Multistate Tax Alert: Multistate Impact of the American Taxpayer Relief Act of 2012
On January 2, 2013, President Barack Obama signed into law the American Taxpayer Relief Act of 2012 (“the Act”). Among the various federal tax law changes contained in the Act are extensions of certain expired or expiring tax provisions, including a retroactive extension of the credit for certain research and experimentation expenses; an extension of 50 percent bonus deprecation for qualified property; a retroactive extension of a cost recovery provision that applies to certain leasehold, restaurant, and retail improvements and restaurant buildings; retroactive extensions of the active financing income exception and the controlled foreign corporation look-through; and a retroactive extension of the capital gain exclusion on Qualified Small Business Stock. Also, the Act provides a temporary election to accelerate some alternative minimum tax credits in lieu of bonus depreciation, increases the maximum amount and phase-out threshold for small business expensing under Internal Revenue Code (“IRC”) Sec. 179, and reduces the holding period for the S-corporation built-in gains tax. These federal law changes may have an effect on state taxes, depending on each state’s adoption of the IRC and each state’s decoupling provisions.
In general, states with automatic or “rolling” IRC conformity will adopt the provisions of the Act, unless specific state legislative action is taken to decouple from some or all of the federal law changes. Some states effectively adopt the IRC by referencing federal taxable income as the state income starting point. Although these states do not specifically adopt the IRC in whole or in part, they would generally be viewed as following provisions of the Act that affect federal taxable income. Other states adopt the IRC as of a specific date, do not adopt the IRC provisions in totality, or provide for modifications or exceptions to certain adopted IRC provisions. For these states, further analysis is needed to determine the extent to which certain provisions of the Act are followed.
In the attached Tax Alert we summarize the extent to which California, Florida, Illinois, New York and Texas conform to the federal law changes described above.