What are the State Tax Implications of International Tax Reform? Jeff Friedman and others outline the key points at the COST 2018 Spring Audit Session/Income Tax Conference in snowy Boston, Massachusetts.
These issues were also addressed in a recent article, “Waiting for the Other Shoe to Drop: State and Local Tax Implications of Federal Tax Reform – International Tax Provisions,” in Bloomberg Tax – Daily Tax Report: State by Jeff Friedman, Todd Betor and Michael Spencer.
On April 10, 2018, and April 13, 2018, Oregon Governor Kate Brown signed into law S.B. 1529 and S.B. 1528 (the Bills), respectively, which provide a series of changes to Oregon’s income tax laws in response to recent federal tax changes as part of the federal Tax Cuts and Jobs Act. Most notably, the Bills: (i) update the state’s IRC conformity date to December 31, 2017; (ii) decouple from the federal temporary dividend received deduction with respect to the transition tax under IRC § 965 by requiring an addback of the federal deduction allowed under IRC § 965(c); (iii) provide relief from double taxation of repatriated income for taxpayers subject to Oregon tax under the state’s tax haven legislation by allowing a credit equal to the lessor of any taxes paid attributable to the tax haven addback for years beginning on or after January 1, 2014, and before January 1, 2017, or the amount of Oregon tax attributable to income reported under IRC § 965 for tax years beginning on or after January 1, 2017, and before January 1, 2018; and (iv) establish a state Opportunity Grant Fund and provide individual and corporate income tax credits for contributions made to this fund. Although taxpayers are required to addback the amounts deducted under IRC § 965(c), the Oregon Department of Revenue has issued guidance stating their position that the transition tax’s income inclusion is eligible for the state’s dividends received deduction under ORS 317.267(2)(b), which provides an 80% deduction for dividends received from a 20% owned corporation and a 70% deduction for all other dividends.
The Bills also repeal the tax haven addback found under Oregon Revised Statutes section 317.716 and require the Department of Revenue to evaluate the efficacy of including global intangible low-taxed income (GILTI) under IRC § 951A in the state tax base in comparison to Oregon’s now-repealed tax haven addback, with a report to be issued on or before December 1, 2020.
Read more here: Oregon Senate Bill 1528; Oregon Senate Bill 1529; Oregon Corporation Excise/Income Tax Update
The Georgia legislative session concluded on March 29, 2018. In addition to two major bills relating to federal tax reform, Georgia enacted several other pieces of notable tax legislation.
The New York Legislature passed its 2018-2019 Fiscal Year budget on March 30, 2018, which is expected to be signed into law by Governor Cuomo. The Legislature responded to the Tax Cuts and Jobs Act (TCJA) passed by the United States Congress late last year by excluding IRC § 965 repatriated income from New York taxable income. However, the final budget failed to address other TCJA provisions, such as the tax on global intangible low-taxed income (GILTI) and the interest expense limitation under IRC § 163(j). Thus, New York will conform to these federal tax changes.
The state and local tax (SALT) implications of federal tax reform are numerous, yet still often unclear. With states releasing new law and guidance about federal tax reform, taxpayers must stay abreast of this very dynamic area of law. In this videocast, Todd Lard and Todd Betor discuss the gating question to the SALT implications of federal tax reform—state conformity to the IRC—along with other SALT considerations pertaining to major general, domestic and international tax provisions included in the new tax law.
On March 21, 2018, the Georgia Legislature passed SB 328 (the Bill) to exclude IRC § 951A (GILTI ) from Georgia taxable income. The Bill treats GILTI as Subpart F income for purposes of the deduction under OCGA § 48-7-21(b)(8).
On March 12, 2018, Idaho’s governor signed into law H.B. 463 (the Bill), which provides a series of changes to Idaho’s income tax law in response to H.R. 1, popularly referred to as the Federal Tax Cuts and Jobs Act (the Act). The main changes to Idaho tax law include: (i) conformity, for tax years beginning after January 1, 2018, to the IRC as of January 1, 2018; and (ii) the add-back to federal taxable income of all amounts previously deducted on the corporation’s federal tax return under: (a) IRC § 245A (the 100% DRD for certain foreign-source dividend) and (b) IRC § 250 (containing the deductions for GILTI, IRC § 78 gross-up amounts related to GILTI, and FDII). The Bill also preserves the pick-up of the Act’s one time transition tax or repatriation tax under IRC § 965 for tax years beginning in 2017 and the add-back to federal taxable income the corresponding deduction in IRC § 965, which were enacted by H.B. 355 on February 9, 2018.
However, Idaho H.B. 659, currently pending, proposes to limit the add-back of amounts deducted under IRC § 250 to the deduction for GILTI and related IRC § 78 gross-up amounts, and H.B. 684, also pending, proposes to remove the add-back of amounts deducted under IRC § 965.
The state and local tax (SALT) impact of the recently enacted federal tax reform is still being assessed. Because of states’ broad conformity to the federal income tax laws, many of these changes will have an impact on taxpayers’ SALT liabilities.
In their article for Bloomberg Tax, Eversheds Sutherland attorneys Jeff Friedman, Todd Betor and Michael Spencer focus on the SALT consequences stemming from the following international provisions of the Tax Cuts and Jobs Act:
• a one-time “transition tax” on untaxed accumulated earnings and profits of controlled foreign corporations and certain other foreign corporations.
• 100% dividends received deduction for certain foreign source dividends.
• current taxation of certain US taxpayer’s global intangible low-taxed income.
• deduction allowed to certain US taxpayers for foreign derived intangible income.
• a base erosion and anti-abuse tax imposed on certain US taxpayers.
The Georgia Legislature has introduced its annual Internal Revenue Code (IRC) conformity bill—HB 821. Georgia conformity is typically updated annually to apply for the most recent tax year. In light of the recently enacted federal tax reform, this year’s conformity bill will receive particular attention because of what tax reform provisions Georgia chooses to adopt and not to adopt.
Recently enacted federal tax reform is expected to generate $6.5 billion in additional federal revenue through 2027 by increasing corporate tax liability for certain state and local incentives.
In their article for Bloomberg, Eversheds Sutherland attorneys Timothy Gustafson and Hanish Patel discuss the change and opportunities to minimize its impact.
