States Scrambling to Adjust to Federal Tax Law Changes, Leaving Companies Uncertain on Future

Chris Gaetano
Published Date:
Jun 12, 2018

The speed at which the Tax Cuts and Jobs Act was signed into federal law has left state government reeling as they debate how their own tax systems should react, leaving companies unsure of what to do as legislatures debate the degree to which they should conform to federal law, according to the Wall Street Journal. Under the new federal tax rules, the nominal corporate tax rate fell from 35 percent to 21 percent. The Journal noted that most states take their cues from the federal government when it comes to setting their rates, which makes conforming state and federal tax law generally a routine matter.

However the new tax law means things are different this time. Some states, like Georgia, decided to cut their own corporate tax rates even further as a way to signal business-friendliness. In contrast, California is considering a measure that would add a 10 percent surcharge on the existing corporate tax as a way to capture the savings generated from the federal law. Beyond just arguing about the numbers, states are also divided on matters like expensing provisions, net operating loss-deduction limitation, the revised treatment of contributions to capital, business interest-deduction limitation and federal changes to the treatment of foreign profits. The Journal said all this turmoil has created a state of confusion and uncertainty for corporations, which has limited their ability to plan. Further, while multistate taxation issues have always been complex, with more states breaking on the degree of resemblance to the federal law, creating appropriate strategies for multiple jurisdictions will become even more difficult. 

New York is one of the states that have chosen to part ways with the federal government on tax policy. It has formally decoupled its tax law from the current federal statute, and has attempted to mitigate the impact of the state and local tax deduction cap by creating a voluntary payroll tax and a state-run nonprofit that, Albany believes, can be used for federal deductions (though the IRS disagreed). 

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