Tax Reform Friday: Virginia and Georgia Latest States to Update Their Federal Conformity Statutes


Two more states, Virginia and Georgia, have updated their states’ conformity to the Internal Revenue Code in recent weeks as more and more states respond to the sweeping changes brought about by Pub. L. No. 115-97 in the spring legislative cycle.
Virginia Generally Conforms to Federal Changes for 2017
With H.B. 154, Virginia updated its conformity date to Feb. 9, 2018, and conforms to most federal tax reform provisions impacting tax years beginning Jan. 1, 2017. Specifically, Virginia conforms to changes made to depreciation and cost recovery methods through the Bipartisan Budget Act as they apply to tax year 2017 but does not conform for tax years after that.
In Virginia Tax Bulletin VTB 18-1, the Virginia Department of Revenue explains that “[t]o the extent that [changes made by federal tax reform] affect the computation of federal adjusted gross income for individuals or federal taxable income for corporations during Taxable Year 2017, Virginia will conform to such provisions.”
Virginia Decouples from Increased Medical Expense Deduction 
However, Virginia specifically decouples from the increase to the medical expense deduction applicable for tax year 2017. As a result, Virginia individual income taxpayers must add back to Virginia income the difference between the amount deducted at the federal level using the temporary 7.5 adjusted gross income (AGI) floor and Virginia’s 10 percent AGI floor.
Virginia Decouples From Federal Changes for Tax Year 2018
Though Virginia updated its conformity date to Feb. 9, 2018, the state will not conform to most changes made by Pub. L. No. 115-97, as they apply to tax years beginning on or after Jan. 1, 2018. However, there are two exceptions: Virginia will conform to the provisions for tax relief for certain specified 2016 disaster areas and the extension of combat zone benefits to members of the armed forces performing services in the Sinai Peninsula of Egypt.
Virginia had previously decoupled from federal bonus depreciation provisions and net operating loss carryback rules amongst other provisions. As a result, Virginia does not conform to the modifications to those provisions for tax year 2017 or after.
Georgia Broadly Updates Conformity with Exceptions 
Georgia passed H.B. 918, updating its conformity to the Internal Revenue Code for tax years beginning on or after Jan. 1, 2017, to the Code in existence on Feb. 9, 2018, including any provisions enacted into law on that date, but having a later effective date. Georgia takes the approach of either conforming or decoupling from federal changes on a go-forward basis. As noted by the Georgia Department of Revenue, Georgia does not adopt I.R.C. § 199A for individual taxpayers though it does adopt the unlimited carryforward of net operating losses under I.R.C. § 172.
Georgia Conforms to I.R.C. § 179 Changes; Decouples From I.R.C. § 168(k)
Georgia adopts the new limitations for enhanced asset expensing, including the increase in the deduction limitation of $510,000 and the phase-out amount of $2,030,000 for tax year 2017. However, Georgia remains completely decoupled from federal bonus depreciation under I.R.C. § 168(k).
Georgia Temporarily Lowers Tax Rate for Corporations and Top Tax Rate for Individuals Starting in 2019 
Georgia also lowered its tax rate for corporations and top tax rate for individuals to 5.75 percent for tax years beginning in 2019. The state tentatively lowered the rate for both taxpayers further for tax years beginning in 2020 to 5.5 percent if the legislature and governor ratify such change in that year. The rate will revert to 6 percent at the end of the 2025 tax year.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How should states approach changes to their conformity law in light of federal tax reform?
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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