The two-step is a partner dance, consisting of a “leader” and “follower,” Wikipedia tells us. But when it comes to determining whether a state has adopted recently extended federal tax breaks, it can be difficult to tell who is playing which role.
Most states generally require corporate taxpayers to begin with federal taxable income when computing their jurisdiction’s corporate income tax. But the states have differing approaches to conformity to the Internal Revenue Code as well as choosing to adopt certain federal tax breaks.
The federal Protecting Americans from Tax Hikes Act of 2015 made permanent the $500,000 expense limitation deduction and phase out amount for qualifying purchases exceeding $2 million. Without this change, the amounts would have been $25,000 and $200,000, respectively, for tax years beginning after 2014. Will this change be incorporated into state corporate tax codes as well? It depends.
Determining which states will adopt the latest version of federal enhanced expensing requires a two-step process: (1) analyzing each jurisdiction’s general approach to conformity to the Internal Revenue Code, and (2) researching whether the state decoupled from the federal enhanced expensing provisions.
Some states conform to the current version of the IRC on a rolling basis and have not decoupled from the current federal enhanced expensing provisions. These states include: Alabama, Alaska, and Colorado among others.
A different subset of states have generally conformed to federal enhanced expensing provisions, but have not updated their federal conformity statutes to specifically refer to the version of the IRC that includes the extender provisions in the Protecting Americans from Tax Hikes Act of 2015. For example, Arizona and Florida conform to the version of the IRC as it existed on Jan. 1, 2015. As a result, the enhanced expensing provisions will not apply to the 2015 tax year until these states update their conformity statutes.
Arizona and Florida will likely follow the path of Virginia, which recently enacted H.B. 402 to update its conformity to the version of the IRC that existed on Dec. 31, 2015.
Several states have opted against adopting the federal enhanced expensing provisions. Examples of these jurisdictions include California, Indiana and Maryland.
As with other types of dances, there are different versions of the two step. Similarly, this two-step research process does not end with enhanced expensing. It must also be used to determine whether a state has adopted federal bonus depreciation as well as several other important federal provisions.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Do you believe most states will conform to permanent enhanced expensing?
Take a free trial to Premier State Tax Library, a comprehensive research service that delivers deep, unique analysis, and time-saving practice tools to help practitioners make well-informed decisions.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)