On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which modifies certain business tax provisions in the Internal Revenue Code (IRC). For more detailed information regarding the CARES Act, see here.
The CARES Act presents new federal and state conformity challenges for states, taxpayers, and practitioners. Taxpayers cannot assume that each state will conform to the CARES Act changes immediately, and in all respects.
Texas conforms to the IRC as of a fixed-date, January 1, 2007, thus it does take into account any changes made by federal law after that date. In order for Texas to adopt any tax provisions of the CARES Act, legislative action is required to update the state franchise tax laws to conform to the IRC as of a specific date (i.e., after March 27, 2020). It is unlikely Texas will conform to the CARES Act and adopt the modifications to the IRC. Therefore, the IRC modifications under the CARES Act is not relevant for Texas Franchise tax purposes.
Louisiana, New Mexico and Oklahoma conform to the IRC on a rolling basis. Rolling conformity means these states automatically adopt provisions of the IRC as enacted (i.e., on a continual basis) unless the state has preexisting laws that decouple from specific code provisions. The rolling conformity approach is generally less burdensome for both the states and taxpayers as it provides the simplicity of a single starting point. Therefore, it is likely Louisiana, New Mexico and Oklahoma will conform to the CARES Act and adopt the modifications to the IRC.
Note, although methods of conformity, as described above, may be used as guidance, the statutory language used by a state will ultimately determine a state’s corporate income tax conformity to the IRC, and the CARES Act.
The Bracewell tax team can help you navigate these complex state and local tax issues.