Virginia and Georgia are two of the latest states to pass laws responding to the federal tax reform passed in December 2017, known as the Tax Cuts and Jobs Act (TCJA). Both states updated their codes to conform to the current Internal Revenue Code (IRC) with some notable exceptions.

Virginia

On February 22, 2018, and February 23, 2018, the Virginia General Assembly enacted Chapter 14 (SB 230) and Chapter 15 (HB 154) of the 2018 Session Virginia Acts of Assembly, respectively. Before this legislation was enacted, the Virginia Code conformed to the IRC in effect as of December 31, 2016. While the new legislation conforms the Virginia Code to the IRC effective as of February 9, 2018, there are some very notable exceptions. The legislation explicitly provides that the Virginia Code does not conform to most provisions of the TCJA with an exception for “any… provision of the [TCJA] that affects the computation of federal adjusted gross income of individuals or federal taxable income of corporations for taxable years beginning after December 31, 2016 and before January 1, 2018…” Thus, despite Virginia’s update of its IRC conformity date, Virginia largely decouples from the TCJA.
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States are moving to advance different solutions in their efforts to address federal tax reform. Illinois recently introduced legislation to addback the new deduction for foreign-derived intangible income (a topic we’ve previously covered), and its Department of Revenue has issued its position on other aspects of federal reform. Oregon, after resolving a controversy between

The 2017 federal tax reform bill, known as the Tax Cuts and Jobs Act (Act), made a number of significant changes to the law, particularly to the international tax provisions of the Internal Revenue Code (IRC). Last month, Illinois joined the growing number of states responding to the Act by proposing legislation purporting to add-back

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


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Determining financial statement impact from the state flow through of federal tax reform will be complicated by changes in state tax policy expected to be adopted. In our latest Tax Takes video, McDermott’s Steve Kranz and Diann Smith discuss the issues with Joe Henchman, Executive Vice President of the Tax Foundation. The group suggests options

New York is the latest state to address certain state tax implications of the 2017 federal tax reform bill, the Tax Cuts and Jobs Act. Governor Andrew Cuomo’s 30-day amendments to the Governor’s Budget Bill were released on February 15 and one piece of the amended Bill explicitly addresses the foreign-earnings, deemed federal repatriation provisions

Earlier this month, Connecticut Governor Dan Malloy released his Governor’s Bill addressing the various state tax implications of the federal tax reform bill enacted by Congress in December 2017, commonly referred to as the “Tax Cuts and Jobs Act.” Among other things, the Governor’s Bill addresses Connecticut’s treatment of the foreign earning deemed repatriation tax provisions of amended section 965 of the Internal Revenue Code (IRC). While the Governor’s Bill does not explicitly provide that the addition to federal income under IRC section 965 is an actual dividend for purposes of Connecticut’s dividend received deduction, the bill does protect Connecticut’s ability to tax at least part of the income brought into the federal tax base under the federal deemed repatriation tax provisions by defining nondeductible “expenses related to dividends” as 10 percent of the amount of the dividend.
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Last year, Illinois enacted a mid-year income tax rate increase. Effective July 1, 2017, Illinois increased the income tax rate for individuals, trusts and estates from 3.75 percent to 4.95 percent, and for corporations from 5.25 percent to 7 percent. The Illinois Personal Property Replacement Tax (imposed on corporations, partnerships, trusts, S corporations and public utilities at various rates) was not changed.

As we previously reported, the Illinois Income Tax Act contains a number of provisions intended to resolve questions regarding how income should be allocated between the two income tax rates applicable in 2017. 35 ILCS 5/202.5(a). The default rule is a proration based on the number of days in each period (181/184). For taxpayers choosing this method, the Department of Revenue (Department) has recommended the use of a blended tax rate to calculate tax liability. A schedule of blended rates is included in the Department’s instructions for the 2017 returns. The blended rate is 4.3549 percent for calendar year individual taxpayers and 6.1322 percent for calendar year C corporation taxpayers.
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McDermott hosted its last Tax in the City® women’s tax roundtable of the year in its Chicago office on December 14, 2017.

The Chicago Year-In-Review event featured a CLE/CPE presentation, “Key Provisions of International Tax Reform,” by Britt Haxton, Kristen Hazel and Sandra McGill, followed by a roundtable discussion on interest expense limitations, changes to net operating loss provisions, pass through tax rates and effects of tax reform on benefits.

Additionally, Catherine Battin, Mary Kay Martire and Jane May discussed the SALT perspective on the international tax reform provisions.  A summary of key Illinois income tax changes is below, and a thorough explanation of the new SALT implications in the tax reform bills can be found here.


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The federal tax reform package recently approved by Congress (the Bill) contains a cap on the state and local tax deduction that may be claimed by individuals on their federal income tax returns. The Bill provides that an individual may claim up to $10,000 of state and local property taxes and either income or sales