In the months since the passage of Pub. L. No. 115-97, we have seen an increase in states issuing guidance on potential state-specific impacts of federal tax reform. In addition, a fair number of state legislatures have passed or introduced legislation addressing conformity to federal tax reform. Recently, Idaho and Wisconsin have taken rather interesting approaches in their responses.
Idaho was one of the first states to issue legislation in response to the passage of the 2017 tax act. H.B. 355, signed into law on Feb. 9, 2018, changed Idaho’s static I.R.C. conformity date from Jan. 1, 2017, to Dec. 21, 2017. However, a month later, Idaho passed a second piece of legislation, H.B. 463, signed on March 12, 2018, that bifurcates Idaho’s treatment of federal conformity. Eight days after that, Gov. Butch Otter (R) signed H.B. 624, the third piece of legislation on federal conformity to pass through the Idaho legislature. This trailer bill conforms to specific tax extender provisions seen in the Bipartisan Budget Act of 2018, as of Feb. 9, 2018.
As a result, as of publication of this blog, Idaho conforms to the I.R.C. as it existed on Jan. 1, 2018, for tax years beginning in 2018 and after. For tax years that began on any day in 2017, Idaho adopts a Dec. 21, 2017, static conformity date, strategically decoupling from the I.R.C. amendments resulting from the adoption of the 2017 tax act, except for the federal provisions on deferred foreign income (I.R.C. § 965) and medical/dental expenses (I.R.C. § 213), which Idaho conforms to as of Dec. 31, 2017.
Wisconsin adopts a similar bifurcated approach to conformity. Wisconsin A.B. 259, signed into law on April 3, 2018, pulls forward the state’s static I.R.C. conformity date from Dec. 31, 2016, to Dec. 31, 2017, for tax years beginning in 2018 and after. However, Wisconsin specifically decouples from various key provisions of the I.R.C., including:
I.R.C. § 59A on base erosion and anti-abuse tax;
I.R.C. § 163(j), which limits the business interest deduction;
I.R.C. § 199A, which creates a QBI deduction for pass-through entities;
I.R.C. § 245A on foreign source dividends participation exemption deduction;
I.R.C. § 250 on FDII and GILTI deduction; and
I.R.C. § 965 on repatriation.
For tax years beginning on any day in 2017, Wisconsin’s static I.R.C. conformity date remains December 31, 2016, with three exceptions. As a result, for tax year 2017, Wisconsin strategically decouples from the I.R.C. amendments resulting from the adoption of the 2017 tax act, except for the following key provisions: I.R.C. §§ 25B, 529A, 481, and 1371, centering around ABLE accounts and conversions of S corporations to C corporations.
For further discussion of state conformity to federal tax reform, check out Bloomberg Tax’s “Tax Reform Friday” series, posted every Friday.
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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