Business Taxpayers Look for Guidance From States, IRS

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By Ryan Prete

Practitioners representing businesses are urging states to help their clients with guidance on the increasing complexities resulting from federal tax law changes.

“It’s just the nature of this law. Things are going to get more complex—states need to be able to offer more guidance to taxpayers,” said Harley Duncan, managing director and leader of the state and local tax group of the Washington National Tax practice of KPMG LLP, at the Georgetown University Law Center’s Advanced State and Local Tax Institute.

State lawmakers and revenue officials have begun to react to the 2017 federal tax act ( Pub. L. No. 115-97), addressing provisions that move the U.S. from a worldwide to a quasi-territorial system in which long-deferred foreign business income will be subject to a transition tax. The new federal law eliminates many deductions, expands the tax base, and alters the treatment of capital-asset depreciation, as well as earnings of partnerships.

States will see a windfall in business tax revenue by conforming to provisions that broaden the scope of what’s taxable without having to raise rates, practitioners tell Bloomberg Tax. A study by the Council On State Taxation (COST) and Ernst & Young LLP released in March found that, on average, businesses will pay 12 percent more in state taxes as a result of the sweeping federal changes.

“All these effects are intertwined, and have to be evaluated and analyzed on a state-by-state basis,” Messiha Shafik, a partner at Deloitte Tax LLP, said at the Georgetown Law conference May 31.

Complications Abound

Because of the trickle-down effects of the federal changes on state taxes, taxpayers need guidance from states on how the two levels of taxes interact, Valerie Dickerson, national leader at Deloitte Tax LLP, said at the conference. States, however, are still waiting for guidance from the Internal Revenue Service, she said.

State lawmakers should take steps to prevent an inadvertent and “arbitrary” tax increase on companies as a result of conformity to the Internal Revenue Code, Karl Frieden, vice president and general counsel at COST, said May 30 during a webinar hosted by COST and Bloomberg Tax.

While federal reform resulted in a lower burden on companies, “this is not the same outcome at the state level,” Frieden said. This has brought the debate over state taxes to the foreground, he said.

Because of efforts to raise awareness, “we are seeing a number of proposals to narrow the base” at the state level, Ferdinand Hogroian, senior tax and legislative counsel for COST, said May 30. “There is a question whether in the future there will be more decoupling"—such as Georgia’s decoupling from foreign business income provisions, including global intangible low-taxed income.

With assistance from Che Odom in Washington

To contact the reporter on this story: Ryan Prete in Washington at rprete@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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