center’s tax treatment should be reviewed by type of purchase. Electricity, equipment, construction materials, and property can be governed by different provisions and effective dates. Businesses planning facilities or forecasting operating costs should test each component of an incentive package separately.
Federal tax changes do not flow through uniformly
North Carolina updated its reference to the Internal Revenue Code but did not adopt federal immediate expensing of domestic research and experimental expenditures. Individuals and corporations claiming the federal deduction must make a North Carolina adjustment.
New York also decoupled from federal treatment of research and experimental expenditures and accelerated depreciation for qualified production property. Its changes apply to tax years beginning on or after January 1, 2025. Businesses should review the required state adjustments before carrying federal deductions into state returns or estimates.
Compliance procedures continue to change
Pennsylvania changed the collection of Philadelphia and Allegheny County local sales taxes from a rule generally based on the vendor’s location to one based on where a taxable product or service is delivered. Vendors already required to collect Pennsylvania sales tax must collect the applicable local tax on sales to customers in those jurisdictions. Although the law has an earlier effective date, the Department of Revenue will begin enforcing the new collection rules on October 1, 2026.
North Carolina now allows certain remote sellers at least 60 days after exceeding its sales threshold to register and begin collecting tax, provided that crossing the threshold is their only basis for being engaged in business in the state. Illinois’s separate remote retailer amnesty program runs through October 31, 2026, and offers qualifying retailers a means to pay eligible sales tax liabilities with related penalties and interest waived.
Louisiana has also proposed rules addressing qualifying purchases by contractors and subcontractors on tax-exempt public construction projects. Businesses involved in those projects should monitor the final rule and preserve the exemption certificates and purchase records needed to support their claims.
Together, these developments call for targeted reviews of digital transactions, data center costs, federal-to-state income tax adjustments, and sales tax collection systems. They also reinforce the need to track proposed rules and litigation separately from changes that are already effective.