Corporate Close-Up: Vermont Resolves Budget Impasse, Adopts New Federal Conformity Date

Vermont Gov. Phil Scott (R) has acquiesced to the passage of the third iteration of the state’s budget bill, H. 16, without his signature, despite his own vocal opposition and veto of two prior draft budget bills. The passage of the bill prevented a government shut down when Vermont’s new fiscal year began July 1.

Most of the press on the bill centers around the increase of property tax rates and the decrease of individual income tax rates, however, the bill has an effect on corporate income tax provisions as well. Nestled deep into the bill’s 275 pages is an amendment to Vermont’s conformity date with the Internal Revenue Code, resulting in Vermont’s adoption of many of the amendments made by the 2017 federal tax act.

For tax years beginning Jan. 1, 2017, Vermont conforms to the I.R.C. as in effect on Dec. 31, 2017, after the passage of the 2017 tax act (Pub. L. No. 115-97).

H. 16 does not contain any specific decoupling provisions for corporate income tax purposes. Therefore, for the 2018 tax year and beyond, Vermont will now conform to newly created I.R.C. §§ 250 and 951 governing global intangible low-taxed income and foreign derived intangible income, as well as I.R.C. § 199A, creating the deduction from individual taxable income for qualified business income generated from a pass-through entity, as well as the amendments to I.R.C. § 965, governing the treatment of deferred foreign income. These sections have been among the hottest corporate income and pass-through-entity tax topics for states, with many taking affirmative action to decouple from them.

Despite H. 16’s effect of blanket incorporation of amended I.R.C. provisions, Vermont will continue to have its own laws for any I.R.C. sections it has previously decoupled from, including I.R.C. § 168(k), governing bonus depreciation, and I.R.C. § 172, setting forth net operating loss carryforward and carryback periods.

To study the effects of federal tax reform and Vermont’s tax regime as a whole, H. 16 creates a Vermont Tax Structure Commission to review the state’s revenue system and make recommendations on changes thereto. The Commission must submit a two-year work plan and budget to the state by Feb. 15, 2019 setting forth a timeline for review of the tax system, including income taxes. A final report is due to the General Assembly by Jan. 15, 2021.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What other effects will Vermont’s new conformity date have on corporate taxpayers?

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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