Federal Tax Overhaul Presents Hurdles, Options for States

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By Che Odom

Dec. 8 — States will face increasingly tougher decisions over whether to follow changes to the tax code made by the president-elect and the Republican-controlled Congress or to decouple from federal rules.

That is according to two state tax policy experts speaking Dec. 8 at a meeting of the National Conference of State Legislatures.

“It is going to be a completely different tax code,” said Joe Crosby, a principal at MultiState Associates Inc., referring to the anticipated comprehensive tax overhaul. “So the challenges to states will be greater.”

President-elect Donald Trump and Republican leaders in the House and Senate have said one of their top priorities in the coming year will be to overhaul the tax code, including especially corporate income taxes.

Pressure to Conform

“Where you have the federal government broadening the base, getting rid of deductions and lowering rates, you are going to have pressure to do that on the states,” Helen Hecht, general counsel of the Multistate Tax Commission, said.

“You will have to decide whether to conform with the federal government across the board, or partially,” she said, adding that states could make adjustments while substantially conforming to federal tax law.

A reduction in rates and broadening of the base could mean more revenue for states without taking any action whatsoever, Crosby said. “And so that’s where the pressure is going to come,” he said. “I think it is something that states should look at very carefully, because the natural reaction will be to lower the rates, but there are other aspects of your tax code” that could be addressed.

Taxes on business equipment, for example, may not be good if states are trying to encourage economic growth, he said.

Ultimately, however, the changes in the federal tax code present opportunities, he said.

To contact the reporter on this story: Che Odom in Washington at codom@bna.com

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

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