Tuesday & Wednesday, January 28‐29, 2020 Hya� Regency Columbus, Columbus, Ohio Workshop EE State Income Tax Implications of the Federal Tax Reform for Companies Doing Business in California, New Jersey and New York Wednesday, January 29, 2020 11:00 a.m. to 12:30 p.m.
Biographical Information Kurt E. Wolter, Tax Manager, Worthington Industries, Inc. 200 W. Old Wilson Bridge Rd., Columbus, OH 43085 614-840-4090 Ext 4090 Fax: 614-840-3710 Kurt.Wolter@worthingtonindustries.com Kurt started his career with the Columbus, Ohio office of Deloitte in 1994 as a tax staff accountant. Kurt progressed at Deloitte as a tax senior, tax manager, and tax senior manager focusing primarily on corporate federal taxation. Kurt joined Worthington Industries in 2008 focusing primarily on corporate federal and SALT income tax compliance, planning, and controversy matters. While at Worthington, Kurt has been heavily involved in multiple federal corporate income tax audits as well as dozens of state & local corporate income tax audits. Kurt is a 1993 graduate of John Carroll University with a B.S.B.A. in Accounting and received an MT degree from Capital University in 2002. Kurt has been a member of Tax Executives Institute for over a decade, where he has served the Cincinnati-Columbus chapter of TEI as chair of multiple committees and currently serving as chapter president. Kurt, a lifelong Ohio resident, grew up in Whitehouse, Ohio and has been proud to call Columbus his home for the past 25 years. Norm Lobins, Managing Director, Deloitte Tax LLP 100 Kimball Dr., Parsippanny, NJ 07054 973-602-6373 nlobins@deloitte.com Norm Lobins is Deloitte Tax's New Jersey jurisdictional specialist and handles tax controversy and technical matters for our firm’s cliens with the state. Norm has over 35 years of tax experience. Kathy Freeman is one of Deloitte's California jurisdictional leads and specializes in CA tax controversy and technical matters. Kathy served a similar row with another " Big 4" firm and previously held several key positions with the California Franchise Tax Board. Kathy Freeman, Managing Director, Jurisdictional Tax Lead - California Deloitte Tax LLP, 980 9th Street Ste 1800 Sacramento, CA 95816 (916) 261-8318 mobile (916) 288-3392 katfreeman@deloitte.com Kathy is widely recognized expert in California franchise and income tax matters. She has extensive experience in California franchise tax issues affecting a broad range of industries and is a leading consultant on California tax issues for Deloitte’s largest clients throughout the country. Her clients include major companies in the financial, telecommunications, technology, service, oil & gas, defense, construction, health care, pharmaceutical, retail and manufacturing industries. Before coming to Deloitte in June, Kathy spent 14 ½ years at PWC as a leading technical consultant on California income and franchise issues, and 23 years with the California Franchise Tax Board (“FTB”). While at the FTB, Kathy was a Settlement Officer for the Legal Branch, a top technical advisor for the FTB's Multistate Audit Branch, and a key participant in major policy-level decision making with respect to FTB audit programs, litigation positions, and legislative and regulatory matters, and helped establish the FTB’s water’s-edge program. Kathy worked on the section 25128 regulations as it relates to the extractive and agricultural industries, the long-term contract regulations, the combined reported mechanics regulations, the alternative apportionment regulations related to substantial and occasional sales, and the record keeping regulations. Kathy is a graduate of California State University Sacramento with a BS in Business Administration and Accounting, and received an MS in Taxation at Golden Gate University. Kathy is a CPA licensed in California and is a member of the AICPA and CalCPA.
