As the second quarter of 2026 comes to a close, state legislatures continued to build on many of the tax policy trends that emerged earlier in the year. While the first quarter was largely characterized by efforts to reduce income tax burdens, provide property tax relief, and modernize state tax systems, the second quarter saw states begin implementing those priorities through enacted legislation and significant pending proposals.
One of the most notable developments was the continued expansion of state efforts to tax the digital economy. Utah enacted S.B. 287, establishing a new tax on targeted digital advertising revenues generated by large advertising platforms beginning in 2027. At the same time, lawmakers in Pennsylvania and Rhode Island considered similar digital advertising tax proposals, while California evaluated proposals that would expand the application of sales tax to Software-as-a-Service (SaaS) and other digital products. Together, these measures reflect a growing willingness among states to adapt traditional tax systems to modern digital business models and identify new sources of revenue within an increasingly technology-driven economy.
States also continued to reevaluate their business tax structures through corporate tax reforms, conformity legislation, and changes to the treatment of foreign-source income. Georgia enacted H.B. 463, reducing its corporate income tax rate from 5.19% to 4.99% and establishing a framework for future rate reductions. Meanwhile, several states considered significant changes to worldwide combined reporting, water’s-edge elections, and foreign income conformity, highlighting the continued tension between maintaining a competitive business tax environment and expanding state tax bases.
Another trend that gained momentum during the second quarter was the use of “tax swap” proposals designed to provide income or property tax relief while replacing lost revenue through broader consumption-based taxes. South Carolina enacted S.B. 866, the Municipal Tax Relief Act, authorizing certain local sales taxes to fund property tax relief. Missouri advanced HJR 173 and HJR 174, measures intended to facilitate future income tax reductions through sales tax base expansion, while South Dakota enacted S.B. 96, authorizing a local gross receipts tax as a mechanism for providing property tax relief. These measures illustrate the growing interest among policymakers in restructuring tax systems rather than relying solely on traditional tax increases or spending reductions.
Beyond substantive tax policy changes, the second quarter featured significant reforms to tax administration and controversy procedures. Louisiana enacted S.B. 196, extending the time period for taxpayers to appeal assessments and refund denials from 60 to 90 days. Maine likewise enacted L.D. 2178, creating an Independent Office of Tax Appeals to replace the state’s existing appeals framework and modernize tax dispute resolution procedures. These measures reflect a broader trend toward improving taxpayer rights, administrative efficiency, and procedural certainty.
The second quarter demonstrated that states remain focused on balancing tax competitiveness, revenue stability, and administrative modernization. Whether through digital advertising taxes, corporate rate reductions, conformity legislation, tax-swap initiatives, or taxpayer rights reforms, policymakers continued to adapt state tax systems to evolving economic conditions and fiscal priorities. As many legislatures adjourned their regular sessions and a handful of states turned to special session activity, these developments provide valuable insight into the policy trends likely to shape state and local tax discussions throughout the remainder of 2026.