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August 17, 2022

Inflation Reduction Act has state corporate income tax implications

  • Under current state tax regimes, a few states automatically (e.g., Alaska), or may in the future (e.g., California), conform to the new corporate alternative minimum tax.
  • Though most states do not currently impose this kind of corporate minimum tax, state lawmakers could choose to adopt the version from the Inflation Reduction Act.

The newly enacted Inflation Reduction Act (H.R. 5376) (the Act), which President Biden signed into law on August 16, 2022, includes a 15% corporate alternative minimum tax (CAMT) based on adjusted financial statement income (AFSI) for corporations with profits over $1 billion (see Tax Alert 2022-1237), a new excise tax on corporate stock buybacks, and increased funding for IRS enforcement. See Tax Alert 2022-9006. Some of the Act's tax components could affect corporate income taxes imposed by state and local (collectively, state) governments.

State conformity to federal tax changes

Generally, most state income tax systems use federal taxable income as a starting point for state corporate income tax computations, so changes to this federal income determination can have state tax implications. By contrast, states do not automatically conform to federal tax rate changes, and most do not adopt minimum tax regimes that exist outside of the general rates under IRC Section 11. States also do not generally adopt the excise tax provisions under Subtitle D of the IRC; as such, the excise tax on corporate stock buybacks does not have immediate implications for state taxes.

When certain tax changes under the Act will affect state income taxes generally depends on how each state conforms to the IRC. States conform to the IRC in various ways. Most either automatically incorporate the federal tax law as it changes (known as "rolling" conformity) or adopt the federal tax law as of a specific date (known as "fixed" conformity). Upon enactment of a change in the IRC, rolling-conformity states that incorporate relevant IRC sections generally would automatically adopt the changes, while such states with fixed conformity statutes generally would only incorporate changes if and when they update their conformity date to a date on or after the effective date of the corresponding federal tax changes — or otherwise adopt legislation to that effect.

Potential state tax effects of the CAMT

While most states do not follow federal minimum tax regimes, as referenced previously, state income tax conformity to the 15% CAMT based on AFSI could be an issue in the few states that have enacted a corporate AMT that relies on IRC Section 55. It is unclear how existing state conformity statutes intersect with the significant changes under the Act to IRC Sections 55-59.1

For example, Alaska's corporate AMT is computed as 18% of the apportioned federal AMT liability, tying directly to IRC Section 55; being a rolling IRC conformity date state, that means that Alaska automatically conforms to the CAMT.2 Similarly, California's corporate AMT directly ties to IRC Section 55,3 but the state conforms to the IRC as of January 1, 2015,4 meaning that state legislative action would be necessary to adopt federal changes, if any, to that Code section.

In Florida, on the other hand, state statute currently bases state taxable income on the federal alternative minimum taxable income under IRC Section 55(b)(2) for corporations that show a federal AMT liability on their federal tax return.5 Since the Tax Cuts and Jobs Act of 2017 (P.L. 115-97) (the TCJA) repealed the corporate AMT, this Florida law has been effectively dormant.6 An update in Florida's conformity to an IRC version incorporating the CAMT could activate that dormant state AMT, with uncertain consequences, as the significant modifications to IRC Sections 55-59 do not align to Florida's current IRC references.7

A handful of other states impose corporate minimum taxes that are based on capital stock or are otherwise not based on the federal tax computed under IRC Section 55, such that the CAMT would not impact those state taxes. For instance, Minnesota imposes a corporate AMT that accounts for federal AMT adjustments and preference items under IRC Section 56 et seq.,8 but the state tax is not predicated on the calculation of the federal corporate AMT itself.

State adoption of federal corporate AMT regimes historically has raised complexities. Before the TCJA repealed application of the federal AMT to corporations, federal-state differences arose in the timing and manner of deducting corporate AMT credits against regular corporate tax liabilities. Affected businesses could face similar challenges if states adopt the CAMT. Furthermore, the CAMT may exacerbate existing complexity from differences in federal and state filing groups. This is a particular concern for multinationals, given that a US shareholder of a controlled foreign corporation (CFC) includes in its AFSI its pro rata share of items taken into account in computing the net income or loss on the CFC's applicable financial statement, with certain adjustments. This feature of the CAMT poses risk that conforming states could tax extraterritorial values, including non-unitary income.


The effects of the CAMT will arise not only from how the states currently conform to federal tax law, but also from how state lawmakers modify state tax laws in response to federal changes. Some states could choose to adopt the CAMT or implement their own tax reforms. Similarly, state lawmakers could seek additional funding for their taxing authorities, mirroring the Internal Revenue Service enforcement funding provided by the Act.

As of today, most states have concluded their legislative sessions and may not be positioned to immediately respond to these federal provisions. Understanding how these federal tax developments affect state budgets will be important to state policymakers as the next legislative year approaches.

Businesses, too, should monitor and assess the effects of the CAMT and relevant state tax legislation on their state tax profile — closely evaluating the potentially-significant state tax considerations for any transactions or activity undertaken in response to these federal law changes.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Karen Currie (
   • Scott Roberti (
   • Keith Anderson (
   • Jess Morgan (
   • Karen Ryan (
   • Deane Eastwood (
   • Dan Lipton (
   • John Heithaus (


1 This includes newly-added IRC Section 56A, which defines AFSI of a corporation.

2 Alaska Stat. §§ 43.20.021(a) and (f), 43.20.300(a) and 43.20.340(5); Alaska Admin. Code tit. 15, § 20.135.

3 Cal. Rev. & Tax. Code §§ 23400 and 23455.

4 Cal. Rev. & Tax. Code § 23051.5(a), which cross-references Cal. Rev. & Tax. Code § 17024.5(a)(1) (a provision in California's personal income tax law), wherein the current conformity date is codified.

5 Fla. Stat. Ann. § 220.13(2)(k). See also Fla. Stat. Ann. § 220.11(4).

6 See Fla. Admin. Code Ann. r. 12C-1.013(19).

7 Florida tax law currently conforms to the IRC as amended and in effect on January 1, 2022. Fla. Stat. Ann. § 220.03(1)(n).

8 Minn. Stat. § 290.0921(subd. 3).