The One Big Beautiful Bill (OBBB) Act, passed July 4, 2025, brings sweeping changes to federal corporate and individual tax rules. Many of these federal tax changes will also have a cascading effect on state and local corporate, pass-through, and individual income tax calculations, based on each state’s Internal Revenue Code (IRC) conformity and state-specific provisions: Some will automatically adopt some or all the provisions enacted under the OBBB, while others will adopt amendments at later dates or not at all. 

It will be critical for taxpayers to examine each particular state’s conformity with respect to the specific provisions impacted – as well as be prepared for future state legislative action. Now is the time to review the various levels of conformity, key provisions to watch, and what to consider.

State conformity to IRC

Most states conform to the IRC, whether through statutory reference or simply by using federal taxable income as the starting point to calculate state taxable income. There are varying degrees of IRC conformity, which are generally:

1. Rolling conformity: Such states conform to the IRC in effect for the tax year, and all amendments thereto in real-time. They will generally conform to all provisions of the OBBB, barring any state-specific statutory decoupling.

• Examples of states with rolling conformity (as of this writing) include: Colorado, Connecticut, Illinois, Massachusetts, New Jersey, and New York state and city
• Examples of rolling conformity state-specific statutory decoupling include:
  • Maryland: Maryland statute prevents any amendment to the IRC that will impact the state’s income tax revenue by more than $5 million from being automatically adopted. As such, any provision(s) of the OBBB that hit this threshold are not automatically adopted in Maryland – they require the Maryland Legislature’s express enactment. The Maryland Comptroller is required to report the OBBB’s projected impact to the Legislature within 60 days of its passage, after which the Legislature will grapple with IRC conformity. 
  • Virginia: Similar to Maryland, if the OBBB’s income tax amendments collectively impact Virginia’s general fund revenues in an amount greater than $15.9 million for the current or subsequent four fiscal years, none of the OBBB’s income tax amendments will apply unless separately adopted under Virginia law. Virginia’s Secretary of Finance is asked to deliver a report to the Legislature on or before Nov. 15, 2025, after which the Legislature will address conformity.

2. Static conformity: Such states conform to the IRC in effect for the tax year, but they only conform to amendments to the IRC as of a certain date. Static conformity states adopting a version of the IRC in effect on or after July 4, 2025, will generally conform to all provisions of the OBBB, barring any state-specific statutory decoupling.

• As of this writing, select states with static conformity – and their effective dates – include: California (Jan. 1, 2015), Georgia (Jan. 1, 2025), North Carolina (Jan. 1, 2023), Texas (Jan. 1, 2007)
• As a static conformity state, Florida (Jan. 1, 2025) adopts IRC amendments made after the date of IRC conformity to the extent the amendments affect the calculation of Florida net income.

3. Partial conformity: Such states only conform to certain provisions of the IRC, not the IRC in its entirety. The specifically adopted provisions may or may not include those provisions amended by the OBBB, so a review of each partial conformity state’s laws, regulations, and administrative guidance is recommended.

• As of this writing, sample jurisdictions with partial conformity include: California and Washington, D.C.

• In the case of California, they have adopted certain IRC provisions that were enacted after their statutory Jan. 1, 2015, adoption date of the IRC, as noted above.

Federal tax changes

The following OBBB provisions may drive material state income tax results for corporations, pass-through entities, and individuals, and should be evaluated for conformity.

• Section 164(b) – State and local tax (SALT) deduction cap increases for five years for select individual taxpayers – It is not uncommon for states that impose an individual income tax to not follow the federal IRC Section 164(b) SALT deduction cap. If an individual income tax is levied, no deduction for state income taxes is allowed.
• Section 168(k) – Bonus depreciation permanent restoration at 100% for all assets placed in service on or after Jan. 19, 2025 – Many states with rolling, static, or partial conformity currently decouple from IRC Section 168(k) bonus depreciation.
• Section 168(n) – 100% depreciation for qualified production nonresidential real property placed in service – As this is a new federal tax subsection, no states will have expressly decoupled as of this writing, but taxpayers should especially monitor for state legislative activity disallowing the favorable federal treatment.
• Section 174A – Full expensing of domestic research and experimental expenditures – States expressly decoupling from IRC Section 174 will require an addback of R&E amortization in certain instances.
• Section 163(j) – Increase of the business interest deduction limitation 
• Section 179 – Increase of dollar limitations for expensing certain business assets
• Section 1202 – Small business stock gain exclusion changes
• Section 199A – Extension and enhancement of qualified business income deduction – Another provision where, as of this writing, many of the rolling, static, or partial conformity states do not conform to the federal IRC Section 199A provisions.
• Section 461(l) – Excess business losses 

Read our OBBB federal tax overview for more on these changes.

Deeper dive: State pass-through entity tax regimes

The 2017 Tax Cuts and Jobs Act (TCJA) capped the state and local tax deduction for federal individual income tax to $10,000 for itemized filers. In response, many states adopted a pass-through entity tax (PTET) regime enabling a partnership or S corporation to pay state income tax at the entity level. In effect, this allowed an electing pass-through entity to fully deduct its state income taxes and pass this “deduction” to owners via reduced distributive income. Participating owners also received a pro-rata state PTET credit or deduction for their portion of the PTET paid at the entity level to prevent double-taxation of the passed-through income. 

The Treasury Department ratified this approach in Treasury Notice 2020-75, allowing electing individual owners to deduct their share of state PTET paid on their behalf as a workaround to the TCJA $10,000 cap. 

The OBBB fully preserves this PTET deduction – a noted non-change, given the House version proposed applying limitations to this deduction.

The following jurisdictions are among those that have (as of this writing) permanently adopted an elective PTET option:

• Connecticut, Georgia, Maryland, North Carolina, New Jersey, and New York state and city 

In contrast, the following states’ PTET regimes have fixed expiration dates:

• California (available tax years ending before Dec. 31, 2030)
• Illinois (available tax years ending before Jan. 1, 2026)
• Virginia (available tax years ending before Jan. 1, 2027)

PTET regimes in Colorado and Massachusetts remain in place so long as there is a federal limitation on the individual income tax deduction for state taxes paid under IRC Section 164.

The PTET is not applicable to pass-through entities operating within the jurisdictions of D.C., Florida, or Texas.

Next steps: Know your conformity, monitor your legislature

As jurisdictions respond to the federal changes in the coming fiscal year, taxpayers will need to have a nuanced understanding of their state’s IRC conformity with respect to the specific provisions impacted and be prepared for future state legislative action.

Particularly in Rolling Conformity states, it is uncertain which federal provisions are effective, and when. With most state legislatures out of session until early 2026, taxpayers may be in limbo for many months as state officials plan their response to the OBBB. In the face of this uncertainty, taxpayers should be prepared to: 

• Model best/worst/likely case scenarios in material states to proactively identify risk.
• Stay informed of state legislative developments in risk areas.
• Actively represent their interests to officials during the policy-making period.

Contact your tax advisors for a closer look at your particular jurisdiction(s) and how conformity may impact your tax calculations.