State tax implications of 2018 federal tax reform guidance

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What does federal guidance mean for state taxes?

During 2018, Treasury and the IRS released thousands of pages of proposed regulations and other guidance concerning the 2017 federal tax reform legislation.

What it means for state tax

During 2018, Treasury and the IRS released thousands of pages of proposed regulations and other guidance concerning the 2017 federal tax reform legislation. Proposed regulations address the Section 965 toll charge, GILTI, Section 163(j) interest expense deduction limitation, full expensing under Section 168(k), Section 199A, Section 956, foreign tax credits, and BEAT. The IRS also issued a number of Notices in 2018, including guidance on forthcoming regulations on previously taxed earnings and profits accounts. In early 2019, it is anticipated that proposed regulations will be released under Sections 172 and 250, just to name a few.

In addition to tax reform developments, taxpayers need to consider the impact of the Section 385 regulations, where the only change to date was to remove the documentation rules while not removing or modifying the remaining portions of the 385 regulations.

The release of a significant volume of proposed guidance in a relatively short period of time creates challenges for businesses and state tax practitioners regarding the impact of the new guidance on state tax matters. This Insight does not discuss all state tax consequences of federal tax reform or the Section 385 regulations, but rather highlights some of the major considerations in evaluating the impact of certain federal provisions. This Insight notes the need for separate state calculations for many federal tax reform matters.

Taxpayers should continue to monitor the many state tax issues not addressed in the proposed regulations that require state-specific analysis and guidance. A sample of such issues is provided in this Insight as well.

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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.
  • Global and domestic incentives: Develop a state incentives strategy for additional investments made by companies as a result of tax reform. 
  • 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.
  • 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.
  • 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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Contact us

Peter Michalowski

National SALT Practice 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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