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McDermott’s Take on State Tax after Reform

Due to the current impact and the likelihood that states will consider legislation and agency guidance addressing federal tax reform implications for state business taxes, a united, effective, nationwide advocacy effort is needed to ensure the issues are consistently addressed on a multi-state basis. In preparation for anticipated ramifications, a multi-state coalition will need to consider the subjects summarized below. 

How Legal Experts Can Help You:

  • Formation of a coalition of companies and industry trade organizations dedicated to proactively addressing state tax issues raised by federal tax reform on a nationwide basis

  • Identify and track, in real time, proposed state legislative and regulatory responses to federal tax reform

  • Analyze proposed state reforms and develop substantive amendments and comments

  • Develop and implement advocacy campaigns to secure favorable legislative and regulatory outcomes, including

    • Preparation of all advocacy collateral

    • Organization of on the ground advocacy, including retaining in-state advocates where needed

    • Activating allied organizations to ensure broad support

  • Provide support concerning the proper reporting of state responses to federal tax reform on company financial statements

Coalition Goals: 

  • Prevent state legislation expanding tax base through decoupling from federal deductions

  • Support state legislation adopting comprehensive federal reform conformity, with appropriate deviations

  • Identify and remedy Commerce Clause issues

  • Encourage states revenue department to publish guidance on issues such as definitional questions, apportionment approaches and problems with different group calculations

  • Identify and act on opportunities to address related issues through state responses to federal reform

  • Prepare to address potential nexus changes in response to South Dakota v. Wayfair

Potential Issues:

Deferred foreign earnings transition tax:

  • Inclusion at state level in year one

  • States decoupling from deduction

  • Apportionment issues

GILTI and FDII:

  • Inclusion in state taxable income

  • States decoupling from deduction

  • Apportionment issues

100% Expensing:

  • States decoupling from deduction

  • What depreciation regime to use if state decouples

Interest Expense Limitation:

  • Failure to decouple could lead to a tax increase

  • Interaction with state addbacks

NOL Limitations:

  • Advocating for state changes in situations where the 80% NOL limitation automatically impacts state tax liability

  • Need to guard against states affirmatively imposing an 80% limitation

  • Potential for advocating that states enact unlimited carryforward period

BEAT:

  • Need to guard against states mimicking this alternative minimum tax

© 2019 McDermott Will & Emery

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About this Author

Stephen P. Kranz Lawyer McDermott Will
Partner

Stephen P. Kranz is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  He engages in all forms of taxpayer advocacy, including audit defense and litigation, legislative monitoring, and the formation and leadership of taxpayer coalitions.  Steve is at the forefront of state and local tax issues, including developments arising in the world of cloud computing and digital goods and services.  He assists clients in understanding planning opportunities and compliance obligations for all states and all tax types. ...

202-756-8180
Counsel

Diann Smith is counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office.  Diann focuses her practice on state and local taxation with an emphasis on tax challenges relating to compliance, controversy, planning and legislative activity.   

202-756-8241
Mark Nebergall, McDermott Law Firm, Washington DC, Tax Law Attorney
Of Counsel

Mark Nebergall advises clients on all aspects of tax policy with respect to software transactions at state, federal and international levels. He also works with McDermott’s tax controversy team handling tax litigation where he brings his former experience as a litigator for the US Department of Justice, Tax Division. Mark combines tax policy and tax litigation skills to help solve client tax problems holistically.

Mark has served as President of the Software Finance and Tax Executives Council, a trade association providing software industry...

202-756-8253
Alysse McLoughlin attorney state and local tax matters, financial services companies MCDermott Will New York
Partner

Alysse McLoughlin is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's New York office.  She focuses her practice on state and local tax matters, with particular skill working with financial services companies.

Alysse was most recently the head of state tax at Barclays Capital, where she was responsible for all including income, franchise, sales and use, and excise tax issues.  Her responsibilities included establishment of state tax return filing positions and reserves, participation in the financial...

212 547 5307
Peter Faber, Corporate, Tax, Attorney, McDermott Law Firm
Partner

Peter L. Faber is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's New York office.  He focuses his practice on corporate and business tax planning and controversy work at the federal, state and local levels.

In the federal tax area, Peter has advised corporations (both publicly held and privately held), partnerships and individuals on a wide variety of transactions, including mergers and acquisitions, restructurings, spin-offs and debt work-outs.  He has obtained many rulings from the Internal Revenue Service with respect to proposed...

212-547-5585