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McDermott’s Take on State Tax after Reform
Thursday, March 1, 2018

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. 

How Legal Experts 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

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