The Bloomberg BNA SALT Blog is a forum for practitioners and Bloomberg BNA editors to share ideas, raise issues, and network with colleagues about state and local tax topics. The ideas presented here are those of individuals and Bloomberg BNA bears no responsibility for the appropriateness or accuracy of the communications between group members.
Monday, November 26, 2012
Because state tax codes are linked to the federal tax code in
various ways, many of the expiring I.R.C. provisions that comprise the
so-called fiscal cliff will have a mixed impact on state coffers, according to
a recent report by the
Pew Center on States.
States will be harmed by a tumble off the cliff to the extent that
higher federal tax rates or reduced aid dampen state economies.
But states will benefit from the cliff to the extent that expiring
federal tax breaks result in greater tax revenues. This is because for most
states, the computation of corporate and individual income tax begins with
federal adjusted gross income. From there, each state has its own modifications
in the form of additions and subtractions that a taxpayer must make to this
As a result, a higher federal adjusted gross income as a result of
tax breaks scheduled to expire in 2013, will likely produce higher state tax
liabilities as well.
One example of this is the federal treatment of bonus
depreciation. In 2012, a taxpayer may take an additional first-year
depreciation deduction equal to 50 percent of the property’s adjusted basis for
qualified property acquired after Dec. 31, 2007, and before Jan. 1, 2013. If
this provision is allowed to expire on Jan. 1, 2013, the states that conform to
it will no longer offer the tax break.
example is the federal enhanced expensing provisions. In 2012, a taxpayer may
expense up to $139,000 of the cost of §179 property. But beginning, Jan. 1,
2013, if this provision is allowed to expire, the taxpayer may expense only up to
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