Why the Impact is Anything but Uniform

By Kathleen Holston

When Congress passed the One Big Beautiful Bill Act (OBBBA), most attention went to its sweeping federal tax changes. But if you live or do business in more than one state, the real challenge may be how your state responds — or doesn’t.

Some states automatically adopt federal tax law changes. Others only conform as of a fixed date, meaning they’ll need to pass new legislation to align with the OBBBA. Still others selectively pick the federal provisions they follow. This creates a patchwork of rules and timelines that can produce costly mismatches between your federal and state returns.

It’s going to take proactive planning to stay ahead.

Why State Conformity Matters

Most states use the federal Internal Revenue Code (IRC) as their starting point, then make adjustments based on provisions they choose to adopt or reject. The OBBBA’s changes will affect your state tax bill only if your state chooses to conform.

• Rolling conformity states automatically adopt new federal changes unless their legislature acts to decouple.
• Static conformity states must affirmatively update their conformity date before federal changes apply.
• Selective conformity states decide provision-by-provision whether to follow the federal law.

To complicate matters, a state may have one approach for corporate taxes and another for individual taxes, making the picture even more complicated.

SALT Deduction Changes

One of the biggest headlines for individuals is the OBBBA’s change to the state and local tax (SALT) deduction cap. The $10,000 cap is now permanent, but temporarily increased to $40,000 ($20,000 for married filing separately of MFS) for tax years 2025–2029.

There is a catch for taxpayers with Modified Adjusted Gross Income (MAGI) above $500,000 ($250,000 MFS), the allowable deduction phases down until it returns to $10,000 ($5,000 MFS). These thresholds rise 1% per year through 2029.

What this means for you:

• If you live in a high-tax state, itemizing may make sense again between 2025 and 2029
• High earners may see less benefit due to the phaseout
• Multi-year planning is essential to know when deductions matter most

Pass-Through Entity Tax (PTET) Workarounds

The final OBBBA kept state-level PTET elections intact. These “SALT workarounds” can still provide significant federal tax savings for owners of pass-through businesses. But:

• Some states’ PTET regimes expire after 2025 unless extended.
• Rules vary widely and qualifications, election timing, payment requirements and owner-level credits can all affect whether the election is beneficial.

If PTET is part of your strategy, verify your state’s expiration dates and model the impact for 2025 and beyond.

Business Tax Provisions to Watch

Several OBBBA changes could have big consequences for businesses at the state level:

• R&D expensing (Section 174): Immediate expensing of domestic R&D costs is now permanent federally, but states must choose to conform. Seven states already allow it; others will need legislative action.
• Interest expense deduction (Section 163(j)): The EBITDA-based limit is back at the federal level, but state rules may differ, especially where older EBIT-based limits still apply.
• Bonus depreciation & Section 179: 100% first-year depreciation and an increased Section 179 limit ($2.5 million) may not be fully recognized at the state level due to existing decoupling.
• International provisions (GILTI, FDII, BEAT): State treatment of these items varies widely, and OBBBA’s changes could increase complexity in sourcing, apportionment and deductions.

For capital-intensive or R&D-heavy businesses, tracking state treatment alongside federal changes will be critical.

Timing is Everything

Most state legislative sessions ended before the OBBBA passed. Unless they call special sessions, many won’t address conformity until 2026 or later. That means at least a year of potential mismatches between federal and state rules.

For multistate filers, this is a recipe for different deductions applying in different states. There could also be basis differences, timing mismatches and possible double taxation on certain income streams.

What to do Now

The OBBBA is a single piece of federal legislation, but its state tax impact is as varied as the states themselves. Make sure you:

1. Review your state’s conformity rules for both individual and business taxes
2. Model the impact of OBBBA changes in each filing jurisdiction
3. Track PTET expiration dates and any pending legislation
4. Plan for mismatches, especially if you rely on deductions that your state may not adopt right away

With thoughtful planning, you can identify opportunities, minimize risks and keep your filings consistent.

Be sure to read our full state and local tax impact analysis for detailed charts, state-by-state conformity maps and guidance from our SALT team on how to navigate the OBBBA in every jurisdiction where you file.