Updated: Jun 16
State Conformity with FDII and GILTI
What is deductible or an inclusion for Federal tax purposes may not always be the same for state purposes. Many of us are familiar with the state adjustments schedules that modify federal taxable income due to the state’s nonconformity with the Federal tax rules. FDII and GILTI may be one of those adjustments depending on the state.
States can be divided into three categories of conformity. States with ‘rolling conformity’ conform to Federal on a rolling basis, that is, the state typically conform with any changes. States with ‘static conformity’ conform to Federal as to a specific date only. Lastly, states with ‘selective conformity’ pick and choose what they follow. Also keep in mind that a state may conform for corporate purposes but not for individual. In addition, a conforming state can still selectively non-conform with changes, especially the expensive changes made by the Tax Cuts and Jobs Act of 2017.
Transaction planning should always consider state consequences. Not considering the impact of state taxation on corporate structuring can have a drastic impact on taxes paid. State tax planning has never been more important when planning international transactions.
Illinois releases proposed 2022 budget which decouples foreign-source dividends and the GILTI deduction.On February 16, 2021 Illinois Gov. J.B. Pritzker released his proposed budget for the 2022 fiscal year.In the proposed budget, there would be a rollback of the TCJA 100% foreign-source dividend deduction and 50% deduction for GILTI. The State of Illinois, like many states, has a severe need to raise revenues and this proposed change is projected to raise $107 million dollars in 2022