By: Matthew Laney | 10/08/25
The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, is a comprehensive federal tax reform package that extends, enhances, or modifies many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introduces new tax policies. While the OBBBA’s primary focus is federal tax law, its effects cascade down to state tax systems because most states use federal taxable income as the starting point for their own tax calculations.
The OBBBA matters for state taxes because it alters the federal tax base, which in turn changes the state tax base for states that conform to the IRC. This means that changes such as the increased state and local tax (SALT) deduction cap, new business expensing rules, and international tax reforms can directly affect state revenues, taxpayer liabilities, and state tax policy decisions. States must now decide whether to conform to these changes, decouple from them, or modify their own tax codes to address the fiscal and policy implications.
States generally fall into three categories regarding IRC conformity: rolling, static (fixed-date), and selective. Rolling conformity states automatically adopt the latest version of the IRC, so any federal tax change like those in the OBBBA immediately affects their tax base. This can lead to swift and sometimes unintended changes in state tax collections and taxpayer outcomes, as state legislatures may not have time to review or debate the impacts before they take effect .
In contrast, static conformity states only adopt federal changes when their legislatures update the IRC reference date in state law. This gives them more control but can also create complexity and delay in aligning with federal policy. Selective conformity states, on the other hand, choose specific federal provisions to adopt while rejecting others, allowing for tailored alignment with state fiscal and policy priorities.
The OBBBA raises the federal SALT Tax deduction cap from $10,000 to $40,000 for tax years 2025 through 2029, with a phaseout for taxpayers with modified adjusted gross income (MAGI) above $500,000. After 2029, the cap reverts to $10,000 [1].
However, the phaseout means high-income taxpayers may see little benefit, and the minimum $10,000 deduction remains for all. The OBBBA does not restrict the use of pass-through entity tax (PTET) workarounds, which allow business owners to bypass the SALT cap by paying state taxes at the entity level.
The OBBA restores immediate expensing for domestic R&D costs under IRC §174A and makes 100% expensing for qualified property permanent under IRC §168(k). It also introduces a new expensing provision for certain structures under IRC §168(n) and raises the Section 179 expensing cap to $2.5 million [1]. These changes flow through to states with rolling conformity, and are expected to reduce state corporate income tax revenues but are considered pro-growth by many analysts.
For more on the Section 174 fix, see One Big Beautiful Bill: Section 174 Fix.
The OBBBA replaces the Global Intangible Low-Taxed Income (GILTI) regime with Net CFC Tested Income (NCTI), broadening the tax base by eliminating the QBAI exclusion and reducing the Section 250 deduction from 50% to 40%. While the federal law increases the foreign tax credit to offset this, most states do not allow a foreign tax credit, resulting in a larger state tax base and higher state taxes on multinational businesses.
The OBBBA introduces temporary deductions for qualified tips, overtime pay, and car loan interest.
For a detailed look at SALT tax changes and other OBBBA tax changes, check out the One Big Beautiful Bill Review.
New York, a rolling conformity state, will automatically incorporate most OBBA tax changes, including the higher SALT cap and new business expensing rules. The state is also considering tax cuts and enhancements to its child tax credit to offset the impact of federal changes.
Michigan, with rolling conformity, expects significant revenue losses from the restoration of R&D expensing and bonus depreciation, prompting discussions about potential tax rate increases or new taxes to offset the shortfall.
Oregon’s PTET workaround is set to expire, but lawmakers are expected to extend it to maintain the benefit for pass-through business owners in light of the OBBA’s continued SALT cap.
For more on the economic and fiscal context, see Understanding New Trump Tariffs: Impacts on the Economy, the US Dollar, and Debt.
Rolling conformity states automatically incorporate OBBA tax changes into their tax codes, often without legislative action, leading to immediate impacts on state revenues and taxpayer liabilities. Static conformity states must update their IRC reference date through legislation, allowing more control and deliberation over which OBBA provisions to adopt.
Most states with rolling or up-to-date static conformity will restore immediate expensing for R&D costs, reducing state corporate tax revenues. Some states may choose to decouple from this provision if the revenue impact is too great, while others see it as pro-growth policy.
Yes. States can enact legislation to decouple from specific OBBA provisions, such as bonus depreciation or R&D expensing, if they determine the fiscal impact is unsustainable. This selective approach allows states to maintain fiscal stability while preserving conformity where beneficial.
Industries with significant capital investment and R&D spending such as manufacturing, technology, and pharmaceuticals stand to benefit most from OBBA’s expensing provisions. Conversely, multinational corporations may face higher state taxes due to the expanded NCTI base, especially in states that tax international income without allowing foreign tax credits .
The One Big Beautiful Bill Act (OBBBA) represents a pivotal moment in federal tax reform, with its effects rippling across state tax systems in complex and consequential ways. States are grappling with the immediate and long-term implications of OBBBA legislation especially as it relates to conformity, revenue forecasting, and taxpayer equity. The OBBBA salt deduction increase, in particular, has generated both relief and new challenges for high-tax states and their residents, while other provisions such as R&D expensing and international tax changes are reshaping the corporate tax landscape at the state level.
Ultimately, the OBBBA state tax fallout will depend on each state’s approach to conformity and its willingness to decouple from provisions that threaten fiscal stability. Policymakers, tax professionals, and business leaders must stay vigilant, monitoring both federal developments and state legislative responses to ensure compliance and optimize tax outcomes. As the OBBA’s full impact becomes clearer, ongoing analysis and proactive planning will be essential for navigating the evolving landscape of state and federal tax law.
Cited sources
[1] H.R.1 – One Big Beautiful Bill Act
Matthew Laney
Bennett Thrasher LLP
Phone: (770) 396-2200
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