True, Correct, and Complete: On-time Filing of State and Local Tax Returns Without Clear, Consistent, or Practical Guidance
In a GILTI world, taxpayers need to make their way without a compass

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While state and local tax is rife with uncertainty, the signature block of a state or local corporate income tax return is often deceptively simple and definitive. Typically, the signature certifies that the return is “true, correct, and complete.”1 From a practical standpoint, however, state and local corporate tax returns often reflect filing positions that are necessarily based on unclear taxing statutes, regulations, and other guidance. This article examines situations where taxpayers could be subject to secondguessing of their tax positions subsequent to the passage of the federal Tax Cuts and Jobs Act (TCJA)2 and provides potential road maps for preparing and filing returns.

Tax Treatment of GILTI

Effective for tax years beginning on or after January 1, 2018, the TCJA created a new category of income, global intangible low-taxed income (referred to as GILTI), under Internal Revenue Code (IRC) Section 951A. This provision generally imposes a tax on U.S. shareholders based on income from controlled foreign corporations (CFCs), to the extent that this income exceeds a nominal ten percent return on the CFCs’ tangible assets. A deduction is generally allowed for fifty percent of the amount of GILTI included in a taxpayer’s federal gross income under IRC Section 250(a)(1)(B),3 which is designed to result in a federal tax rate of 10.5 percent for GILTI. Additionally, foreign tax credits are available to offset the federal income tax imposed on GILTI, with credits limited to eighty percent of the amount of foreign taxes paid.

Because states and localities typically conform to some version of the IRC for purposes of calculating the taxable income base,4 companies must now consider whether or how a jurisdiction will conform to the TCJA’s GILTI provisions. Already a number of jurisdictions have passed legislation5 or issued guidance6 clarifying that GILTI will be treated as nontaxable income for state income tax purposes. That said, many other jurisdictions have passed legislation7 or issued guidance8 addressing how GILTI must be included in the jurisdiction’s income tax base.

However, some jurisdictions have not directly addressed how to treat GILTI for corporate income tax purposes,9 forcing corporate taxpayers to do their best to interpret (or guess) the state’s application of GILTI. What follows is a framework to consider in such situations.

Because states and localities typically conform to some version of the IRC for purposes of calculating the taxable income base, companies must now consider whether or how a jurisdiction will conform to the TCJA’s GILTI provisions.

Step 1: Determine the Jurisdiction’s IRC Conformity Date

First, determine whether the jurisdiction conforms to a version of the IRC as of the date the TCJA was added to the IRC. Some jurisdictions conform to the IRC on a “static” basis, meaning that they conform to the IRC as it existed on a specific date.10 In a jurisdiction using a static IRC conformity date, determine whether the jurisdiction’s tax law has updated its IRC conformity date to include provisions of the IRC added to or revised by the TCJA. If the jurisdiction has not updated its conformity date since the passage of the TCJA, it naturally will not conform to GILTI.

Other jurisdictions conform to the IRC on a “rolling” or “floating” basis, meaning that they conform to the IRC as soon as it is revised.11 In a rolling conformity jurisdiction, along with any jurisdiction conforming to the IRC on a static basis that has updated its law to conform to the IRC as of the passage of the TCJA (including the GILTI provisions),12 a taxpayer should consider how GILTI is (or is not) reflected in the jurisdiction’s corporate income tax base.

Step 2: Determine the Jurisdiction’s Starting Point for Calculating Taxable Income

If the jurisdiction generally conforms with the TCJA, a taxpayer next should determine whether the jurisdiction’s starting point for calculating taxable income includes the GILTI addition alone or both the GILTI addition and the corresponding federal tax deduction.13 The IRC classifies the GILTI deduction as a “special deduction,”14 and many jurisdictions calculate their corporate income tax base using federal taxable income without accounting for special deductions.15

Step 3: Determine Whether a Subtraction From the Jurisdiction’s Base Would Eliminate GILTI

Next, even if the GILTI provisions must be accounted for in calculating the starting point of the jurisdiction’s corporate income tax base, the state may provide other statutory adjustments to remove either all or a large portion of GILTI. For example, many jurisdictions treat Subpart F income as dividend income that may be removed from the corporate taxable income base.16 Although GILTI is not included in the IRC’s definition of Subpart F income,17 the amount of GILTI includable in gross income “shall be treated in the same manner as [Subpart F income].”18 As some jurisdictions have expressly acknowledged that GILTI should be treated akin to Subpart F income,19 a similar position should be considered in those jurisdictions that provide for a removal of Subpart F income but have not provided GILTI guidance. Other states provide a subtraction modification for foreign-source dividends. As with the treatment of Subpart F income, some states have advised that GILTI is excluded, in whole or in part, from income under the state’s existing foreign-source dividend deduction.20 And, as with Subpart F income exclusions, a similar position for GILTI should be considered in those jurisdictions providing for a foreign-source dividend deduction. Because GILTI has a corresponding IRC Section 78 gross-up component, a state’s treatment of IRC Section 78 gross-up income may also be illustrative.

