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As filings for the 2018 tax year are finalized, states are belatedly adopting legislation or providing administrative guidance on the treatment of Global Intangible Low-Taxed Income (GILTI). While state approaches are discussed at greater length in our paper on state tax conformity, this is a fast-moving issue with new developments expected frequently in the coming weeks and months.
Some states exclude GILTI (§951A) from their income tax base. Others include it initially but treat it (either legislatively or administratively) as foreign dividend income subject to the dividends received deduction. Finally, among those which tax or potentially tax GILTI, some states incorporate the partially offsetting deduction (§250), while others do not.
States which use separate (rather than combined) reporting and nevertheless seek to tax GILTI face a serious constitutional challenge, particularly under the precedent of Kraft v. Iowa Department of Revenue (1992), a U.S. Supreme Court case striking down a business tax that allowed a deduction for dividends received for domestic, but not foreign, subsidiaries. These states should take particular pains to avoid taxing GILTI.
In the table below, we indicate each state’s approach to GILTI and highlight new developments in 2019. We will update this page as states announce new guidance or address GILTI legislatively.
(a) Conforms to a prior year and does not yet include GILTI.
(b) California separately taxes controlled foreign corporations and may not be able to tax GILTI in addition.
(c) Maine provides a 50 percent subtraction modification for GILTI but adds back the federal deduction.
Sources: State statutes; revenue offices; Bloomberg Tax; Council on State Taxation
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