If your business files in multiple states, “federal taxable income” isn’t a fixed number. Each state decides independently whether to adopt federal tax code changes, lock in an older version, or pick specific provisions to accept or reject. The result is a patchwork that requires separate tracking, separate calculations, and separate documentation for each state — even when you’re starting from the same federal return.
2026 is a particularly active year because of the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. The OBBBA made most TCJA provisions permanent, restored 100% bonus depreciation, created immediate expensing for domestic research and experimental costs, and modified the business interest deduction limitation under §163(j), among other changes. Every state with an income tax is now deciding whether to adopt those changes, decouple from them, or wait.
Some acted quickly. Others are still working through it. And for multistate businesses, the variation in how states are responding — combined with their underlying conformity approaches — determines how you calculate taxable income in each state you file.
This guide covers what conformity actually means, where the states in the table below stand heading into mid-2026, and how to build a compliance process that accounts for these differences.
What Is State Tax Conformity?
Most states use federal taxable income as the starting point for calculating state tax liability. When Congress changes the federal tax code, each state has to decide what to do with that change.
The answer to that question determines how you calculate depreciation, handle business interest deductions, treat research and experimental costs, and manage dozens of other line items on your state returns.
States generally fall into three categories.
Rolling conformity states automatically adopt federal tax code changes as they happen. When Congress amends the IRC, these states incorporate those changes without requiring separate state legislation — unless they specifically decouple from a provision. Rolling conformity states can still carve out exceptions, and several did exactly that in response to the OBBBA. Examples include Colorado, Connecticut, Illinois, Massachusetts, New Jersey, and New York.
Static conformity states tie their tax code to a specific IRC date. They only update when state legislators pass new conformity legislation. This means the specific date matters enormously — a state with a January 1, 2025 conformity date is pre-OBBBA, while one that updates to a post-July 4, 2025 date generally picks up the new federal provisions unless it separately decouples. Examples include California, Florida, Georgia, and Indiana.
Selective conformity states build their own tax base and adopt only specific IRC sections. They don’t start from federal taxable income at all, so federal changes don’t flow through automatically in any form. Alabama, Arkansas, Mississippi, New Jersey, and Pennsylvania use variations of this approach for corporate income tax purposes.
The practical effect: in a rolling conformity state, you need to know what the state has specifically decoupled from. In a static conformity state, you need to know the conformity date and whether the state has updated it to cover recent federal law. In a selective conformity state, you need to understand which IRC provisions the state actually incorporates.
Why 2026 Is Particularly Complex
The OBBBA changed the federal baseline significantly. The One Big Beautiful Bill Act, signed July 4, 2025, made permanent most TCJA provisions that were previously temporary, restored 100% bonus depreciation (previously phasing down), created immediate domestic R&E expensing under new §174A, modified §163(j) business interest limitations, and increased §179 expensing limits. Every state now has to decide what to do with each of these changes. Many have acted; many have not.
States responded unevenly and quickly. Several states decoupled from OBBBA provisions during 2025 legislative sessions — before many businesses had even begun planning for 2025 returns. Michigan, Colorado, Rhode Island, Virginia, and several others moved fast. Others are still evaluating. The 2026 legislative sessions are seeing additional conformity action in both directions.
Mid-year changes disrupt planning. When states update conformity dates or decouple from provisions mid-year, estimated tax payments already made may be based on different rules than the remainder of the year requires. Virginia, for example, enacted its conformity update on February 20, 2026, affecting the 2025 and 2026 tax years.
Nexus footprints keep expanding. As businesses maintain distributed workforces, more states mean more conformity variations to track. A company that filed in twelve states last year might file in eighteen this year, each with its own approach to the OBBBA and underlying conformity position.
2026 State Tax Conformity Reference Table
This table reflects conformity positions as of mid-2026 based on available guidance. Conformity dates and positions change when legislatures act — verify current status before filing, and check for OBBBA-specific guidance in each state.
| State | Conformity Type | IRC Conformity Date | Key Notes |
|---|---|---|---|
| Alabama | Selective | Variable | Does not start from federal taxable income; adopts specific IRC sections |
| Arizona | Static | January 1, 2023 | Decouples from GILTI provisions |
| California | Static | January 1, 2025 | Updated from January 1, 2015 in 2025; pre-OBBBA; decouples from §§174A, 168(k), 168(n); has its own R&E deduction rules |
| Colorado | Rolling | Current IRC | Decouples from bonus depreciation; decoupled from OBBBA overtime deduction for 2026 |
| Connecticut | Rolling | Current IRC | Generally follows federal with limited decoupling |
| Florida | Static | January 1, 2025 | Updated from January 1, 2024; pre-OBBBA; OBBBA conformity pending 2026 legislative session |
| Georgia | Static | January 1, 2025 | Updated from prior date; adopts IRC amendments affecting Florida net income calculation |
| Illinois | Rolling | Current IRC | Decouples from bonus depreciation (§168(k)) and §168(n); adopted OBBBA §174A R&E expensing and loosened §163(j) limits |
| Indiana | Static | January 1, 2026 | Updated via SB 243, signed March 5, 2026; generally conforms to OBBBA; decouples from §168(n) |
| Massachusetts | Rolling | Current IRC | Generally follows federal; issued guidance on 52 OBBBA provisions |
| Michigan | Static | January 1, 2025 | Updated from January 1, 2018 in October 2025; decouples from §§168(k), 168(n), 174A, 163(j) (pre-OBBBA limits apply), and 179 (pre-OBBBA limits apply); taxpayers may elect current-year IRC |
| Minnesota | Static | December 31, 2018 | Significant lag; decouples from many TCJA and OBBBA provisions |
| New Jersey | Rolling | Current IRC | Generally follows federal; watch for specific decoupling provisions |
| New York | Rolling | Current IRC | Selective decoupling from specific provisions |
| North Carolina | Static | January 1, 2023 | Generally follows federal within conformity date |
| Ohio | Static | March 7, 2025 | Updated from prior date; pre-OBBBA; OBBBA conformity subject to 2026 legislative action |
| Pennsylvania | Selective | Variable | Does not start from federal taxable income; decoupled from OBBBA bonus depreciation provisions |
| Texas | N/A | N/A | No corporate income tax; franchise tax based on total revenue minus specific deductions; beginning with 2026 report year, total revenue and COGS determined under federal law in effect at time of reporting |
| Virginia | Static | December 31, 2025 | Updated via HB 29, signed February 20, 2026; replaces prior rolling approach; decouples from OBBBA qualified production property expensing and §174A R&E; conforms to modified §163(j) |
| Washington | N/A | N/A | No corporate income tax; Business and Occupation (B&O) tax applies; Washington did expand services subject to retail sales tax under ESSB 5814 effective October 2025 |
| Wisconsin | Static | December 31, 2022 | Decouples from §163(j) interest limitations |
Important: This table is a general reference. Many states have additional modifications and adjustments that add to or subtract from federal income beyond their baseline conformity position. The OBBBA conformity landscape is still actively evolving — verify current positions with state tax authorities or a qualified advisor before filing.
