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California
The California Franchise Tax Board (FTB) has finalized its amended market-based sourcing rules for intangible property, effective for tax years beginning on or after January 1, 2026. These changes affect professional services, asset management services, and intangible property transactions. In general, the revenue source of intangible property will be based on where the benefit is used.
Colorado
Vendor Tax Fee – Currently, Colorado retailers can keep 4% of their sales tax collections up to $1,000 per filing period, to cover their expenses in collecting sales tax. This fee will be eliminated January 1, 2026.
Qualified Business Income (QBI) Deduction Add-Back Made Permanent – The state QBI deduction add-back was scheduled to expire as of the beginning of 2026 but has now been made permanent. The provision allows an amount equal to the federal QBI deduction to be added back by certain taxpayers to their federal taxable income for the purpose of determining their state taxable income. This provision applies to a taxpayer who files a single return with AGI greater than $500,000 or joint filers with AGI greater than $1 million.
Foreign-Derived Deduction Eligible Income (FDDEI) Add-Back – Taxpayers claiming a federal FDDEI deduction must add back that amount to federal taxable income beginning January 1, 2026.
The state also added Hong Kong, Republic of Ireland, Liechtenstein, Netherlands, and Singapore to its listed jurisdictions classification. Colorado has a rebuttable presumption that a C corporation is incorporated in a foreign jurisdiction for the purpose of tax avoidance if it is incorporated in a listed jurisdiction, and the new law gives the executive director discretion in making such a determination.
Premium Tax Credits – The Colorado Department of Revenue will sell up to $125 million of insurance premium tax credits and $125 million of corporate tax credits under the recently signed HB 25B-1004. This is part of a plan to close an expected budget shortfall resulting from the passing of federal tax changes. A qualified taxpayer may purchase insurance premium tax credits and corporate income tax credits from the state Department of Treasury and may apply the tax credits against its premium tax liability or income tax liability. A qualified taxpayer is either an insurance company authorized to do business in Colorado that owes premium tax liability to the state or a C corporation authorized to do business in the state that has or will owe income tax liability.
Kentucky
The state’s individual standard deduction for 2026 will be $3,360, up from $3,270 in 2025.
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