Indiana Enacts Federal Conformity Bill With $150M Tax Bump

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Alex Ebert

Pass-through entities could see a tax increase from an IRC conformity law passed quickly in a special session and signed the same day by Indiana Gov. Eric Holcomb (R).

H.B. 1316, signed May 14, would raise about $150 million in new revenue over the next three years, mostly from adopting the 2017 federal tax act’s ( Pub. L. No. 115-97) limits on pass-through entity excess-business losses.

The law also decouples from other parts of the federal act that would have increased taxes on corporations. A previous bill would have adopted federal laws on net operating losses, limitations on net interest deductions, and inclusion of global intangible low-taxed income—known as the GILTI tax—that would have raised roughly $339 million over three years.

But those changes were ditched, proponents said, because these types of taxes either had never been collected by the state before or interfered with Indiana’s overall goal of having one of the lowest corporate income tax rates in the country. Indiana’s current rate sits at 6 percent but is set to periodically decline to 4.9 percent by July 2021.

In addition, the bill tweaked several parts of the state tax code by:

  •  eliminating the sales tax for library book sales,
  •  allowing businesses to carry forward state economic development credits from 2017 to 2018,
  •  permitting the Indiana Department of Revenue to waive interest and penalties for a short period on new taxes created by the new federal tax law, and
  •  broadening the state education savings account (529) system to include some K-12 expenses.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bloomberglaw.com

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

For More Information

Text of H.B. 316 is at http://src.bna.com/yMZ.

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