Chaim Kofinas, a tax director at Goldstein Lieberman & Company, who spoke at the NYSSCPA's International Taxation Conference on Thursday, warned professionals that global intangible low-taxed Iincome (GILTI), which is now taxed as an anti-base erosion measure under the federal Tax Cuts and Jobs Act, can be taxed differently at the state level, as not every state conforms strictly with the Internal Revenue Code.
 
GILTI consists of earnings that exceed a 10 percent return on a company’s invested foreign assets, which are subject to a worldwide minimum tax of between 10.5 and 13.125 percent on an annual basis. The GILTI tax is essentially a minimum tax that is applied to discourage companies from using intellectual property asset transfers to avoid U.S. taxation.

Kofinas noted, though, that the application of this tax, and its various subsets and elections, don't apply equally across all 50 states, as each has its own unique rules on how income is handled.

An example is the deduction under Sec. 965(c), which Kofinas noted has wide variations in applicability from state to state. Under the tax code, shareholders of a deferred foreign income corporation can get a deduction based on a calculation referenced to the shareholder’s aggregate foreign cash position equal to an amount that results in an effective tax rate of 15.5 percent on foreign earnings and profit held in cash or cash equivalents and/or 8 percent on foreign earnings and profit held in other property.

New York state, he said, does not recognize this deduction, which he said was like "saying, 'Well I don't care about what you've done with the federal government—we're taxing.'" This means that Albany considers whatever amount that might have been deducted under that provision as part of federal income, which sets the guideline for state taxes. However, it's not all bad, because New York excludes Subpart F income, "income earned out there somewhere," though at the end of the day there is still "a piece" of the income taxed by Albany.

He added that New York City functions in much the same way, save for S corporations, which still follow rules that predate the city's corporate tax reform.

Other states operate differently. For instance, Tennessee taxes only interest and dividends, and so it therefore won't include that amount as part of income. New Hampshire "has some quirky rules [where] it might be exempt, it might not."

Another big example is Sec. 962, which he said is where things "go off the rails." Federally, Kofinas said, an individual filing a 1040 could, with respect to income from a controlled foreign corporation, asked to be taxed as a corporation instead in order to gain access to further deductions that, combined, could lead to paying no federal tax at all. This, he said, led to states asking what exactly they were going to do with this. In the case of New York in particular, the answer is ignore it.

"New York state has told me they ignore the election, and they say that's nice for federal purposes but we're not bound by that because you are not a corporation and therefore you can do what you want with the federal government, you can tell them you're a corporation, but we're not buying that, you're an individual, the GILTI is still taxable, no [Sec. 250) deduction, thank you very much, bring your check with you and please move on down the line," he said.

It is for situations like these, according to Kofinas, that tax professionals cannot ignore state interactions with GILTI, despite the fact that it's an international tax concept.

"Someone will say, why is this important? Because how the state does its taxation scheme is how this stuff ... gets taxed," he said.