California Governor Gavin Newsom (D) on July 1 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).
California has not changed the date of its general conformity to federal law, so conformity to any provisions other than those specified in the new law remains as of January 1, 2015. Accordingly, there will be substantial federal/state differences in 2018 due to non-conformity, so taxpayers should analyze their California filing implications early.