For state income tax purposes, it is not always clear whether or when states conform to federal law changes that have retroactive application. The CARES Act, enacted on March 27, contains a number of provisions that impact tax years prior to 2020. State guidance to date around these retroactive provisions has been limited. Several states have acknowledged retroactive application to the extent they adopt those specific Code sections, one state enacted an emergency regulation stating that it incorporates federal changes “only on a prospective basis,” but most states remain silent. Taxpayers may need to evaluate how rolling conformity states specifically conform to the Internal Revenue Code and whether by statute, regulation, or administrative guidance they will or will not recognize the retroactive application of CARES Act provisions consistent with the state's law.
State conformity to federal changes is not always straightforward. The retroactive nature of certain CARES Act provisions adds an additional layer of complexity that states and taxpayers have to address. Although state guidance has been limited, a general trend appears to reflect rolling conformity states acknowledging retroactive application whereas fixed conformity states do not. To the extent rolling conformity states issue guidance indicating that they do not recognize retroactive application, taxpayers may wish to consider whether such state guidance is consistent with state law.