Tax professionals are anticipating more changes in state taxation in the aftermath of the tax reform law, according to a new survey.
The survey, which Ernst & Young unveiled at its Annual EY Domestic Tax Conference in New York on Thursday, polled 444 senior tax practitioners and found that 78 percent expect either a patchwork of changes or new ways to decouple from state issues caused by federal tax reform.
The international tax provisions of the Tax Cuts and Jobs Act could prompt many states to choose against conformity with the federal tax law due to their impact on the effective tax rates paid by corporations. Of the new policies in the TCJA, 40 percent believe the global intangible low-taxed income, or GILTI, provision in the new tax law will be most likely to affect effective tax rates, followed by the transition tax at 28 percent, the base erosion and anti-abuse tax, also known as BEAT, at 23 percent, and foreign-derived intangible income provisions, or FDII, at 9 percent.
Forty-four percent of the respondents indicated they’re still not fully prepared to implement the changes in the new tax law, while 16 percent admitted their resources are overwhelmed with adjustments. To address the volume and pace of change, 23 percent of respondents said they are adding outside resources to supplement their team and technology.
Two-thirds of the respondents (66 percent) are also preparing for M&A activity in 2018. Of those, 69 percent said they need to make changes to tax planning and the tax function.
Despite talk in Congress of a potential second phase of tax reform, 64 percent of the respondents said they’ll wait and see if future changes will substantially affect their company’s tax situation, while 15 percent hope it will provide greater clarity on some ambiguous issues in the current law.
“All these changes produce a ripple effect of planning and implementation challenges, but they also leave corporate tax directors with an optimistic view of the potential economic impact,” said Kate Barton, EY Americas vice chair and EY global vice chair elect for tax services, in a statement. “Overall, they see advantages: 64 percent of respondents expect the economy to continue to grow. Many also see the stock market rebounding or growing if the economy does stay strong.”
According to the survey, 64 percent of the respondents indicated they’re using new technologies to seek more efficiency, accuracy and consistency in the administration or classification of assets or transactions. Most of them (89 percent) concentrate on using one types of innovation at a time, though some of them combine their efforts, with 84 percent using advanced data analytics, 37 percent using robotic process automation, 9 percent using machine learning, and 13 percent using other forms of artificial intelligence.
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