While the outlook is unclear, waiting to see how things shake out is not a winning strategy
Jeff Worlton //June 12, 2017//
While the outlook is unclear, waiting to see how things shake out is not a winning strategy
Jeff Worlton //June 12, 2017//
One of the outcomes of last November’s election is that the near-term prospects for comprehensive federal tax reform increased considerably.
While most of the attention has been focused on federal tax impacts of reform, it is worth noting that, if enacted, any federal reform will have significant impacts on states and their income tax structures.
As a result, tax and finance leaders at companies should proceed with some dispatch in analyzing the potential impacts at the state level and the effect on a company’s state tax position of the current proposals.
Nearly every state that imposes a corporate income tax conforms to the federal internal revenue code. In large part, states begin the computation of state corporate taxable income with federal taxable income and, therefore, allow – for state tax purposes – many federal deductions. States do not generally conform to federal tax credits, such as those for alternative energy sources. In short, changes to the federal tax base may well have an impact on state taxes, but changes to federal credits and federal rates are unlikely to have a direct impact on state taxes.
Several other considerations will influence whether and how federal changes are likely to affect state taxes and whether they will be adopted by the states. These include:
The net result of all these factors?
The outlook for state corporate taxes will be highly uncertain for the next few years. There will be doubt as to whether federal reform will be passed; what it might contain; how it will affect the states; whether they will choose to adopt the federal model; and when the states might make determinations of how they will respond to a potential reform.
While the outlook is unclear, sitting back and waiting to see how things unfold is not a winning strategy.