For the 18th consecutive year, Bloomberg Tax has sought to clarify each state's position on gray areas in state tax by sending questionnaires to senior state tax department officials in all 50 states, the District of Columbia, and New York City. This year we asked the states a series of questions related to conformity to certain provisions of federal tax reform. As one might expect, the results show that many states are not yet sure how to navigate these changes.
Of the 44 states that responded to the income tax portion of the survey, only a handful (10) of states provided substantive responses to the questions related to federal tax reform. “It looks like most of the states are taking a wait and see approach on making changes to address issues with their corporate income tax,” Fred Nicely, a senior tax counsel for the Council On State Taxation, told Bloomberg Tax on March 26, 2018.
“The low number of affirmative response to the questions regarding whether a state agency will support conforming to new federal provisions (deductions, NOLs) is not terribly surprising given that some 20 states indicated they are setting up study processes (and many more than that are actually engaged in such study). The timing of this survey is so close to the implementation of the new federal tax regime that it would be difficult for respondents to provide any real degree of certainty to readers,” Brian Kirkell, a principal with RSM US LLP's Washington National Tax Office, told Bloomberg Tax on March 30, 2018.
Of the 10 states that provided responses to the questions on conformity to federal tax reform, only one state, West Virginia, responded “yes” to all of the questions. On the other hand, Colorado, Nebraska, and Utah responded “no” to all of the conformity questions. Several states, such as Indiana and North Carolina, pointed out that they already require special adjustments for bonus depreciation and asset expensing. New Mexico indicated that they would conform to major provisions impacting interest expenses, bonus depreciation, asset expensing, and the domestic production activities deduction, but that they would not conform to the provisions related to net operating losses.
While many states declined to provide answers to questions related to specific provisions, 21 states indicated that they were in the process of studying the impact that tax reform would have on their revenue. Marilyn A. Wethekam, a partner at Horwood Marcus & Berk, told Bloomberg Tax on March 27, 2018, that it was a “pleasant surprise” to see that so many states had already begun studying the impact of tax reform, noting that “it is a good sign that they were on top of it.”
To find up-to-date coverage on the states reactions to federal tax reform, check out Bloomberg Tax’s Tax Reform Watch.
To see an analysis of the states’ responses to key portions of this year’s survey, a free Executive Summary of the Bloomberg Tax 2018 Survey of State Tax Department can be downloaded after April 26, 2018 here. The survey covers a host of topics including nexus, sourcing, and the tax treatment of pass-through entities.
Continue the discussion on Bloomberg Tax's State Tax Group on LinkedIn: How do you think states will respond to federal tax reform?
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