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State tax updates affecting law firms in Hawaii and California

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Hawaii tax changes impact nexus, sourcing, partnerships, and more

Numerous legislative enactments have altered the tax landscape of Hawaii. Specifically, SB 495 adopts economic nexus provisions for state income tax purposes; SB 394 adopts market-based sourcing for sales of other than tangible personal property; SB 1360 requires partnerships and other entities to withhold tax from nonresident partners/members; and SB 1130 updates the state’s IRC conformity date.

With the retroactive application of the pass-through withholding requirement in SB 1360, partnerships should review their income from Hawaii sources to determine whether any estimated tax payments may be required for the 2019 tax year.

For more information on changes to Hawaii tax law, please see the PwC news alert here.

Hawaii tax changes

California selectively conforms to federal tax reform changes

On July 1st, Governor Newsom signed a federal tax conformity package, called the “Loophole Closure and Small Business and Working Families Tax Relief Act” that selectively conforms California law to the 2017 federal tax reform legislation (the Act). The conformity includes some targeted provisions, but notably does not conform to some of the more significant federal corporate changes included in the Act, such as the international provisions (Global Intangible Low-Taxed Income (GILTI), Foreign-Derived Intangible Income (FDII), and Base Erosion and Anti-Abuse Tax (BEAT)), Internal Revenue Code Section 163(j) interest limitations, or full expensing. 

The conformity package is intended to raise $1 billion in 2019-2020 and $680 million in 2020-2021 to finance the expansion of the California Earned Income Tax Credit (EITC). 

For more information on California’s limited conformity provisions, please see the news alert discussed here.

California tax reform

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Carole Symonds

Partner, Law Firm Services Tax Leader, PwC US

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