Step 4: Consider Provisions That May Minimize GILTI Consequences

Finally, even if a taxpayer ultimately concludes that a jurisdiction’s tax laws appear to require the inclusion of GILTI in the corporate income tax base, consideration should be given to whether the effect of GILTI can be either eliminated or minimized under other principles. For example, consideration should be given to whether a taxpayer could remove GILTI under U.S. constitutional principles,21 including whether fair apportionment principles would require a taxpayer’s apportionment factor to include the attributes of the foreign entity generating GILTI.22

Meeting Post-TCJA Filing Deadlines: When Compliance Is Not Practical

Separately, recent changes to federal corporate income tax filing deadlines may create practical challenges for complying with a state or local corporate income tax filing deadline—especially as jurisdictions continue to provide guidance related to the impact of the TCJA.

Federal changes in law that took effect for tax years beginning in 201623 extended corporate tax return filing deadlines by one month. Thus, for calendar-year corporate tax return filers, returns are now due on April 15, or on October 15 with an automatic extension.24 Although the change in federal filing deadlines was intended to increase the accuracy of federal corporate returns,25 complications have arisen in many states and localities with laws that previously allowed corporate income tax returns to be filed at least thirty days after the due date of the corporation’s federal return.26 As state and local tax authorities continue to release TCJA-related guidance, such complications have only become more numerous.

Some jurisdictions with laws requiring returns to be filed on or shortly after the federal return due date provided guidance for the 2017 filing season that confirmed the availability of filing deadline relief (and outlined how to request this relief).27 However, other jurisdictions have refused to offer clear opportunities for relief and instead have indicated that penalties may be waived based on a filer’s individual circumstances.28

With respect to those jurisdictions that do not provide clear relief, companies may find themselves either filing a return without true, correct, and complete information from their federal returns or risking a penalty by filing late. If a taxpayer prefers to file a few days late rather than to file a potentially inaccurate return followed up by an amended return, it should document any steps in its attempt to complete its state and local returns contemporaneously with its federal returns. Furthermore, to the extent that information is gathered late in the federal return preparation process or that a jurisdiction’s tax guidance ultimately makes filing an accurate return by that jurisdiction’s deadline impracticable, a taxpayer should document exactly what event or events prevented compliance. This documentation should be used to prepare a request for penalty relief to be submitted either contemporaneously with the jurisdiction’s return or in response to a penalty assessment.


Filing final returns with definitive tax calculations is a primary responsibility of any corporate tax department, even if a taxpayer cannot always file returns without at least some uncertain positions. The best thing a taxpayer can do is fully analyze the array of filing positions and prepare contemporaneous, reasoned legal memoranda supporting whatever positions it takes. Ideally, to the extent that specific facts are relevant to the position taken, a taxpayer should prepare contemporaneous documentation to anticipate a future audit or litigation. Doing so will put a taxpayer in the best position to demonstrate that its returns were true, correct, and complete as they were filed.

Jeffrey Friedman is a partner, Todd Betor is counsel, and Michael Hilkin is an associate at Eversheds Sutherland.


