State income taxes are impacted by federal legislative changes to the ability to deduct research and development (R&D). In this CPE, Jamie Overberg will review the current federal requirement to capitalize R&D, states’ responses to these changes, best practices for deducting or amortizing R&D expenses in conforming and nonconforming states, and the state of proposed legislative corrections.
State Responses to New Section 174 Requirements for R&D:
Conforming and Nonconforming States
August 24, 2023 | 11:00 am – 12:50 pm MT
Early Registration Discount Deadline, Friday, July 28, 2023
Live 110-minutes CPE webinar with interactive Q&A
Before the Tax Act of 2017, R&D costs were deductible. Beginning in 2022, these costs must be capitalized and amortized over five years if they are domestic expenses or 15 years if foreign. Compounding the significant increase in taxes due by businesses with R&D are the additional state taxes that could be due. States may conform to federal legislation immediately, as of a specific date, or only with specific code sections. Congress may reinstate the ability to expense R&D retroactively but states that follow federal legislation will still comply at varying dates.
In states that have not conformed, opportunities exist to expense R&D at the state level. California allows a full deduction for R&D expenditures and Tennessee has decoupled from the new Section 174 rules. Some states have different rules based on the entity type. Flow-through entities in Pennsylvania can expense R&D costs while corporations cannot. SALT advisers working with multistate entities must understand the impact of recent Section 174 revisions on state taxes.
Listen as our R&D expert discusses the recent 174 legislative changes and the impact of these changes on state taxes.
- Section 174 legislation update
- R&D costs
- State conformity
- Nonconforming states
- Conforming states
- Other states
- Implementing Section 174 capitalization requirements
- Revenue Procedure 2023-11
- Best practices
The panel will cover these and other key issues:
- What costs are included in the definition of R&D?
- Which states are nonconforming states and how is the deduction handled in these states?
- How is a change in accounting method made under Revenue Procedure 2023-11?
- What is the current status of retroactive changes to restore the R&D deduction?
Jamie Overberg, Partner, TaxOps Minimization
As a tax partner for TaxOps Minimization, Ms. Overberg specializes in executing and managing a wide range of tax minimization strategies, including all aspects of the Research and Development tax credit as well as financial reporting requirements under FAS 109 and Fin 48. In addition, she works with Section 199, Section 263A, and Section 382 analysis, calculations, and reporting. She works primarily with clients in the automotive, engineering, manufacturing, software, biotech and oil and gas sectors, and has worked on numerous R&D tax controversy engagements.