Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Che Odom
Business-interest advocates are banding together in an effort to help taxpayers respond to the various ways states react to changes in the 2017 federal tax law.
“We are a group of companies who have a view on the way states conform or make policy changes in response to the new federal tax law,” Stephen P. Kranz, a partner and tax attorney in the Washington office of McDermott Will & Emery, said about the new State Taxes After Reform (STAR) Partnership.
The partnership, organized by McDermott and the government-affairs firm MultiState Associates Inc., formed to advocate on behalf of the business community, which will face expansive changes at the state level as jurisdictions react to the new federal law.
Kranz and Joe Crosby, a principal with MultiState Associates, began discussing the idea for the STAR partnership when the federal bill became law in December, talking with various groups and companies about issues it raised.
The group will likely focus on a narrower set of business concerns, stemming from a smaller group of companies than those being addressed by other advocacy groups, such as the Council On State Taxation, Crosby told Bloomberg Tax.
New federal treatment of foreign business income, expensing, accounting for losses, and partnerships, as well as the way in which states couple with the Internal Revenue Code, are among the areas where taxpayers may find compliance at the state level difficult, according to the STAR website. It launched Feb. 6.
States base their tax codes in some measure on the I.R.C. for the sake of administrative and compliance ease. States, however, conform to the code in varying ways. The 2017 federal tax act ( Pub. L. No. 115-97), which includes many business income tax changes, will provoke very different responses from states.
Responses are already underway. New York lawmakers will consider coupling to the federal code ( S. 6974), creating a credit equal to any increase in individual tax liability resulting from the federal changes ( S. 6951), and possibly replacing some income taxes for wage earners with a payroll tax on employers.
California lawmakers have introduced a bill ( S.B. 227) that would allow charitable-contributions as a workaround of the new cap on the federal deduction for taxes paid to state and local governments.
Maryland and Illinois ( H.B. 4237) lawmakers are considering a similar bill. In addition, Maryland could adopt a personal income tax exemption, and Illinois a “privilege tax” on partnerships and other pass-through entities conducting investment-management services.
Nebraska ( L.B. 1090) and West Virginia ( H.B. 4146) also could continue allowing taxpayers to claim personal exemptions. In Pennsylvania, lawmakers may rescind a state revenue department bulletin that required companies to add back any benefits incurred by full expensing of capital purchases ( H.B. 2017).
Policymakers likely will be interested in hearing the business community’s suggestions on how best to respond to complicated business provisions in the federal law “while staying on the road to economic development,” Crosby said.
However, right now, many businesses aren’t as focused as they should be on state taxes, Kranz said.
The federal tax law created such significant changes that “demanded a lot of bandwidth to what has happened, but attention is beginning to turn to states,” he said. Taxpayers need to closely consider how states’ tax laws work today and how they will be modified, he added.
As an organization, STAR is developing goals related to how their business members would like to see states and jurisdictions react to the federal law.
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