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Key Takeaways:

  • The beginning of state legislative sessions are a flurry of activity and bill introductions that won’t even get a hearing and narrowing down which bills to actively monitor is challenging.
  • These are the top eight corporate income tax bills we’re watching, ranging from foreign income inclusion in California to combined reporting in Florida.

The first few months of state legislative sessions are a whirlwind of bill introductions and previews of what’s to come. Determining which bills are actually likely to move through the process can be a challenge for even the most seasoned government relations professionals. In the tax and revenue world specifically, states are closely monitoring the currently debated federal stimulus bill as it seems likely state and local governments will receive an additional $350 billion in aid, largely negating the financial need to raise taxes. Some states, however, will continue to advocate for tax increases, despite the state’s revenue position. Below are the top eight corporate income tax bills we’re keeping a close eye on. If you’d like more background or insight on any of these bills, please contact us.

California AB 71

What it does: Increases the top corporate income tax rate to 9.6 percent, increases the top income tax rate for financial institutions to 11.6 percent, requires that water’s edge elections into 50 percent of Global Intangible Low-Taxed Income (GILTI) and 40 percent of 965 income of affiliated corporations, and limits the value of business tax credits.
Why we’re watching: California has a long legislative session so, at this point, it’s difficult to say what will move. However, California is a progressive state which has been interested in tax increases for a number of years, so it’s very possible the legislature could take action this year, despite their positive revenue forecast.

Florida HB 999

What it does: Imposes mandatory combined reporting, eliminates the consolidated return election, and requires corporations incorporated in “tax havens” to include certain income in their water’s edge group. 

Why we’re watching: This bill will almost certainly be stymied by the legislature and Governor’s aversion to increasing taxes, but a bill like this is generally introduced by a Democrat, so it’s interesting to see this filed by a Republican member. 

Illinois HB 3477 and HB 3478

What it does: HB 3477 makes worldwide combined reporting the default option with an option to make a water’s edge election but gives the Commissioner of Revenue broad authority to modify the election. HB 3478 would include 50 percent of GILTI and 40 percent of 965 income in the tax base. 

Why we’re watching: The sponsor of both of the bills, Rep. Ramirez, is the assistant majority leader. Additionally, the Governor has publicly supported tax increases on business. 

Kansas HB 2421 

What it does: This bill decouples from GILTI and 965 income as well as applies the Dividends Received Deduction (DRD) to previous GILTI amounts. 

Why we’re watching: The legislature has come close to passing similar legislation in previous years and it is still a legislative priority for several members (and the business community).

Massachusetts HD 1544 and SD 1999 

What it does: HB 1544 imposes mandatory worldwide combined reporting. SD 1999 establishes a list of “tax havens” and imposes taxes on capital kept or earned within those jurisdictions. 

Why we’re watching: HD 1544 bill has a number of co-sponsors, and an overwhelmingly Democratic legislature could mean that either of these issues move with or without Governor Baker’s support. 

Minnesota SF 961/HF 991 

What it does: Retroactive to 2016, includes GILTI and 965 income excluded from federal income as Previously Taxed Income in the Minnesota tax base.  The amount of the addback would be deemed dividend income eligible for the state’s partial dividend received deduction. Also increases the corporate income tax rate to 11.25% (from 9.8%) beginning 2021.

Why we’re watching: Minnesota is one of few states with a divided state legislature and this bill would be difficult to move through a Republican Senate. However, given these are the Governor’s priorities, it’s certainly one to watch. 

Want More In-Depth Analysis? 

If you’re interested in more in-depth analysis about these bills or broader tax trends, get in touch with our team.