Corporate Income Tax Legislative update: What happened in 2016?
In this edition of Inside Deloitte, Shona Ponda, Jennifer Alban-Bond, and Kathryn Jeffery of Deloitte Tax LLP provides an overview of state corporate income tax statutory changes enacted during the 2016 state legislative sessions.
On November 8, US voters chose their next president. In the states, 86 of the 99 state legislative chambers held elections,1 and 12 states chose their new governor.2 At the heart of many of those state-level election campaigns, as well as the US presidential campaign, was tax policy.3 In fact, the 2016 election created a spirited environment for tax policy discussions and the possibility for future reforms at both the federal and state levels. This follows a 2016 state legislative season in which much tax legislation was left in limbo—debated but ultimately failing to pass.
Many governors' 2016 State of the State addresses proposed tax reductions to promote economic activity and entice businesses to increase their activity within their states' respective borders.4 It seems that state and local governments are striving to manage a modest economic recovery and generate more revenue while simultaneously facing lawmakers who continue to promote tax relief and a reduced tax burden as the best way to grow sustainable state and local economies.
States appear to be trying to capture additional revenue—legislatively or otherwise—through expanded nexus concepts, unitary group member inclusion, and market-targeted sourcing mechanisms. The 2016 state legislative sessions yielded numerous bills addressing a wide range of state corporate income tax issues, with continued trends toward market-based sourcing, single-sales-factor apportionment, tax rate changes, and mandatory unitary combined reporting. Some proposals were enacted into law, while others were tabled or enacted as studies to collect data for future consideration. For instance, the 2016 state legislative sessions failed to yield a new mandatory combined reporting regime, although numerous states entertained the idea.5 This article highlights, jurisdiction by jurisdiction, some of the corporate income tax legislative changes that were enacted during 2016.6
1National Conference of State Legislatures, "2016 Legislative Races by State and Legislative Chamber" (Mar. 2016). Initial voting results indicate that Republicans will control 69 of the 99 state legislative chambers, Democrats will control 28, and the remaining two will be tied. Council On State Taxation, "COST Legislative Alert," Issue 16-44 (Nov. 10, 2016).
2 National Governors Association, "2016 Gubernatorial General Election Results," Nov. 9, 2016. Initial gubernatorial election results indicate that Republicans have won six of the 12 governorships at stake, and Democrats have won six. As a result, there will be 33 Republican governors, 16 Democratic governors, and one independent governor.
3 President-elect Donald Trump has proposed a tax reform plan that in part would reduce the maximum corporate tax rate from 35 percent to 15 percent. See Deloitte Tax Report, "Tax Policy Decisions Ahead: Impact of the 2016 Elections" (Nov. 10, 2016).
4 American Legislative Exchange Council Center for State Fiscal Reform, "State of the States: An Analysis of the 2016 Governors' Addresses" (Aug. 2016).
5 Examples of state tax bills addressing combined reporting include: H.B. 86, 2016 Leg., Reg. Sess. (Ky.2016); S.B. 323, 119th Leg., 2nd Reg. Sess. (Ind. 2016); S.B. 34, 2016 Leg., Reg. Sess. (Md. 2016); and S.982/A. 3632, 217th Leg. Sess. (N.J. 2016).
6 On December 18, 2015, President Obama signed into law the Protecting Americans From Tax Hikes Act of 2015, which made permanent several lapsed business incentives, including the research credit and the subpart F exception for active financing income; renewed a handful of taxpayer-friendly provisions (such as bonus depreciation) for five years; and extended various other tax benefits through 2016. Those federal law changes may have a significant effect on state corporate income taxes, depending on the state's adoption of the IRC and each state's decoupling provisions. Identifying all the states' coupling and decoupling developments during 2016 is beyond the scope of this article, as are the resulting implications of all applicable states' updates on statutory conformity to the IRC.
If you have questions regarding this edition of Inside Deloitte, please contact:
Shona Ponda, senior manager, Deloitte Tax LLP
Jennifer Alban-Bond, senior manager, Deloitte Tax LLP
Kathryn Jeffery, tax consultant, Deloitte Tax LLP
The authors thank the respective Deloitte Tax jurisdictional technical leads—members of Deloitte's Washington National Tax Multistate and Multistate Tax Controversy Services practices who are designated, jurisdiction-specific tax technical, and controversy specialists—for their contributions to this article.