What are the state tax implications of US tax reform for your global business?

As a global company investing in the United States, no doubt you have been focusing on the significant consequences of US tax reform legislation. With federal tax reform enacted, many companies already are considering the states in which they do business and where their state liabilities will be most affected by federal tax reform. Planning for significant changes to the Internal Revenue Code (the Code) is challenging under any circumstances, but made more difficult by the uncertainty of how and at what point in time the states will adopt federal changes.

Why should you care?

• Changes in the computation of federal taxable income, such as deductions will have an effect on your state liability, since the starting point for computing taxable income for states that impose income tax often is federal taxable income as computed under the Code.  
• The substantial reduction in the federal tax rate will reduce the federal income tax benefit of state taxes paid and may significantly alter your analysis of state taxes on a going-forward basis.
• By encouraging capital growth in the United States, tax reform may result in increased competition among states for new jobs, retained jobs, and capital investment. Planning to increase your US footprint and promote domestic job expansion? Be prepared to take advantage of competition among states for those jobs through negotiated incentives.

What should you do?

• Familiarize yourself with changes that impact the 2017 tax year as they may receive immediate attention from states looking to either conform to or decouple from federal provisions.
• Consider connecting your US investment objectives with state-negotiated incentive strategies to enable your company to benefits from the rapidly evolving climate and to avoid losing competitive advantages.
• Monitor state developments and guidance as states likely will provide greater clarity around conformity over the coming months.

For more information on how your state taxes could be affected by federal tax reform, check out PwC’s Tax Insights, State tax implications of federal tax reform.