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INSIDE SALT
In-depth coverage of legal issues surrounding state and local tax
INSIDE SALT
In-depth coverage of legal issues surrounding state and local tax
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Decoupling from DC: How HB 4961 redefines Michigan’s tax base

by and | Oct 20, 2025 | , , , ,

At the tail end of the 2025 – 2026 legislative session, Michigan’s Legislature moved swiftly to enact House Bill (HB) 4961, which decouples from five federal tax benefits enacted earlier this year under the federal One Big Beautiful Bill Act (OBBBA).

Given that many of the OBBBA’s provisions – particularly those expanding tax deductions or credits – will reduce taxable income and state revenue, Michigan is one of many states assessing the impact of the OBBBA’s changes. Earlier this year, the Michigan Department of Treasury estimated that following the OBBBA’s changes to Internal Revenue Code (IRC) Sections 174A, 168(k), 168(n), 179, and 163(j), state revenues would be reduced by approximately $540 million in Fiscal Year (FY) 2025 – 2026 and by more than $2 billion through 2030. While the state’s decision to decouple comes as no surprise for businesses operating in Michigan, this move eliminates – or significantly reduces – the state-level benefit of the following five federal tax changes made in the OBBBA.

Key decoupling provisions

IRC § 174A: Domestic R&D amortization

OBBBA: Under the OBBBA, Section 174A allows full expensing of domestic research or experimental expenditures incurred in taxable years beginning after December 31, 2024. The OBBBA also permits taxpayers to alternatively elect to amortize such expenses over five years.

Michigan: For tax years beginning after December 31, 2024, HB 4961 requires taxpayers to compute their Michigan income as if Section 174A were not in effect. This means that Michigan taxpayers will not receive a state-level benefit from the new research and development (R&D) amortization option. Research intensive businesses will also have higher taxable income.

IRC § 168(k): Federal bonus depreciation

OBBBA: The OBBBA permanently restores 100% bonus depreciation at the federal level for qualified property acquired after January 19, 2025. Prior to the OBBBA, bonus depreciation phasedown rules enacted under the Tax Cuts and Jobs Act of 2017 would have reduced bonus depreciation to 60% for property placed in service in 2024 and eliminated it entirely by 2027.

Michigan: Michigan has historically instructed taxpayers to compute their Michigan income as if Section 168(k) was not in effect, meaning that under Michigan law, any bonus depreciation claimed on a taxpayer’s federal return was not allowed for corporate income tax purposes. Under HB 4961, Michigan continues to decouple from Section 168(k).

IRC § 168(n): Disaster-area bonus depreciation

OBBBA: The OBBBA also introduces a new deduction under Section 168(n) for investments in qualified domestic factory property.

Michigan: HB 4961 does not recognize the new deduction under Section 168(n). Property that qualifies for bonus depreciation federally must be depreciated under regular Modified Accelerated Cost Recovery System rules for Michigan, leading to slower cost recovery and higher near-term taxable income.

IRC § 179: Expensing for small business property

OBBBA: The OBBBA enhances Section 179, which permits immediate expensing of certain equipment and software purchases (subject to federal dollar limits), by significantly increasing the expensing limit and phase-out threshold beginning in tax years starting after December 31, 2024.

Michigan: HB 4961 freezes conformity to [...]

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Update on State Responses to Federal Tax Reform: Illinois and Oregon

by and | Mar 8, 2018 | , , , , ,

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 its senate and house, is about to pass legislation addressing deemed repatriation income and repealing its tax haven inclusion provisions.

Illinois Issues Guidance on Federal Tax Reform

On March 1, the Illinois Department of Revenue (Department) issued guidance explaining its position with respect to how various law changes made in the 2017 federal tax reform bill, known as the Tax Cuts and Jobs Act (Act), will impact taxpayers in Illinois.

While, for the most part, the pronouncement provides a cursory analysis of the provisions of the Act and a conclusory statement as to whether each provision will result in an increase or decrease in a taxpayer’s adjusted gross income (for individuals) or federal taxable income (for corporations), there are a few items that do warrant some specific mention.

With respect to Illinois’ treatment of the Act’s new international tax provisions, the Department provides some insight into treatment of deemed repatriated foreign earnings and global intangible low-taxed income (GILTI). For purposes of both the deemed repatriated foreign earnings and the GILTI, the Act provides that a taxpayer computes its taxable income by including an amount in income and taking a corresponding deduction to partially offset the inclusion. The Illinois guidance indicates that the inclusion in Illinois will be net, with both the income inclusion and the deduction taken into account in determining a taxpayer’s tax base. This is consistent with the provisions of the Illinois corporate income tax that provide that the Illinois tax base is a corporation’s “taxable income,” which is defined as the amount of “taxable income properly reportable for federal income tax purposes for the taxable year under the provisions of the Internal Revenue Code.” 35 ILCS 5/203(b)(1), (e).

Mitigating the tax impact of these provisions, the Department also takes the position that the amount included as deemed repatriated foreign earnings or as GILTI will be treated as a foreign dividend eligible for Illinois’ 100 percent dividend-received deduction. See 35 ILCS 5/203(b)(2)(O), (b)(2)(G). This rationale is in accordance with the provisions in the Illinois statute that provide a dividend-received deduction for dividends received or deemed received under Internal Revenue Code sections 951 through 965. Thus, because the deemed repatriated foreign earnings are included pursuant to section 965 and the new GILTI is included pursuant to section 951A, those amounts should both be dividends eligible for the dividend-received deduction.

In addition, the Department has specified that the new provision limiting the use of federal net operating losses (NOLs) in an amount equal to 80 percent of the taxpayer’s taxable income is a change that could provide an increased tax base or increased tax revenue to Illinois. Corporate [...]

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Connecticut Responds to the Federal Repatriation Tax

by and | Feb 16, 2018 | , ,

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. (more…)



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Choices for Illinois Taxpayers in Implementing the 2017 Income Tax Rate Increase

by | Feb 15, 2018 | , ,

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. (more…)



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Tax Changes Implemented As Part of Revenue Package Supporting Illinois Budget

by | Jul 7, 2017 | , ,

Yesterday afternoon, after months of wrangling and a marathon 4th of July weekend session, the Illinois House of Representatives voted to override Governor Bruce Rauner’s veto of Senate Bill (SB) 9, the revenue bill supporting the State’s Fiscal Year (FY) 2017-2018 Budget. The vote ended Illinois’ two year budget impasse and may avoid a threatened downgrade of Illinois bonds to junk status. The key tax components of the bill as enacted Public Act 100-0022 (Act) are as follows:

Income Tax

Rate increase. Income tax rates are increased, effective July 1, 2017, to 4.95 percent for individuals, trusts and estates, and 7 percent for corporations.

Income allocation. The Act contains a number of provisions intended to resolve questions regarding how income should be allocated between the two rates in effect for 2017.

  • Illinois Income Tax Act (IITA) 5/202.5(a) provides a default rule, a proration based on the days in each period (181/184), for purposes of allocating income between pre-July 1 segments and periods after the end of June when rates increase. Alternatively, IITA 5/202.5(b) provides that a taxpayer may elect to determine net income on a specific accounting basis for the two portions of their taxable year, from the beginning of the taxable year through the last day of the apportionment period, and from the first day of the next apportionment period through the end of the taxable year.

(more…)



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