Multistate: State responses to COVID-19 and other important state legislation

In New York, Senate Bill 8411 was signed into law on June 17, 2020 by Governor Cuomo, as Chapter 121 of the New York Laws of 2020.  The enactment decouples a number of New York City taxes (the City Unincorporated Business Tax, the City General Corporation Tax, the City Bank Tax, and the post-2014 City Business Corporation Tax) from relevant changes to IRC sections 163(j) [concerning interest deductions] and 172 [concerning net operating loss deductions], made by the Federal CARES Act. Note that the City’s General Corporation Tax and Bank Tax apply to only Federal S corporations, which were not reformed in 2015.  The City’s Business Corporation Tax is the new regime which emerged from the 2015 New York tax reform of the City’s General Corporation Tax and Bank Tax, applicable to only Federal C-corporations.  Previously, the State and City had decoupled from the changes in the CARES Act that temporarily increased the IRC section 163(j) Adjusted Taxable Income (ATI) limitation from 30 percent to 50 percent. The City and State, however, had continued to allow taxpayers to elect to use ATI for the last taxable year beginning in 2019 in computing their 2020 tax year section 163(j) computation.  In addition, for City Unincorporated Business Tax purposes, for tax years prior to 2021, Chapter 121 decouples from the CARES Act changes to IRC section 461(l), which limits excess business losses.  The legislation does not address net operating losses for the City’s Business Corporation Tax, as that tax was untethered from the IRC section 172 NOL in the 2015 New York City corporate tax reform.

It’s important to note that this new legislation pertains to only New York City taxes.  By contrast, New York State continue to allow taxpayers to elect to use 2019 ATI in computing the 2020 section 163(j) limitation.

In other news, Colorado House Bill 1420 would decouple the state from the CARES Act section 163(j) and NOL changes by requiring corporate taxpayers to add back the excess of the amounts that would have been deducted absent the CARES Act. This bill has passed both houses. Another bill (House Bill 1024) pending signature in Colorado would decouple the state from the federal unlimited NOL carryforward period and allow a 20 year NOL carryforward for NOLs generated in income tax years commencing on or after January 1, 2021. This bill also revises the law so that financial institutions, which currently are allowed a 15-year NOL carryforward period, are treated consistently with other corporate taxpayers and allowed a 20 year NOL carryforward.

In Iowa, House File 2641, if signed by the Governor, makes comprehensive changes to Iowa’s tax laws. For corporate taxpayers, the bill would decouple Iowa from the section 163(j) interest limitations, except for any year during which bonus depreciation under 168(k) applies in computing net income for state purposes. The bill would also allow taxpayers to subtract GILTI to the extent included in taxable income.  The 163(j) change would be effective for tax years beginning on or after January 1, 2020, but the new GILTI subtraction would apply to tax years beginning on or after January 1, 2019. Another section of the bill provides  that for any tax years beginning on or after January 1, 2019 and ending March 27, 2020, section 1106(i) of the CARES Act (excluding from income loans forgiven under the Payroll Protection Program) applies in computing net income for state purposes for both personal and corporate taxpayers. Please stay tuned to TWIST for additional legislative updates.

To read about the recent state and local tax guidance on extensions in response to COVID-19, please click here and bookmark KPMG TaxNewsFlash-United States to stay current as more guidance is regularly released.