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The third quarter of 2026 brought several state tax developments that could affect how businesses price transactions, plan investments, and prepare returns. California enacted a sales tax expansion for prewritten software and SaaS beginning in 2027, while Kentucky began taxing data brokering services in August. At the same time, Maryland appealed a Tax Court ruling against its digital advertising tax, leaving the future of that tax unresolved.
Data center incentives also drew renewed scrutiny. North Carolina ended its sales tax exemption for electricity used at certified data centers while retaining exemptions for certain other qualifying purchases. Meanwhile, New York and North Carolina adopted rules that differ from federal treatment of research expenditures, creating additional state return adjustments. Our Q3 article covers these developments, along with changes to local sales tax collection and other compliance requirements businesses should watch as the year draws to a close.

On August 14, the Tax Court ordered refunds, with applicable interest, to Apple, Google, and Peacock TV. In each case, the court found that Maryland’s digital advertising tax violated the Internet Tax Freedom Act, the dormant Commerce Clause, and the Due Process Clause.

The court’s analysis may have implications beyond Maryland. It concluded that digital and nondigital advertising are sufficiently similar for purposes of the Internet Tax Freedom Act. Because Maryland generally does not impose a statewide tax on comparable nondigital advertising, the court held that the digital advertising tax was preempted by federal law.

The decisions also found constitutional problems with the tax’s use of worldwide revenue to establish the $100 million applicability threshold and determine the tax rate. In the Peacock TV decision, the court separately held that the statutory exemptions for certain broadcast entities and news media entities violated the First Amendment.