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. For further coverage, continue reading here.
How McDermott Will & Emery 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
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- 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