Virginia and Georgia are two of the latest states to pass laws responding to the federal tax reform passed in December 2017, known as the Tax Cuts and Jobs Act (TCJA). Both states updated their codes to conform to the current Internal Revenue Code (IRC) with some notable exceptions.


On February 22, 2018, and February 23, 2018, the Virginia General Assembly enacted Chapter 14 (SB 230) and Chapter 15 (HB 154) of the 2018 Session Virginia Acts of Assembly, respectively. Before this legislation was enacted, the Virginia Code conformed to the IRC in effect as of December 31, 2016. While the new legislation conforms the Virginia Code to the IRC effective as of February 9, 2018, there are some very notable exceptions. The legislation explicitly provides that the Virginia Code does not conform to most provisions of the TCJA with an exception for “any… provision of the [TCJA] that affects the computation of federal adjusted gross income of individuals or federal taxable income of corporations for taxable years beginning after December 31, 2016 and before January 1, 2018…” Thus, despite Virginia’s update of its IRC conformity date, Virginia largely decouples from the TCJA.

One major exception to Virginia’s decoupling from most of the provisions of the TCJA concerns the deemed repatriation of foreign earnings under IRC § 965, with such amount clearly affecting the computation of federal adjusted gross income of individuals and the federal taxable income of corporations for tax years beginning before January 1, 2018.


On March 2, 2018, Georgia Governor Nathan Deal signed into law a tax bill (HB 918) that specifically addresses Georgia’s treatment of many of the provisions of the TCJA.

As a preliminary matter, the Georgia bill provides conformity to the IRC as of February 9, 2018, with certain exceptions. Before the bill’s enactment, the Georgia Code had conformed to the IRC as of January 1, 2017, and, in turn, did not conform to the TCJA.

The new legislation contains numerous exceptions to Georgia’s conformity with the current IRC. For example, the tax bill explicitly provides that Georgia will decouple from the new interest expense limitations in IRC § 163(j) and also from the new provisions in IRC § 118 that provide inclusion in gross income of certain capital contributions.

With respect to the international provisions of the TCJA, Georgia specifically provides that its dividends-received deduction for dividends received from foreign corporations does not apply to the global intangible low taxed income (GILTI) required to be included in the federal tax base under IRC § 951A. This is not surprising; we expected that some states would determine that the GILTI should not be treated as a dividend for purposes of state dividends-received deductions. The bill does provide, however, that the GILTI deduction in IRC § 250 (which is used to facilitate the reduced effective federal tax rate on GILTI) will apply to the extent that the GILTI is included in Georgia taxable income. Thus, effectively Georgia includes the net GILTI amount in the state tax base in the same manner as it is included in federal taxable income.

While the bill does not specifically state that deemed repatriated foreign earnings under IRC § 965 are eligible for Georgia’s deduction for dividends received from foreign corporations, such income should be eligible for such deduction because even prior to the new legislation the deduction applied to “amounts treated as dividends and income deemed to have been received under provisions of the Internal Revenue Code…” and has specifically included “Subpart F income.” Ga. Code § 48-7-21(b)(8)(A). Furthermore, the bill specifically excludes GILTI but not deemed repatriated foreign earnings from the foreign dividend-received deduction, thus implying that the deemed repatriated foreign earnings are eligible for Georgia’s dividends-received deduction. The bill also prevents taxpayers from being able to get a potential double benefit by specifying that the IRC § 965(c) deduction cannot be used to the extent that the IRC § 965(a) income has been removed from the state tax base by the dividends-received deduction.

Finally, the Georgia bill provides that the new federal net operating loss (NOL) provisions (including the restriction that the NOL cannot exceed 80 percent of taxable income and the new federal carryback and carryforward provisions) apply for purposes of computing the Georgia net operating loss deduction with the specification that the 80 percent limitation is computed based on Georgia taxable net income (not federal taxable income).

New Jersey

New Jersey continues its flirtation with tax surcharges. State Senate President Stephen Sweeney announced that he was supporting a 3 percent tax surcharge on corporate income in excess of $1 million. His reasoning is that corporations received a windfall as a result of federal tax reform. At a press conference on Tuesday, he is reported as saying “This is money they never had. They didn’t work for it. They didn’t earn it. They didn’t sell one more product for it. They did nothing for it.” To say the least, this is an interesting characterization of a decrease in corporate income tax rates, which are based on what a company earns. This surcharge is seen as a substitute for the governor’s proposal to increase taxes on high income individuals. Sweeney believes that following federal tax reform, increasing taxes on individuals is unfair because of the limitation on the state tax deduction. The surcharge is estimated to raise $657 million. Under the surcharge, affected corporations would have a tax rate of 12 percent, a rate tied for the highest rate in the country. Democrats control both houses of the legislature as well as the governor’s office.