Regular and special legislative sessions for the majority of states have come to an end. Many states used their sessions to address this year’s biggest question—to conform or not to conform to the 2017 federal tax act (Pub. L. No. 115-97). Other states chose to continue conforming to prior versions of the Internal Revenue Code, and yet others chose to keep rolling and conform to the current version of the code.
California is the only non-rolling conformity state still in regular session that has not yet passed legislation adjusting the general conformity date. A.B. 2855, which conforms to the 2017 tax act, is still alive and in the hands of the Committee on Appropriations. The state is expected to take action prior to the end of the legislative session on Aug. 31. As we wait for the Legislature’s decision, let’s take a quick look at what the rest of the states accomplished in their legislative sessions.
Thirteen states took initiative to conform to all or part of the 2017 tax act by passing legislation with a conformity date on or after Dec. 21, 2017, the date of the 2017 tax act’s passage. These states include: Florida, Georgia, Hawaii, Idaho, Indiana, Iowa (for tax years beginning in 2019), Kentucky, North Carolina, Ohio, Vermont, Virginia, West Virginia, and Wisconsin.
Six states continue to conform to versions of the code in effect prior to tax reform, including above mentioned California, Maine, Minnesota, New Hampshire, South Carolina, and Texas. Arizona became the only state that updated its conformity date with a date prior to federal tax reform. Arkansas, Mississippi, and New Jersey have no general conformity, and the remaining states have rolling conformity to the current version of the code.
States have also taken differing approaches on the 2017 tax act’s “hot button” provisions: global intangible low-taxed income (GILTI) and foreign derived intangible income (FDII) (I.R.C. §§ 250 and 951A), the qualified business income (QBI) deduction (I.R.C. § 199A), and repatriation of foreign income (I.R.C. § 965).
On the GILTI and FDII front, Idaho, North Carolina, Virginia, and Wisconsin have decoupled from both provisions; Georgia and Indiana decouple from the GILTI provisions, and New York decouples from the FDII provisions. Hawaii has decoupled from I.R.C. § 250, but conforms to I.R.C. § 951A, while Illinois does the opposite, specifically adopting the GILTI provisions of I.R.C. § 250, but decoupling from I.R.C. § 951A.
For the QBI deduction, Georgia, Hawaii, Kentucky, Oregon, Virginia, and Wisconsin have specifically decoupled from I.R.C. § 199A, while Iowa will require a partial addback of any income deducted for tax years beginning in 2019.
The new provisions on repatriation of foreign income have been arguably the most confusing aspect of tax reform, and they are a concern for static conformity and rolling conformity states alike. Repatriation has accordingly received the most attention from the states, with 18 states so far issuing guidance on how to calculate income under I.R.C. § 965 for state purposes. These states are Alabama, California, Colorado, Connecticut, Georgia, Florida, Idaho, Illinois, Indiana, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, and Wisconsin.
Seven months post-tax reform, states continue to address the ripple effect of federal changes at the state level. With most legislative sessions adjourned, states may not be able to pass legislation, but taxpayers should continue to be on the lookout for official guidance.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: As California’s legislative session comes to a close, how do you expect the state to address the 2017 tax act?
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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