In response to the 2017 federal tax act, Idaho released guidance on its conformity to the 2017 and 2018 tax year changes for businesses and individuals. The report notes that because Idaho has historically conformed to the Internal Revenue Code on an annual basis, the Idaho legislature will need to evaluate and update its own code to implement most of the federal changes.
The Idaho Tax Commission, who drafted the report, is particularly concerned about the changes to foreign source income for corporate taxpayers that are applicable to tax year 2017. Because Idaho has taxpayers who file group returns on both a water’s edge and worldwide basis, changes to sourcing of income from foreign corporations will have incongruous effects on Idaho tax revenue. The report states that multinational corporations have wider latitude then individuals in choosing their filing methods and structure and that corporate taxpayer responses to these changes cannot be anticipated.
In terms of provisions going into effect in 2018, there are a number of changes in the federal code that impact Idaho business taxes. Idaho estimates that the new deduction for qualified business income received from pass-through entities could cost the state more than $30 million in tax revenue, while changes to I.R.C. § 179 and the repeal of I.R.C. § 199 will largely offset each other.
Additionally, the new federal limitations on interest expense require that amounts in excess of 30 percent of a taxpayer’s taxable income be carried forward as a net operating loss (NOL). However, Idaho doesn’t conform to the federal NOL carryforward rules to begin with. The report warns that without action by the legislature, the excess amounts will be permanently lost for Idaho tax purposes.
The tax act also expands the number of small businesses who may use simplified, cash accounting by raising the threshold for accrual accounting to those businesses with more than $25 million in gross receipts. Idaho estimates that this will decrease taxable income for many small businesses and will represent a negative revenue impact of $12.8 million to Idaho tax receipts.
However, the changes to corporate taxes may pale in comparison to the complexities of individual income tax changes. Deciding how to deal with changes to personal exemptions and itemized deductions are critical as, without changes, Idaho estimates an effective tax increase on Idaho individual taxpayers of upwards of $120 million for 2018.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How show the Idaho legislature approach legislation to address conformity to federal tax reform?
For more information on the impact of Pub. L. No. 115-97, examine Bloomberg Tax’s Tax Reform Roadmap, showing detailed comparisons between pre-reform law and impending changes, with pertinent cites attached.
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