On Feb. 9, 2018, Idaho Governor C.L. Butch Otter signed House Bill 355, providing for updated conformity of Idaho’s income tax code to the IRC, and becoming the first state to address conformity since the enactment of federal tax reform in December.
Idaho has historically been a “static conformity” state, meaning it conformed to the IRC as of a fixed date, previously conforming to the IRC as of Jan. 1, 2017. House Bill 355 adopts the IRC as of Dec. 21, 2017, the day before federal tax reform was signed. However, the state adopts two provisions enacted by federal reform as of Dec. 31, 2017, Section 965 and Section 213. Section 965 includes the new repatriation provisions and transition tax, and Section 213 revises the medical expense deduction by lowering the qualifying threshold to expenses over 7.5 percent of a taxpayers adjusted gross income, a reduction from a 10 percent threshold.
Taxpayers have eagerly awaited the state response to federal tax reform and Idaho kicks off what will likely be a long state legislative season. The Idaho approach, conforming to the IRC provisions immediately before federal tax reform and cherry-picking one or two new provisions to adopt, may become a popular strategy for states in the first year of federal reform. The impact of tax reform on state revenues will likely not be fully understood for periods long after budgets are due and legislative sessions adjourn.
For more information on state conformity, please read our blog, Federal tax reform and the states: Conformity is key. For more information on federal and state tax reform, please see RSM’s Tax Reform Resource Center.