Building a Compliance Strategy
Map your filing obligations first. Before you can manage conformity differences, you need a clear picture of where you have nexus and filing requirements. For each state, identify the conformity type, the current IRC date, known decoupling provisions that affect your business, and any pending conformity legislation. This map becomes the foundation for everything else.
Track key provisions separately. Certain federal provisions trigger the most state-level differences and require their own tracking systems.
Depreciation and bonus depreciation. The OBBBA restored 100% bonus depreciation federally, but multiple states decoupled from this — Michigan, Illinois, Colorado, Pennsylvania, and others. You may need to maintain separate depreciation schedules under multiple IRC versions simultaneously.
Research and experimental costs. The OBBBA created §174A, allowing immediate expensing of domestic R&E. California, Michigan, Virginia, and others have decoupled from this. States that previously decoupled from the TCJA-era §174 capitalization requirement have their own existing R&E rules that may differ from both pre- and post-OBBBA federal treatment.
Business interest limitations. §163(j) was modified by the OBBBA. Michigan and Wisconsin, among others, apply pre-OBBBA limits. Track §163(j) calculations separately for states where the OBBBA changes don’t apply.
Net operating losses. Carryforward and carryback rules vary by state. Document amounts under both federal and state rules.
Build flexibility into estimated payments. Mid-year conformity changes — like Virginia’s February 2026 update — can mean that Q1 and Q2 estimates were calculated under different rules than Q3 and Q4 require. Review state legislative calendars for pending conformity bills, build contingency into estimates for states actively debating their OBBBA response, and document your calculation methodology so adjustments are straightforward when changes occur.
Set up a monitoring process. Staying current requires ongoing attention. Track state revenue department announcements, monitor legislative activity in your filing states, and update your conformity map when changes occur. The OBBBA conformity situation is still developing through 2026 legislative sessions.
Document everything. For each state, keep records of the conformity date used in your calculations, any state-specific adjustments, the source of your conformity determination, and calculations showing how you arrived at state taxable income. This protects you in audits and simplifies year-over-year comparisons.
Common Mistakes
Assuming federal equals state. Even rolling conformity states often have modifications that require separate calculations. A 2026 federal return with 100% bonus depreciation and immediate R&E expensing may look very different from your Michigan or Illinois returns for the same year.
Missing OBBBA-specific decoupling. A state might have rolling conformity but still decouple from specific OBBBA provisions. Illinois is a good example — rolling conformity, but decoupled from §§168(k) and 168(n). The conformity type alone doesn’t tell the whole story.
Using outdated conformity information. Indiana updated its conformity date to January 1, 2026 in March 2026. Virginia established a new static date of December 31, 2025 in February 2026. Ohio updated to March 7, 2025. Relying on last year’s research without verifying current status is a meaningful source of errors in 2026.
Missing amended return requirements. When conformity changes affect previously filed returns, some states require amendments while others allow adjustments on the current year return. Virginia’s HB 29 specifically addresses the 2025 and 2026 tax years — businesses that had already filed or made estimated payments based on the prior approach may need to act.
Underestimating depreciation complexity. Depreciation differences compound over time. A business that doesn’t track state-specific depreciation from the start faces significant reconstruction work when differences need to be calculated years later. The OBBBA’s return to 100% bonus depreciation — and the states that declined to follow — makes this more acute heading into 2026.
When to Bring in Outside Help
A few signs that outside support makes sense: your nexus footprint is expanding and you’re adding multiple new filing states each year; you’re dealing with significant asset purchases or transactions that interact with conformity rules across states; you’ve received audit notices or state inquiries about your calculations; or your internal team is stretched thin and conformity tracking is pulling capacity away from strategic work.
The OBBBA conformity situation is genuinely complex in 2026. States are still responding, guidance is still being issued, and positions are still changing. If you’re uncertain whether your state calculations properly account for current conformity positions, a review is worth the investment before you discover the gap during an audit.
Our team at The Sales Tax People works with multistate businesses on state tax compliance every day. If you want to talk through your specific situation, a free What’s Next consultation is a good place to start — no commitment, just a clear conversation about where you stand and what makes sense for your business.
Schedule your free What’s Next consultation with The Sales Tax People.
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