Press release

Federal Tax Reform Expected to Drive 12% Increase in State Corporate Income Taxes

Washington, 5 March 2018

  • Share
EY - Download the PDF

New EY – COST/STRI Study Analyzes Impact of Tax Cuts and Jobs Act on State Taxes

Federal tax reform has the potential to significantly expand state corporate tax bases, according to a new study prepared by EY Quantitative Economics and Statistics (QUEST) on behalf of the Council On State Taxation (COST) State Tax Research Institute (STRI). The study provides estimates of the potential impact of federal tax reform on state corporate tax bases over the next decade under the Tax Cuts and Job Acts (TCJA) of 2017.

The report estimates the potential expansion in the state corporate income tax bases by state from the major provisions contained in the TCJA. The estimated nationwide overall increase in state corporate income tax bases is 12% over the next 10 years, with significant variations between the states by year. The average expansion in the state corporate tax base is estimated to be 8% from 2018 through 2022, which increases to 13.5% for the period 2022 through 2027. The degree of increase in later years grows primarily due to the impact of research and experimentation (R&E) expense amortization beginning in 2022 and the change in the interest limitation in the same year.

The magnitude of increased corporate tax collections for each state will depend on how it chooses to conform to the new Internal Revenue Code (IRC), the composition of its economy, and the way in which specific provisions contained within the TCJA are implemented at the federal level. In some “rolling conformity states” which conform directly to the IRC as it is amended, the changes in the TCJA are already part of that state’s tax law. In others, known as “fixed” or “static conformity states,” the TCJA changes will only be incorporated when the state’s legislature enacts legislation to conform.

“This analysis provides estimates of the potential magnitude of the state corporate tax base expansions that could occur with state conformity to provisions of the TCJA,” said Andrew Phillips, Principal, Ernst & Young LLP.

“One unintended consequence of federal tax reform is a significant increase in state corporate income taxes. This arises because states typically conform to federal provisions that broaden the corporate tax base, but not to provisions that reduce corporate tax rates. Now that the TCJA is federal law, every state legislature should address state conformity with federal tax reform provisions to assess their impact on the overall state business tax burden and the state’s economic competitiveness,” said Douglas Lindholm, COST President and Executive Director.

The states with the greatest estimated percentage change in state corporate tax base from the TCJA are generally those which impose tax on certain types of foreign income. State impact of the TCJA also varies by industry based on the tax and financial profiles of companies in each industry sector. The study estimates the change in the state corporate tax base expansion by sector:

  • Manufacturing: 12%
  • Capital intensive services: 17%
  • Labor intensive services: 9%
  • Finance and holding companies: 8%
  • Other industries: 13%

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit

This news release has been issued by Ernst & Young LLP, a member firm of EY serving clients in the US.