Federal Tax Changes Could Carry State Ripple Effects

jackson-tax-photo-300x201An article in the online source CFO discusses the potential state implications of possible reforms in federal tax systems – particularly relating to corporate income taxation.

From the article:

Nearly every state that imposes a corporate income tax conforms in some way to the federal internal revenue code. In large part, states begin the computation of state corporate taxable income with federal taxable income. Therefore, they allow many federal deductions for state tax purposes.

However, states do not generally conform to various federal tax credits, such as those given for using alternative energy sources. Thus, while changes to the federal tax base may well have an impact on state taxes, changes to federal credits and federal rates are unlikely to have a direct impact on state taxes.

The article also cites a timing issue that affects Maryland, with its legislative session due to conclude well before any realistic timetable for federal action this year:

A major challenge to states will be the timing of federal tax reform. If the federal government actually passes tax reform, when will it become effective? It seems quite likely that if federal reform is passed in 2017, it will be after most state legislatures have adjourned. If so, that means the opportunity for states to respond until 2018 will be limited.

Michael Sanderson

Executive Director Maryland Association of Counties