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BREAKING NEWS: Nebraska Bill Clarifies GILTI and Repatriation Are Deductible

Most states have historically not subjected foreign-source income to state income tax. Consequently, since the passage of TCJA, the vast majority of states have opted not to tax GILTI (with most states explicitly decoupling from GILTI or excluding at least 95% of GILTI from the state tax base) or repatriation income (only five states have failed to decouple or provide significant relief).

Unfortunately, the Nebraska Department of Revenue (DOR), despite for years consistently holding that foreign source (Subpart F) income is deductible as dividends received, ruled last year that GILTI and repatriation income are not deductible. The DOR ruling would start taxing foreign source income, a significant departure from Nebraska’s tax policies as established by the Legislature.

The Nebraska Legislature may decide the question, with today’s introduction of LB 1203. The bill would clarify the state’s policy that GILTI and repatriation income are deductible, as foreign dividends received or deemed to be received. The bill frames the policy as a clarification, and therefore applicable to tax filings prior to the bill’s effective date.

The STAR Partnership expects GILTI to be a continued important issue in the 2020 legislative cycle, and plans to continue to advocate for the exclusion of GILTI from the state tax bases either through legislation or administrative guidance.




Governor Cuomo’s Amended Budget Bill Would Address the Deemed Repatriation Dividend Provisions

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 in the new section 965 of the Internal Revenue Code (IRC).

Even before the release of the 30-day amendments, we expected the amount of foreign earnings deemed repatriated and brought into the federal income tax base under IRC § 965 would be considered “other exempt income” under the New York Tax Law and, thus, not subject to tax in New York as long as received from a unitary subsidiary. However, the Governor’s 30-day amendments make it clear that any amount included in the federal tax base under the repatriation transition provisions would be excludable from income, even if such amounts were received from a non-unitary subsidiary. This proposed exclusion for amounts deemed received from non-unitary subsidiaries is an expansion of New York’s usual policy. This expansion, however, would apply only with respect to the deemed repatriation of foreign earnings under IRC § 965.

The 30-day amendments also would make clear the federal deduction permitted under IRC § 965(c) (which facilitates a reduction of the effective federal tax rate on the deemed repatriated foreign earnings) would not be allowed in computing New York taxable income. We expected New York would make this proposed change because disallowing the § 965(c) deduction from New York taxable income would be consistent with excluding the deemed repatriation from taxable income.

Unlike other states, i.e., Connecticut, the Governor’s Bill does not address the amount of expenses attributable to the amount deemed repatriated under IRC § 965 and includable in the New York tax base. The Governor’s Bill would, however, provide that no penalties would be imposed for any failure to make sufficient estimated payments if the short-fall in payments is due to the increase in tax resulting from the inability to deduct such expenses from taxable income.

Please reach out to us with any questions about New York’s proposed treatment of the federal repatriation provisions or other questions about the potential law changes in New York.




Inaugural Seattle Tax in the City® | Highlights and Takeaways

McDermott extended its popular Tax in the City® program to Seattle, with a meeting on October 12 at the Amazon headquarters. McDermott established Tax in the City® in 2014 as a discussion and networking group for women in tax aimed to foster collaboration and mentorship, and to facilitate in-person connections and roundtable events around the country. The Seattle program was one of the best attended Tax in the City® events to date, featuring a CLE/CPE presentation about Privilege and the Ethics of Social Media by Cate Battin, Kristen Hazel and Jane May, followed by a roundtable discussion in which Elizabeth Chao and Sandra McGill discussed international issues related to income from digital products. Britt Haxton and Kristen Hazel discussed planning considerations related to federal tax reform, and Diann Smith provided the state and local tax considerations related to both issues. (more…)




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