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State Legislatures Seeking More Data on TCJA Effects

Posted on July 18, 2019

State legislatures are ramping up efforts to seek more data regarding the Tax Cuts and Jobs Act's economic and revenue effects as they eye legislation in response to the federal law.

Speaking July 15 at the Southeastern Association of Tax Administrators annual conference in Orlando, Florida, Mark McElroy, revenue program administrator with the Florida Department of Revenue, said the state enacted legislation requiring taxpayers to supply data on the impact of various provisions of the TCJA to the DOR. McElroy said his department is building a database that the Legislature will use in looking at future TCJA-related legislation.

Mark McElroy, revenue program administrator of the Florida Department of Revenue; Scott Fryer, assistant administrator of the Arkansas Department of Finance and Administration; Patrick Reynolds of the Council On State Taxation; and Luke Morris, assistant secretary of the Louisiana DOR Office of Legal Affairs, at the SEATA Annual Conference in Orlando, Florida, July 16. (Photo by Andrea Muse)
(L-R) Mark McElroy with the Fla. Department of Revenue, Scott Fryer with the Ark. Department of Finance and Administration, Patrick Reynolds of the Council On State Taxation, and Luke Morris of the Louisiana DOR at the SEATA conference, July 16. (Photo by Andrea Muse)

Luke Morris, assistant secretary of the Louisiana DOR’s Office of Legal Affairs, said his state's Legislature is also looking for more data on how the TCJA is affecting the state, and the DOR is focusing on getting that data for lawmakers to use in making legislative decisions. The Legislature has also made a push for more data in other areas such as tax credits, Morris said.

Bruce Ely of Bradley Arant Boult Cummings LLP noted that Alabama enacted legislation creating a task force to study the TCJA's effects on the state. Alabama Deputy Revenue Commissioner Joe Garrett Jr. said the DOR will examine the federal law's revenue impact on the state, adding that the first returns from large taxpayers will come this fall.

Bruce Ely of Bradley Arant Boult Cummings LLP at the SEATA Annual Conference in Orlando, Florida, July 16. (Photo by Andrea Muse)
Bruce Ely of Bradley Arant Boult Cummings LLP at the SEATA conference, July 16. (Photo by Andrea Muse)

SALT Workarounds

According to Morris, states have tried two ways of getting around the TCJA’s $10,000 cap on the state and local tax deduction.

One is creating state-sponsored charities to allow individuals to receive credits to apply to their state taxes while claiming the federal charitable deduction and entity-level taxes. Some states, like Louisiana, have had such programs in their law for years before the TCJA, Morris said, but the IRS put an end to the workaround in its final regulations on charitable contributions and SALT credits issued June 11.

Morris said Louisiana also recently enacted legislation allowing passthroughs to elect to be taxed at the entity level instead of the individual level, but the state revenue department has concerns regarding administration of the tax. The DOR is working on a regulation on the tax, he added.

The glaring issue with the new tax is its potential revenue impact, according to Morris. Because the rates of the new tax are the same graduated rates as the state’s individual income tax, income may end up taxed at a different rate as it is shifted from taxation at the individual level to the entity level.

Morris also noted that Louisiana has a federal income taxes paid deduction, which taxpayers need to be aware of when determining whether moving to entity-level taxation will lower their total tax liability. He said state law requires the revenue secretary’s approval for the election to be taxed at the entity level to be terminated, and an increase in tax liability would not be seen as a sufficient reason.

Ely said that four other states have passed similar legislation, adding that five or six more states are looking at the issue, and more states may also consider the idea in their next legislative sessions.

Scott Fryer, assistant administrator with the Arkansas Department of Finance and Administration, said a bill was introduced to enact a voluntary passthrough entity tax during the state's last legislative session, but lawmakers wanted to wait to see how the IRS would address the SALT workarounds. He said he's sure the legislation will come up again in the future.

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