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Overview of Minnesota’s Response to Federal Tax Reform

Minnesota has several bills pending that would address the Minnesota state tax implications of various provisions of the federal tax reform legislation (commonly referred to as the Tax Cuts and Jobs Act).

HF 2942

HF 2942 was introduced in the House on February 22, 2018. This bill would provide conformity to the Internal Revenue Code (IRC) as of December 31, 2017, including for corporate taxpayers. The bill makes clear that, with respect to the computation of Minnesota net income, the conformity to the Internal Revenue Code as amended through December 31, 2017, would be effective retroactively such that the federal provisions providing for the deemed repatriation of foreign earnings could have implications in Minnesota. (more…)




Southeast States Respond to Federal Tax Reform and NJ Senate Leader Talks Tax Surcharge to Limit Corporate “Windfall”

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. (more…)




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

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

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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