Modify Tax Expenditures

Sections 2 and 4 of the bill provide, for income tax years commencing on or after January 1, 2027, that individual and corporate state income taxpayers must add the following to their federal taxable income for purposes of applying the state income tax: An amount equal to the federal deduction claimed by the taxpayer for business interest pursuant to the limitation in section 163 (j) of the IRC to the extent the amount exceeds the amount the taxpayer would have been allowed to claim before the limitation was changed as described above;An amount equal to the federal deduction claimed by the taxpayer for qualified property depreciation pursuant to section 168 (k) of the IRC to the extent the amount claimed exceeds the amount the taxpayer would have been allowed to claim under section 168 (k) prior to the change described above; except that, the taxpayer may reduce the amount required to be added back by the amount of depreciation the taxpayer would have been allowed to claim for the taxable year with respect to the same property pursuant to any section other than section 168 (k) of the IRC prior to the recent federal changes;An amount equal to the federal deduction claimed by the taxpayer for qualified production property depreciation pursuant to section 168 (n) of the IRC; except that, the taxpayer may reduce the amount required to be added back by the amount of depreciation the taxpayer would have been allowed to claim for the taxable year with respect to the same property pursuant to any section other than section 168 (k) of the IRC prior to the recent federal change; andAn amount equal to the federal deduction claimed by the taxpayer for the income tax year for domestic research and experimental expenditures pursuant to section 174A of the IRC; except that, the taxpayer may reduce the amount required to be added back by the amount of the deduction the taxpayer would have been allowed to claim for the taxable year with respect to the same research and experimental expenditures pursuant to section 174 of the IRC prior to the recent federal changes. Sections 2 and 4 allow taxpayers who are required to make additions to their federal taxable income pursuant to the new provisions to subtract the amounts of their disallowed federal deductions over time, starting in income tax years commencing on or after January 1, 2028, using time periods that reflect how the property or expense would have been treated prior to the recent changes to the federal tax code. If the amount of the allowed subtraction exceeds the taxpayer's federal taxable income, the excess amount not subtracted may be carried forward for up to 10 years. Section 3 creates a new tax credit. The new tax credit allows taxpayers to claim a refundable tax credit, in addition to the child tax credit and the family affordability tax credit, in an amount determined by the amount and age of the taxpayer's children and the taxpayer's income. The total amount of the new tax credit is adjusted annually based on legislative council staff projections, such that the total amount of the new tax credit claimed in an income tax year is projected to be the same as the amount of revenue raised in sections 2 and 4.(Note: Italicized words indicate new material added to the original summary; dashes through words indicate deletions from the original summary.)(Note: This summary applies to the reengrossed version of this bill as introduced in the second house.)