State Income Tax Implication of Federal Tax Reform for Companies Doing Business in California, New Jersey & New York 29 th Annual Ohio Business Tax Conference Course #EE
Agenda California 1. Baby Steps Toward California Conformity: AB 91 2. Significant Areas of Non conformity Under the Tax Cuts & Jobs Act of 2017 (TCJA) • IRC § 965 • IRC § 163(j) • IRC § 162(m) • IRC § 451(b) • Disaster Loss Limitations in IRC § 165 • IRC § 274 2
Agenda, cont’d New Jersey 1. New Jersey Reform 2. Significant Areas Under the Tax Cuts & Jobs Act of 2017 (TCJA) • IRC § 965 • IRC Section 250 • IRC § 163(j) • GILTI 3. Regulations to be issued 3
Agenda, cont’d New York 1. Prior New York Reform 2. Significant Areas Under the Tax Cuts & Jobs Act of 2017 (TCJA) • IRC § 965 • IRC Section 250 • IRC § 163(j) • GILTI 3.Other 4
Baby Steps Toward California Conformity - AB 91 a) AB 91 Adopted July 1, 2019: • Conforms California’s Personal Income Tax Law (PIT) and Corporation Tax Law (CTL) to the TCJA’s $25,000,000 gross receipts threshold for small businesses allowed to use the cash method of accounting. Taxpayers can elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. • Conforms California’s PIT and CTL to the TCJA’s $25,000,000 cap on the average annual gross receipts gross receipts of a farming corporation that is exempt from using the accrual method of accounting. Taxpayers can elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. • Conforms California’s PIT and CTL to TCJA’s $25,000,000 cap on the average annual gross receipts of a taxpayer exempt from provisions precluding the deductibility of certain property costs and determining whether those costs are inventory costs or are capitalized. Taxpayers can elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. • Conforms California’s PIT and CTL to the TCJA’s exemption for small businesses with annual gross receipts less than $25,000,000 from being required to take inventories to clearly determine income. Taxpayers can elect to have this conformity apply to taxable years beginning on or after January 1, 2018, and before January 1, 2019. • Expands limits on excessive employee compensation by conforming to IRC § 162(m), as amended by the TCJA. • Conforms the PIT to the TCJA’s repeal of the partnership technical termination rules that, prior to the TCJA, allowed for the termination of a partnership by the sale or exchange of 50% or more interest in the partnership within a 12-month period. Under AB 91, a partnership may elect to have this conformity apply to taxable years beginning after December 31, 2017, and before January 1, 2019; 5
Baby Steps Toward California Conformity - AB 91 Cont. • Net Operating Losses(“NOL”) -Disallows net operating loss carrybacks but does not adopt any of the other federal provisions impacting NOLs and NOL utilization. • California permits NOL deductions, which can generate AMT, where AMT was eliminated for federal purposes and will not create AMT for federal purposes. • Adopted federal limitation on excess business loss for non-corporate taxpayers. • Limits application of like-kind exchanges to other than tangible personal property. California further requires tracking and annual reporting where like-kind exchanges occur between California and non- California real property. • Non-TCJA change – California no longer permits California IRC section 338 elections. • California has not adopted many other provisions of TCJA, including the 6 year spread of certain positive IRC §481 adjustments. This lack of conformity may cause recordkeeping issuing in the future where the data to make federal/state adjustments is not available. 6
California Modified Conformity - IRC §162(m) • IRC §162 generally allows a deduction for ordinary and necessary expenses in carrying on any trade or business, including employee remuneration. • IRC §162(m) denies a deduction for employee remuneration in excess of $1 million for any covered employee for the taxable year. • The TCJA amended IRC § 162(m) eliminating exceptions for qualified performance-based compensation and commissions, expanding the definitions of covered employee and publicly held corporation, and adding a transition rule to allow for the grandfathering of certain payments. • Under Section 8 of California Assembly Bill (AB) 91, for taxable years beginning on or after January 1, 2019, California generally conforms to the new IRC § 162, including IRC § 162(m) as amended by the TCJA. However, for California purposes, the grandfathering period applies to contracts that were in effect on March 31, 2019. • Almost every state other than California conforms. (Iowa does not for 2018, but will for 2019 and later. New Hampshire conformity begins in 2020). 7
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