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The federal 2017 tax reform act enacted changes to Section 174 applicable for tax years beginning after 2021.  Companies computing their first-quarter state income tax estimated payments should be aware of the state income tax implications associated with the federal changes.

Consequences extend beyond the threshold question of state conformity to Section 174. Companies also should consider state conformity to, and treatment of, Section 280C, the potential for state subtraction modification for disallowed federal deductions, and the impact to a taxpayer’s Section 163(j) limitation. 

State tax impact: Special consideration should be given to the potential for state subtraction modifications available for deductions disallowed for federal purposes relating to a credit that is not available for state purposes. Opportunities may be available in certain states for taxpayers that do not make a Section 280C election, which results in a decreased or disallowed federal deduction.