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 Che Odom
A leading provider of model state statutes doesn’t have immediate plans to craft any laws that may help states respond to federal tax changes in a uniform way.
That’s according to Bruce Fort, counsel with the Multistate Tax Commission (MTC), who spoke March 27 at the Tax Executives Institute Inc.'s (TEI) midyear conference in Washington.
The 2017 federal tax act ( Pub. L. No. 115-97) made sweeping changes, including shifting the U.S. tax system from a worldwide to a territorial tax regime in which all income is subject to taxation, no matter where it’s earned. This presents special challenges for states who, unlike the federal government, face constitutional restraints when it comes to taxing foreign income.
The law also eliminates many deductions, changes the way businesses expense large capital purchases, and alters the treatment of pass-through entities, among many other domestic income changes.
“State attorneys in tax departments were shocked Dec. 23 when this bill was signed,” Fort said. “Many were surprised some of this happened.”
State tax officials and lawmakers are a year behind their federal counterparts when it comes to reacting to the federal law, he said. They will need to time to hash through each provision and the impact it may have on revenue.
The MTC has a number of projects underway that relate to federal taxes, including a state response to a new federal centralized partnership audit regime. The MTC is an intergovernmental state tax agency that promotes uniformity or compatibility in state tax systems, in part by drafting model state tax laws and conducting joint state tax audits.
The MTC is discussing how it might respond to certain provisions of the new federal tax law, but no decisions have been made, Fort said. Developing a model statute typically takes the MTC months, if not years.
Taxpayers will need to keep an eye out for guidance and forms issued by state and local tax departments to know how to comply, Harley Duncan, a tax managing director at KPMG LLP, said at the TEI conference.
“Each state is going to have to tell you what to do” with many provisions related to the federal tax overhaul, particularly when it comes to foreign earnings, he said.
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