2026 Taxation Outlook: Permanent Federal Relief
and
the New State Race for Competitiveness
2026 Tax Changes You Need To Know
John Smyk, CPA, MBA
Business creator and facilitator for growth
Executive Summary
2026 marks a landmark shift in the American tax landscape. With the One Big Beautiful Bill Act (OBBBA) making key federal tax cuts permanent and 43 states implementing significant reforms, the “sunset” of previous tax eras has been replaced by a new, pro-growth foundation. From the $40,000 SALT cap relief and permanent 100% bonus depreciation to innovative “Trump Accounts” for children, this update breaks down the essential changes every business owner, worker, and investor needs to know to stay ahead in 2026.
The Federal Catalyst
For years, taxpayers and businesses have been bracing for a 2026 ‘tax cliff.’ That cliff has officially been bridged. The passage of the One Big Beautiful Bill Act (OBBBA) hasn’t just extended the status quo—it has fundamentally redefined tax competitiveness across the United States. While the federal government has solidified lower individual rates and boosted deductions for working families, the real story is happening at the state level.
As nine states race to lower income taxes and others overhaul everything from cannabis excise rules to remote-seller nexus thresholds, the window for strategic planning is now wide open. Whether you’re a veteran in Arizona, a tech firm in Delaware, or a remote seller in Illinois, 2026 is the year where the ‘new normal’ of American taxation begins.
Let's summarize the key components:
1. Individual Income Tax Reductions
Nine States will reduce their individual income tax rates in 2026:
- Ohio: Transitions to a single-rate flat income tax of 2.75% joining Arizona (2.5%), Colorado (4.4%), Idaho (5.8%), Illinois (4.95%), Iowa (3.8% in 2025; moving toward a lower flat tax), Michigan (4.25%), Pennsylvania (3.07%), Utah (4.55), and as follows:
- Kentucky: Reduction from 5.2% to 3.5%
- Nebraska: Significant reduction from 5.2% to 4.55%
- North Carolina: Phasing down continues, reducing form 4.25% to 3.99%
- Other reductions: Georgia 5.09%, Indiana 2.95%, Mississippi 4.0%, Montana 5.65%, and Oklahoma 4.5%
2. Corporate and Business Tax Changes
- Rate Cuts: Four States to lower corporate income tax rates: Georgia 5.09%, Nebraska 4.55%, North Carolina 2.0%, and Pennsylvania 7.49%
- Franchise Tax Phase-Outs: Louisiana and Mississippi will continue phasing out their capital stock (franchise) taxes, which are generally viewed as economically harmful to capital-intensive businesses.
- Federal Decoupling: Delaware S-corporations and partnerships will officially decouple from federal focus depreciation (OBBBA §§ 168(k) 100% Bonus Depreciation, Permanent and 168(n) Qualified Production Property, Temporary), affecting how they expense machinery and equipment.
3. Sales and Excise Tax Shifts
Groceries: Illinois and Arkansas are eliminating or repealing state sales taxes on groceries (though local governments in Illinois may replace the state levy with their own).
Cannabis & Hemp: Michigan will impose a new 24% wholesale tax on cannabis, while Alabama introduces a 10% excise tax on consumable hemp.
- Fuel Taxes: Michigan is overhauling its fuel taxation by exempting motor fuel from sales tax but increasing the per-gallon excise tax to 51 cents. Fuel tax increases will also hit Minnesota, Oregon, and Utah.
- Nicotine: New or increased taxes on alternative nicotine products (vaping, etc.) are taking effect in Maine, Nebraska, Oregon, and Washington.
4. Property Tax Relief
The Arizona Opportunity: In your Property Tax Relief section, explicitly mention that Arizona’s expansion for veterans includes a full exemption for those with a 100% VA disability rating.
Veterans & Seniors: Arkansas, Indiana, and Missouri are expanding property tax exemptions for veterans and fixed-income seniors.
Montana’s Tiered System: Montana will implement a tiered property tax system where owner-occupied homes receive lower rates compared to second homes and rental properties.
- Business Personal Property: Arizona, Indiana, and Wyoming are increasing “de minimis” exemptions, meaning more small businesses will be exempt from paying taxes on equipment and furniture.
5. Remote Seller Changes
Illinois: shift to a pure $100,000 sales threshold is a significant relief for small e-commerce businesses that previously struggled with the complex 200-transaction count.
In conclusion, many of the positive changes are being triggered by the One Big Beautiful Bill Act (OBBBA), that requires States to decide whether to conform or to decouple from the new Federal tax treatments, in particular regarding Research & Development expensing and interest limits. Determine your decision-making not only at the Federal level, but also at the State level. Both, business and personal taxation decisions will become a factor in your strategic tax planning.
Source of data: https://taxfoundation.org/research/all/state/2026-state-tax-changes/
Is Your Business Prepared
for the 2026 Shift?
The OBBBA is changing the federal landscape, but state conformity varies wildly. Don’t leave your 2026 tax strategy to chance. Contact Arizzon Capital for a customized ‘State Impact Assessment’ today.