Repatriation Could Complicate State Taxes for Apple, Exxon Mobil

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

Apple Inc., Exxon Mobil Corp. and other companies that would benefit from President Donald Trump’s proposal for repatriation of foreign earnings face uncertain tax liability from state and local governments.

The lack of clarity stems from not knowing which business unit would be deemed, for federal tax purposes, the recipient of the repatriated earnings, and how the federal government would treat the earnings.

“We are encouraging folks to take a look at their structure and give some thought about which might be the most likely recipient of the deemed repatriation,” Scott Schiefelbein, senior manager at Deloitte Tax LLP, said during a June 13 webinar.

American companies have stashed an estimated $2.6 trillion in foreign profits overseas to avoid paying corporate taxes in the U.S. Trump and congressional Republicans have proposed slashing the rate on accumulated foreign earnings to lure that money to the U.S.

During his campaign, Trump called for a 10 percent rate—though the tax-plan outline he released in April didn’t specify a rate. House Speaker Paul D. Ryan (R-Wis.) and others have proposed taxing foreign earnings held as cash at an 8.75 percent rate, and all other foreign earnings at 3.5 percent.

The move, along with another plan to enable companies to immediately expense the cost of large machinery and equipment purchases, is designed to put more money into the U.S. economy and stimulate job growth, the White House has said.

Complications for States

The changes, however, mean more complication when it comes to taxes at the state and local level.

States will be concerned with how the federal government defines the earnings, whether they be considered dividends or some type of miscellaneous income. Depending on the definition, states will have to react to align with the federal code or decouple, Schiefelbein said.

States and business taxpayers will want to determine which company entity is deemed to be the recipient of the repatriated funds, while the federal government won’t care which entity within a consolidated group is the recipient, Schiefelbein said.

Apportionment rates, nexus thresholds, and sourcing are issues that impact state tax revenue. Also, some states calculate taxes looking at an entire business, while others look at entities within the business.

Just when a sweeping tax bill will emerge from backroom negotiations in Congress is anyone’s guess right now, Valerie Dickerson, a lead tax partner at Deloitte, said. Members of Congress may be attempting to get on one page, when it comes to taxes, before making plans public, a lesson learned from the health-care bill earlier this year, she said.

States and groups that lobby for them in Washington told Bloomberg BNA they don’t believe they will need to respond to any sweeping changes to federal tax law before the next tax year.

“There is growing disbelief that tax reform will take place,” Max Behlke, director of budget and tax policy for the National Conference of State Legislatures, told Bloomberg BNA.

To contact the reporter on this story: Che Odom at COdom@bna.com

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

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