Indiana Enacts IRC Conformity Bill, Decouples from Certain Federal Tax Reform Provisions

On May 14, 2018, Indiana Governor Eric Holcomb signed into law H.B 1316 (the Bill). The Bill provides a number of changes to Indiana’s tax laws, including responding to provisions of the federal Tax Cuts and Jobs Act. Some notable provisions of the Bill include:

• updating Indiana’s conformity to the Internal Revenue Code from January 1, 2016 to February 11, 2018, effective for taxable years beginning on or after January 1, 2018;
• specifying that any IRC amendments made by an act passed by Congress prior to February 11, 2018, other than the 21^st Century Cures Act or the Disaster Tax Relief and Airport and Airway Extension Act, that is effective for a taxable year that begins before February 11, 2018 and affects corporate taxable income, is also effective for the same taxable year for purposes of determining Indiana adjusted gross income.
• specifying that amounts under IRC 951A (GILTI) are treated as foreign source dividends for Indiana purposes, which means that Indiana’s Dividends Received Deduction for foreign source income under Ind. Code § 6-3-2-12 will apply to GILTI;
• providing for similar treatment of amounts under IRC 965 Repatriation Transition Tax;
• specifying that to the extent any amounts from the Repatriation Transition Tax or GILTI are included in Indiana income, these receipts will be included in the Indiana apportionment factor and sourced based on the rules for dividends from investments;
• decoupling from the limitation on interest expenses under IRC 163(j); and
• decoupling from the federal unlimited NOL carryforward period under IRC §172 and instead providing for a carryforward period of 20 years.

Eversheds Sutherland Observation: Indiana’s treatment of GILTI as a “foreign source dividend” puts GILTI on equal footing with Subpart F income (including the Repatriation Transition Tax) for Indiana corporate tax purposes. Under Indiana Code § 6-3-2-12, a 100% DRD is allowed for foreign source dividends from 80% owned corporations. The DRD is reduced to 85% for dividends from corporations in which the US shareholder owns a 50-80% interest, and further reduced to 50% for dividends from corporations in which the ownership percentage is 50% or less. Indiana’s treatment of GILTI under the Bill is similar to certain other states’ treatment of GILTI including Georgia, which exempts both GILTI and Subpart F income from state taxation, and Illinois, which has a foreign dividend subtraction that applies to both GILTI as well as Subpart F income.

Read more here: Indiana H.B. 1316