State Tax Policies Evolve After Big Beautiful Bill

State Tax Policies Evolve After Big Beautiful Bill

Lawmakers continue to adopt measures to limit the revenue impacts of the president's tax cut and policy law.

The Virginia Capitol building in Richmond. In February, the state moved from rolling to static conformity with federal tax code changes. (traveler1116/Getty Images)

Many of the One Big Beautiful Bill's tax code changes flow down to the states, which typically use federal income as a starting point for their own taxation efforts for administrative and legislative simplicity.

Many states use rolling conformity, where changes to the federal tax code directly impact state taxes immediately upon going into effect. Static conformity states adhere to the federal tax code based on a fixed date. Beyond their conformity status, many states have carve-outs, particularly for corporate taxes, to adhere or not to certain federal provisions that might impact them more directly.

Related: 7 of the Year's Most Important Changes in Tax Legislation

Given the wide-ranging fiscal impacts of the OBBBA, many states have decided to reevaluate their conformity. In some cases, the changes reflect policy priorities; in other cases, they simply address major revenue implications of the bill. States that rely more heavily on personal income and corporate taxes as a base of their overall tax structure are more sensitive to changes in the federal tax code.

Examples of legislative action states have taken this year include:

• Georgia (HB 1199; signed March 20): Updates the state's conformity to the federal tax code through Jan. 1, 2026. Meanwhile, lawmakers chose not to adopt several major business-related provisions, including bonus depreciation, production expensing and changes related to research and experimentation and interest deductions.
• Idaho (HB 559; signed Feb. 10): Updates the state's conformity date to Jan. 1, 2026, and adopts most federal changes. However, Idaho continued to reject bonus depreciation and the new production expensing provisions; the state also retained its approach to certain research expenditures, particularly for prior years.
• Indiana (SB 243; signed March 5): Updates the state's conformity date to Jan. 1, 2026, while blocking several major business tax provisions, including full expensing and bonus depreciation. The bill also allowed for no tax on tips and overtime, but only for tax year 2026.
• New Mexico (SB 151; signed March 11): Decouples the state from several major federal business tax provisions, including bonus depreciation and production expensing, and tightens rules on interest deductions while broadening the corporate tax base.
• Oregon (SB 1507; signed April 9): Reflects a decoupling approach similar to New Mexico's, with the state rejecting certain federal tax benefits, including investment-related exclusions and accelerated depreciation provisions, to preserve revenue. Additionally, SB 1510 (signed March 31) made administrative updates and extended the state's pass-through entity elective tax.
• Virginia (HB 29; signed Feb. 20): Represents a more structural shift, moving Virginia from rolling to static conformity. The state also rejected several provisions related to corporate taxation, including production expensing, research and experimentation changes, and expanded equipment write-offs while modifying its treatment of business interest deductions.
• West Virginia (SB 393; signed March 2): Largely conforms the state to federal tax changes with minimal modifications, representing one of the more straightforward approaches among states.

The changes listed above follow a wide range of both preemptive and reactive modifications made by states in 2025. The NCSL report Breaking Up Is Hard to Do, which covers those earlier changes, notes that more than a dozen states took early action to decouple from key federal tax provisions, particularly around research expensing, depreciation and interest deductions, while also adopting broader measures to limit revenue impacts and maintain control over their tax bases.

While it is generally unlikely that another sweeping federal tax bill will be passed in the near term-lawmakers narrowed a second reconciliation bill around homeland security and a third lacks widespread support-recent events serve as a reminder to states that federal tax changes may yield a complex range of impacts. The changes can simultaneously provide relief to individuals and businesses while also creating challenges for state budgets.

NCSL provides a forum for legislators and staff to discuss conformity issues through the State and Local Tax Task Force, which meets regularly.

For more information, contact NCSL's Fiscal Affairs Program.