States Can and Should Respond Strategically to Federal Tax Law

Abstract

Everyone knows that states do not need to conform to federal tax law. That is why, in the aftermath of the Tax Cuts and Jobs Act (TCJA), states face scores of questions about whether and how to conform to the changes made to federal tax law. The explosion of conformity questions has put some pressure on the perceived wisdom about whether states must conform to federal tax law. For instance, the TCJA makes certain changes that are meant as complements to other changes; can a state choose to conform to federal law a la carte, that is, only conform to some, but not all, of the changes made to a particular area?

More fundamentally, how much can states respond to changes made by the federal tax law strategically? The federal government is showering taxpayers with very generous depreciation rules; can states make their depreciation schedules less generous in response?

In this short symposium piece, I will confirm that what “everyone knows” is correct. States do not need to conform to federal tax law and can (and should) respond to federal tax law strategically.

Keywords: Tax Cut and Jobs Act, State Tax Policy, Federal Preemption