Tax Reform Friday: Iowa Cheers Lower Rates While New York Jeers ‘Economic Missile’
With the passage of , states affected in any way by federal tax reform are inching closer to deciding how to respond. An emerging trend has first sought to address changes to revenue that result from tax reform. Although individual and corporate rates have been lowered, states are more likely to be impacted by a repeal of the personal exemption or other more obscure changes. The following is an overview of the state developments that will shape the tax reform debate moving forward.
● and have both passed legislation retaining the personal exemption. Michigan’s Gov. Rick Snyder (R) has yet to sign S.B. 748 into law, but Snyder has praised the act and is expected to execute it, as reported (subscription required) by Tax’s Alex Ebert. Under the bill, Michigan’s personal exemption will actually increase to $4,900 by 2021. West Virginia has enacted their legislation, which retains the personal exemption that would have been allowed “had the federal income tax law not been amended to eliminate the personal exemption for federal tax years beginning on or after January 1, 2018.”
● (D) and (D) issued separate press releases detailing similar responses to federal tax reform. Though several differences exist, both governors propose 1) a revenue neutral business tax offset by a personal income tax credit; 2) expanding the ability to pay state and local tax liabilities with charitable contributions; and 3) decoupling from federal tax provisions, such as the state and local deductions cap, standard deduction provisions, and other itemized deduction provisions. Gov. Cuomo also announced a multi-state suit unfairly targets New York, New Jersey, and Connecticut.
● California appears to be taking more of a wait and see approach, issuing a detailing specific provisions of Pub. L. No. 115-97. The primary topics addressed are the reduction in the medical expense deduction floor, the elimination of the federal state and local deduction, and repatriation. This is only the first of a series of reports planned by the Franchise Tax Board, culminating in the release of a full report on federal tax reform on April 20.
● Iowa recently unveiled a of their own, reducing corporate and individual taxes by $1 billion annually. The proposal conforms Iowa’s tax code to the changes made to the federal code and eliminates the deductibility in Iowa of federal taxes paid. The proposal additionally sets new e-commerce sales and use thresholds, perhaps with an eye toward preparing for the United States Supreme Court’s decision in .
● Georgia has announced an expected from changes to their tax code as a result of tax reform. Congressional leaders have been working with the Gov. Nathan Deal (R) to develop a response to the increase in revenue. The governor is reportedly interested in channeling the surplus back to Georgia residents by doubling the standard deduction and “reducing the top income tax rate [from 6 percent] to 5.5 percent by 2020.”
● Countering an apparent trend in state level tax reform, one state and local practitioner believes federal tax reform will not alter states’ pursuit of broader legislative goals, as reported by Tax’s Jennifer McLoughlin. The trend toward combined reporting and market-based corporate sourcing will continue despite dramatic changes at the federal level, according to David Brunori, a partner with Quarles & Brady LLP. States will also pursue new notice and reporting requirements for e-commerce with an eye toward collecting sales and use taxes on the transactions in the future, issues which are not fully addressed in federal tax reform.
Continue the discussion on think and code’s State Tax Group on : How successful do you believe states like New York and Connecticut will be finding a way around the federal limitation of the state and local tax deduction?
For more information on the impact of Pub. L. No. 115-97, examine Tax’s , showing detailed comparisons between pre-reform law and impending changes, with pertinent cites attached.
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