Reforming SALT-Assessing the Impact of Tax Reform on States

Since each state has its own approach to corporate taxation, impacts are likely to vary Unless you have very recently awakened from a lengthy hibernation (and if you have, we hope it was restful), you are no doubt familiar with the federal tax reform bill known as the Tax Cuts and Jobs Act (hereinafter called "federal tax reform"), the most comprehensive tax legislation passed since Congress overhauled the federal income tax code in 1986. To add to the excitement, cue U.S. state and local corporate income taxes. Since each U.S. state has its own approach to corporate taxation (e.g., different rates, starting points, apportionment rules, exemptions, deductions, and exclusions), the impact of federal tax reform on the states is likely to vary from state to state. [...]Florida's conformity bill, SB 502, maintains Florida's current decoupling from IRC Section 168(k) but also specifically conforms to IRC Section 163(j). [...]if this bill is adopted in Florida, corporations would be required to add back any amounts expensed under IRC Section 168(k) and would be unable to deduct a portion of their third-party interest expense, a result that is directly contrary to the policy objective of tax reform. Since federal tax reform provides that certain dividends a U.S. corporation receives from an eligible foreign corporation qualify for a 100 percent deduction, taxpayers should consider whether states can conform to such a provision under U.S. constitutional principles (which do not allow states to treat domestic and foreign dividends differently) if a state does not provide a similar 100 percent deduction for dividends received from domestic corporations.