Since the beginning of the year, several states that conform to the Internal Revenue Code (IRC) as of a specific date – so-called fixed-date states – have enacted legislation updating their dates of conformity. This alert summarizes those developments thus far.
On March 3, Arizona enacted S.B. 1171 to update its conformity to the IRC. For tax years “beginning from and after December 31, 2022,” Arizona conforms to the IRC "as amended and in effect on January 1, 2023." That includes federal provisions that became effective during 2022 with Arizona’s specific adoption of all retroactive federal effective dates, excluding any changes to the IRC enacted after January 1, 2023.
Arizona has also adopted provisions of several federal acts that are retroactively effective for tax years beginning during 2022, including the Chips and Science Act of 2022 (P.L. 117-167), the Inflation Reduction Act of 2022 (P.L. 117-169), and the Consolidated Appropriations Act, 2023 (P.L. 117-328).
On February 15, Idaho enacted H.B. 21 to retroactively update its IRC conformity date to January 1, 2023. The bill affects both corporate and individual taxpayers.
Before H.B. 21, Idaho conformed to the IRC “as amended and in effect on” January 1, 2022, but applied the IRC as in effect on January 1, 2020, for purposes of IRC sections 85 (unemployment compensation) and 461(l) (limitation on excess business losses for noncorporate taxpayers). The legislation conforms state law with the current version of IRC section 461(l), but section 85 remains as in effect on January 1, 2020.
On January 12, Minnesota enacted H.F. 31 to update its IRC conformity date to December 15, 2022.
Although it does not impose a general corporate or personal income tax, South Dakota does impose a bank franchise tax on a financial institution’s net income. On February 2, it enacted S.B. 29 to update its IRC conformity date to January 1, 2023, for bank franchise tax purposes. The updated IRC conformity date is effective July 1, 2023.
On February 27, Virginia enacted emergency legislation (S.B. 882) to update its IRC conformity date to December 31, 2022, for corporate and individual income taxpayers. The legislation is effective immediately.
Before S.B. 882, Virginia conformed to the IRC as it existed on December 31, 2021. Under S.B. 882, Virginia continues to decouple from some federal provisions. However, no new specific IRC decoupling provisions were included in the legislation.
For additional guidance, see the Virginia Department of Taxation Tax Bulletin 23-1, issued February 27.
On February 14, West Virginia enacted H.B. 2776 and H.B. 2777 to update its IRC conformity date for corporate and personal income tax purposes. Effective from date of passage, the new laws adopt all amendments made to federal tax laws after December 31, 2021, but before January 1, 2023.
INSIGHT
As of the date of publication of this alert, although several fixed-date states have yet to update their IRC conformity dates, some have proposed that kind of legislation. We will provide another summary of 2023 state IRC conformity legislation in the second quarter of 2023.