  1. See, e.g., Cal. Form 100, 2018 Corporation Franchise or Income Tax Return; Ill. Form IL-1120, Corporation Income and Replacement Tax Return; N.Y. Form CT-3, 2018 General Business Corporation Franchise Tax Return.
  2. Pub. L. 115-97, 131 Stat. 2054 (December 22, 2017).
  3. A taxpayer’s deduction for GILTI under IRC Section 250(a)(1)(B) can range from zero percent to fifty percent of GILTI. A full discussion of the calculation of the IRC Section 250(a)(1)(B) deduction is outside the scope of this article.
  4. See, e.g., Jerome Hellerstein and Walter Hellerstein, State Taxation ¶ 7.02 (Thompson Reuters/Tax & Accounting, 3rd ed. 2001, with updates through December 2018).
  5. See, e.g., Ga. S.B. 328 (signed by Governor Nathan Deal on March 27, 2018) (classifying GILTI as “Subpart F income” excluded from the Georgia taxable income base under Ga. Code Ann. Section 48-7-21(b)(8)); N.C. S.B. 99 (the General Assembly overrode Governor Roy Cooper’s veto on June 12, 2018) (providing a deduction from the North Carolina taxable income base for any amount included in federal taxable income under, among other provisions, IRC Section 951A); Va. H.B. 2529 and S.B. 1372 (companion bills signed by Governor Ralph Northam on February 15, 2019) (providing for a deduction from the Virginia taxable income base for any amount included in federal income under IRC Section 951A).
  6. See, e.g., Ky. Tech. Advice Memorandum KY-TAM-18-02 (August 2018) (explaining that under Kentucky law Subpart F income is treated as dividend income—which is excluded from the Kentucky taxable income base—and concluding that GILTI is also excluded from the Kentucky taxable income base because “GILTI is treated similar to Subpart F income” for federal income tax purposes); also, Mississippi Income Tax Bureau Notice 80-19-001 (January 2019) (stating that Mississippi does not conform to GILTI).
  7. See, e.g., N.J. P.L. 2018, c. 131 (providing for New Jersey conformity with the GILTI deduction for corporate income tax purposes but not decoupling from the inclusion of GILTI).
  8. See, e.g., N.J. Tech. Bulletin TB-85(R) (revised December 24, 2018) (explaining that, in the New Jersey Division of Taxation’s view, net GILTI income should be apportioned separately from the rest of a New Jersey taxpayer’s income includable in its New Jersey taxable income base); N.Y. Tech. Memorandum TSB-M-19(1)C (February 8, 2019) (stating that both GILTI and the GILTI deduction are included in the New York taxable income base, and explaining that a taxpayer may include the net GILTI amount in its apportionment factor denominator); Vt. Dep’t of Taxes, 2018 Vt. Income Tax Guide for Tax Practitioners (“Global Intangible Low-Tax Income (GILTI) is now included in federal gross income under the TCJA. IRC Section 951A(a). As a result, GILTI is automatically included in Vermont taxable income and Vermont net income. Furthermore, the GILTI deduction now allowed under IRC Section 250 is also available to domestic corporations for Vermont corporate income tax purposes”).
  9. For example, as of March 18, 2019, neither the District of Columbia nor the following states have addressed the treatment of GILTI: Delaware, Nebraska, New Mexico, Pennsylvania, Rhode Island, and South Carolina.
  10. For example, Arizona, California, Iowa, New Hampshire, and Virginia use a static conformity date.
  11. For example, Alabama, Illinois, Massachusetts, and New York conform to the IRC on a rolling basis.
  12. For example, Florida, Idaho, Maine, Michigan, and South Carolina use a static conformity date as of the passage of the TCJA.
  13. See IRC Section 250(a)(1)(B), discussed above.
  14. IRC Section 250(a)(1)(B) appears in part VIII of Subchapter B of the IRC providing for “Special Deductions for Corporations.” See IRC Section 241 (“In addition to the deductions provided in part VI (sec. 161 and following), there shall be allowed as deductions in computing taxable income the items specified in this part [VIII (sec. 243 through 250)]”). A taxpayer may also see relief from the deduction for foreign-derived intangible income (FDII) (deemed intangible income multiplied by the fraction of foreign-derived deduction eligible income over deduction eligible income) contained in IRC Section 250(a)(1)(A), which is also a special deduction. Under IRC Section 250(a)(1)(A), a taxpayer may deduct 37.5 percent of its FDII.
  15. For example, prior to passing legislation that provided for the GILTI deduction to be included in a New Jersey corporate taxpayer’s base, taxpayers may have been required to include the GILTI addition without the corresponding GILTI deduction because New Jersey law defined its starting point for calculating the corporate income tax base as “federal taxable income before . . .special deductions.” N.J.S.A. Section 54:10A-4(k). Jurisdictions that do not include IRC “special deductions” in the corporate income tax base commonly use line 28 of the federal Form 1120 as the starting point for calculating the base. Meanwhile, jurisdictions that do include special deductions use line 30 of the federal Form 1120, which represents federal taxable income after the net operating loss deduction and special deductions.
