Multistate impact of the Tax Increase Prevention Act of 2014
Multistate tax alert | December 22, 2014
On December 19, 2014, President Obama signed into law the Tax Increase Prevention Act of 2014 (“the Act”),¹ which includes a one-year retroactive extension of many of the temporary tax deductions, credits and incentives that had expired effective December 31, 2013. These federal law changes may have a significant effect on state corporate income taxes, depending on each state’s adoption of the IRC and each state’s decoupling provisions.
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Effects on state corporate income taxation
On December 19, 2014, President Obama signed into law the Tax Increase Prevention Act of 2014 (“the Act”),¹ which includes a one-year retroactive extension of many of the temporary tax deductions, credits and incentives that had expired effective December 31, 2013. Among the dozens of provisions that are now renewed retroactively through the end of 2014 under the Act are the following:
- Credit for certain research and experimentation expenses
- 50 percent bonus depreciation provisions for qualified property and the election to accelerate some alternative minimum tax credits in lieu of bonus depreciation
- Active financing income exception and the controlled foreign corporation look-through
- Increased expensing limits for Internal Revenue Code (“IRC”) Sec. 179 property and the expanded definition of Sec. 179 property
- 15-year straight-line cost recovery provision that applies to certain leasehold, restaurant, and retail improvements and restaurant buildings
- Reduced holding period for the S-corporation built-in gains tax
- Capital gain exclusion on qualified small business stock
These federal law changes may have a significant effect on state corporate income taxes, depending on each state’s adoption of the IRC and each state’s decoupling provisions. In general, states with automatic or “rolling” IRC conformity would adopt the provisions of the Act, unless specific state legislative action is taken to decouple from some or all of the federal law changes. Some states effectively adopt the IRC by referencing federal taxable income as the state income starting point. Although these states do not specifically adopt the IRC in whole or in part, they would generally be viewed as following provisions of the Act that affect federal taxable income. Other states adopt the IRC as of a specific date, do not adopt the IRC provisions in totality, and/or provide for delineated modifications, variations or exceptions to certain adopted IRC provisions. For these states, further analysis is needed to determine the extent to which certain provisions of the Act are followed (i.e., does the state adopt the IRC as of December 19, 2014, or include the specific provisions in the state’s code?), bearing in mind that many states do not make such conformity updates or decoupling determinations until the tax filing season begins.
In this Tax Alert we provide examples of the effect of certain provisions of the Act on state corporate income taxation.
¹H.R. 5771, 113th Cong. (Dec. 19, 2014) (enacted).
Multistate Tax alert archive
The Multistate Tax Alert Archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.
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