State Tax Implications of Phase Three Relief

What it means for state tax

The CARES Act may have significant state and local income tax effects. Entities will need to evaluate how the CARES Act impacts not only their current tax expense, but also their previous valuation allowance assessments on state deferred tax assets.

Areas of particular significance for states may include the provisions related to changes in the interest expense limitations, changes in the 2018 through 2020 NOL provisions, and retroactive full-expensing for QIP. The threshold state income tax questions are whether and how a state adopts the IRC.

Based on state conformity rules, each state will need to assess the impact of the change in tax law as of March 27, 2020. Companies will need to evaluate how each state adopts the IRC and record their state tax provisions based on the enacted state law.

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How PwC can help

Quantitative solutions

Model how repatriation, a territorial tax system, 100% expensing, and interest limitations may affect the state tax base, apportionment and state tax attributes.

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Global and domestic incentives

Develop a state incentives strategy for additional investments made by companies as a result of tax reform.

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Legal entity rationalization and value chain transformation

Implement proposed business and structural changes in a way that may reduce detriments and enhance benefits of tax reform from a state tax perspective.

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Provision review

Review state tax deferred results from tax reform, including the impact of state conformity to or decoupling from the interest expense limitation and full expensing.

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State automation and reporting

Perform state-specific calculations that may no longer be required for federal tax filings due to states' nonconformity to the federal changes.

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Peter Michalowski

State and Local Tax Leader, PwC US

Eric Burkheiser

Partner, Income Tax Leader, PwC US

Scott Austin

Principal, PwC US

Robert Ozmun

Partner, PwC US

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