How Will States Tax Global Income?


         Ever since Federal Tax Law was changed by the Tax Cuts and Jobs Act (TCJA) the states have been struggling to catch up. This is true in many ways, but one way is in how they tax global income. The TCJA created the title Global Intangible Low-Taxed Income (GILTI). This is applied to the act of taking income from things like patents or trademarks and sending it to a foreign corporation controlled by the original US based business. This foreign corporation would be in a low tax country and allow for more profits to be shielded from taxation. How have states adjusted to this form of tax avoidance?

          While this strategy has been around for a long time, the GILTI category under Section 951A has been the best effort so far at discouraging that kind of behavior from businesses. With that said, most states have done very little to follow up with their own guidance. That might be because they have very little in the way of international commerce within their borders. However, California has one of the biggest economies in the world and it does not tax GILTI at all. New York state taxes a small amount, whereas New York City can potentially tax a large percentage. Now there is a lot of uncertainty around a potentially large source of income. That will change in the next few months as different groups will lobby to get their best ideas put in place. If you are based in the United States and do business in other countries, there will be new rules for you soon.

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