Due to the current impact and the likelihood that states will consider legislation and agency guidance addressing federal tax reform implications for state business taxes, a united, effective, nationwide advocacy effort is needed to ensure the issues are consistently addressed on a multi-state basis. In preparation for anticipated ramifications, a multi-state coalition will need to consider the subjects summarized below. For further coverage, continue reading here.

How McDermott Will & Emery Can Help You:

  • Formation of a coalition of companies and industry trade organizations dedicated to proactively addressing state tax issues raised by federal tax reform on a nationwide basis
  • Identify and track, in real time, proposed state legislative and regulatory responses to federal tax reform
  • Analyze proposed state reforms and develop substantive amendments and comments
  • Develop and implement advocacy campaigns to secure favorable legislative and regulatory outcomes, including
    • Preparation of all advocacy collateral
    • Organization of on the ground advocacy, including retaining in-state advocates where needed
    • Activating allied organizations to ensure broad support
  • Provide support concerning the proper reporting of state responses to federal tax reform on company financial statements

Coalition Goals: 

  • Prevent state legislation expanding tax base through decoupling from federal deductions
  • Support state legislation adopting comprehensive federal reform conformity, with appropriate deviations
  • Identify and remedy Commerce Clause issues
  • Encourage states revenue department to publish guidance on issues such as definitional questions, apportionment approaches and problems with different group calculations
  • Identify and act on opportunities to address related issues through state responses to federal reform
  • Prepare to address potential nexus changes in response to South Dakota v. Wayfair

Potential Issues:

Deferred foreign earnings transition tax:

  • Inclusion at state level in year one
  • States decoupling from deduction
  • Apportionment issues

GILTI and FDII:

  • Inclusion in state taxable income
  • States decoupling from deduction
  • Apportionment issues

100% Expensing:

  • States decoupling from deduction
  • What depreciation regime to use if state decouples

Interest Expense Limitation:

  • Failure to decouple could lead to a tax increase
  • Interaction with state addbacks

NOL Limitations:

  • Advocating for state changes in situations where the 80% NOL limitation automatically impacts state tax liability
  • Need to guard against states affirmatively imposing an 80% limitation
  • Potential for advocating that states enact unlimited carryforward period

BEAT:

  • Need to guard against states mimicking this alternative minimum tax