  16. For example, Alabama excludes from federal taxable income dividends received, including amounts described in IRC Section 951, from non-U.S. corporations to the same extent such dividend income would be deductible under IRC Section 243 if received from U.S. corporations if the taxpayer owns more than twenty percent of the stock, by vote or value, of the distributing corporation. Ala. Code Sections 40-18-33, 40-18-35(a)(7)(b).
  17. IRC Section 952.
  18. IRC Section 951A(f)(1).
  19. See, e.g., Conn. Special Notice SN 2018(7) (stating that “[b]ecause GILTI is treated in a manner similar to Subpart F income for federal income tax purposes, Connecticut will treat such income” in a manner similar to other Subpart F income); Ga. S.B. 328, supra footnote 5; and Ky. Tech. Advice Memorandum KY-TAM-18-02, supra footnote 6.
  20. See, e.g., Ind. Code Section 6-3-2-12(a) (including within the definition of “foreign source dividend” the amount that a taxpayer is required to include in gross income for a taxable year under IRC Section 951A); Mass. H.B. 4930 (signed by Governor Charlie Baker on October 23, 2018) (treating GILTI as a dividend); N.D. State Tax Comm’r, Notice: Tax Cuts and Jobs Act of 2017, North Dakota Tax Treatment of International Tax Provisions: Corporate Income Tax—Form 40 (“North Dakota considers GILTI a foreign dividend that is included in the taxpayer’s federal taxable income. . . . All taxpayers should report GILTI as other foreign dividends are treated. For taxpayers filing a return using the Worldwide Combined Reporting Method, the GILTI attributable to a CFC that is included in the combined report for that year is deductible as an intercompany dividend elimination. For taxpayers filing a return using the Water’s-Edge Method, 70% of the GILTI is deductible as a foreign dividend, and 30% of the GILTI is includable in the sales factor for apportionment purposes”).
  21. For example, in Kraft General Foods Inc. v. Iowa Dep’t of Revenue, 505 U.S. 71 (1992), the U.S. Supreme Court held that Iowa’s corporate income tax unconstitutionally discriminated against foreign commerce because it included dividends from foreign subsidiaries, but not dividends from domestic subsidiaries, in the taxpayer’s tax base. The principles outlined in this case may be applicable to the GILTI inclusion, which in effect operates much like a deemed dividend. The authors expect litigation in this area.
  22. Some states have issued direct guidance on GILTI factor representation. See, e.g., Ind. Dep’t of Revenue Info. Bulletin #116 (July 2018, revised) (requiring non–Indiana domiciled corporations to include any GILTI not otherwise deductible from income as a receipt in the denominator for apportionment purposes); New Jersey Technical Bulletin TB-85(R) (revised December 24, 2018), supra footnote 8; N.Y. Tech. Memorandum TSB-M-19(1)C (February 8, 2019), supra footnote 8. A taxpayer should consider whether any factor representation that does not include the apportionment factors attributable to the generation of GILTI is unconstitutionally discriminatory.
  23. Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Pub. L. No. 114-41, 129 Stat. 443.
  24. IRS Publication 509, Tax Calendars at 4, 5 (November 14, 2018).
  25. See Council on State Taxation, Urgent: State and Local Corporate Income Tax Return Filing Penalty Relief at 1 (October 4, 2018) (stating that the change in deadlines “was intended to result in better data for completing federal returns”).
  26. See Amy Hamilton, “TCJA Wreaks Havoc on State Corporate Filing Deadlines,” Tax Notes (State Tax Today), November 27, 2018, at 2018 STT 228-5, Tax Analysts Doc. 2018-45306.
  27. See, e.g., Ala. Dep’t of Revenue, “ADOR Offering Relief to Corporate Taxpayers Affected by Federal Tax Reform,” (last viewed March 10, 2019) (“providing relief from late-filing penalties for certain corporate taxpayers who are encountering difficulties meeting October state filing deadlines while trying to also file their federal returns by the new October federal deadline”).
  28. See Cal. Franchise Tax Bd., California Extended Due Dates for Corporate Taxpayers, Tax News (October 2018), at (last visited March 10, 2019) (stating that the California FTB “cannot extend the due date beyond the October 15 extended due date . . . due to year end processing limitations,” but that a late filer “may request abatement of the penalty upon a showing of reasonable cause,” which the FTB will consider “on a case by case basis”).

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