Federal tax reform doesn't end with the 1120

SALT implications of potential federal tax reform

Congressional tax writers have long been talking about tax reform and have been holding hearings, establishing bipartisan working groups, and soliciting recommendations and proposals from fellow lawmakers. This article examines potential federal tax law changes and discusses their potential impact on state taxation.

Understanding state and local (SALT) implications of potential tax reform

Many people think federal tax reform is necessary but few people know what that means. Still fewer know what that means for the states. This article examines potential federal tax law changes looming on the horizon and their potential impact on state legislation.

As an overview, states with automatic or “rolling” conformity generally will adopt I.R.C. changes unless there is a specific state legislation that decouples from the federal law. Some states effectively adopt the I.R.C. by using federal taxable income as the state starting point, even though the I.R.C. itself has not been adopted in whole or in part. Other states, such as California and Texas, adopt the I.R.C. as of a specific date, do not adopt the I.R.C. provisions in totality, or provide modifications or exceptions to certain adopted I.R.C. provisions. For these states, further analysis is needed to determine how federal tax reform will affect the state tax regime.

In this article, the authors discuss:

  • Major developments in federal tax reform so far
  • Highlights from Chairman Dave Camp’s multinational tax reform discussion draft
  • Other proposed federal business income tax legislation
  • Federal legislation affecting state sales tax, and
  • Other potential federal legislation, including tax benefits for individual home owners, the Permanent Internet Tax Freedom Act of 2013, and the Mobile Workforce State Income Tax Simplification Act of 2013
By Valerie Dickerson, Sarah Laszlo, and Jeff Kummer of Deloitte Tax LLP | Originally published in Bloomberg BNA “Tax Management Weekly State Tax Report” in November 2013
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