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
  • 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