Georgia and Arkansas Enact Federal Income Tax Conformity Legislation

Georgia brought its income tax code section in line with changes enacted by Congress, and Arkansas eliminated the ability of S-corporations to be treated as C-corporations at the state level.

By Jeff Glickman, SALT partner

Georgia Updates Internal Revenue Code Conformity

On March 21, 2017, Georgia Governor Nathan Deal signed House Bill 283, Georgia’s annual Internal Revenue Code (“IRC”) conformity legislation. The legislation updates Georgia’s income tax code section 48-1-2(14) to conform to the changes in the federal tax law that were enacted on or before Jan. 1, 2017, and is effective for tax years beginning on or after Jan. 1, 2016. There are a couple of points worth noting with regard to Georgia’s conformity with the IRC: (1) any changes to the IRC enacted by Congress after Jan. 1, 2017 will not be adopted by Georgia (absent additional legislation), even if the federal changes are effective retroactively for the 2016 tax year, and (2) any changes to the IRC enacted by Congress before Jan. 1, 2017, that are not yet effective shall become effective for Georgia tax purposes on the same date they become effective for federal tax purposes.

Arkansas Enacts Legislation to Automatically Accept Federal S-Corporation Election

In most states, once an election is made for federal income tax purposes to be treated as an S-corporation, that election is binding for state income tax purposes without any requirement to file a separate election or other documentation (e.g., non-resident shareholder consents). However, there are a handful of states that either do not accept or recognize S-corporation status or require that the entity file a separate state election or other documentation in order to validate the state S-corporation status. Therefore, in those states it is possible, if the required election or documentation is not submitted, to be treated as an S-corporation for federal income tax purposes and a C-corporation for state income tax purposes.

On March 9, 2017, Arkansas Governor Asa Hutchinson signed House Bill 1563. Under the legislation, effective for tax years beginning on or after Jan. 1, 2018, Arkansas income tax code section 26-51-409(b) is amended so that a federal S-corporation election is automatically binding for state income tax purposes. Prior to the legislation, a separate S-election was required to be filed through the filing of shareholder consents. As a result of the legislation, those are no longer required, and therefore, a corporation that has elected to be an S-corporation for federal income tax purposes will no longer be able to be treated as a C-corporation for state income tax purposes (by not filing the shareholder consents).

Many state 2017 legislative sessions are still active, and for those states that have adjourned their 2017 legislation sessions, there may be tax bills awaiting signature. Aprio’s SALT team constantly monitors tax legislation and will include summaries of significant state tax legislation, as well as an analysis of what such legislation may mean for your business, in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the April 2017 SALT Newsletter. Click here to view the full newsletter.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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