State Conformity to OBBBA: How to Coordinate Federal and State Tax Planning for Your Business

State conformity to OBBBA decides whether the federal tax breaks in the One Big Beautiful Bill Act, such as permanent 100% bonus depreciation and immediate expensing of domestic research costs under Section 174A, also reduce your state taxable income. States often start from federal taxable income and then decide, provision by provision, what to adopt. Where a state does not follow a federal change, the deduction you took on the federal return comes back as a state add-back.

That makes state conformity to OBBBA the first question in any 2026 federal and state tax plan for a business. A federal move that saves money can raise a state bill. A pass-through entity tax (PTET) election can also restore a federal deduction that the SALT cap would otherwise limit. This guide covers the conformity rules, the PTET decision, apportionment basics and a worked example, as of October 2026.

How State Conformity to OBBBA Works: Rolling and Static Dates

States with a corporate or personal income tax commonly begin their calculation with a federal number, usually federal taxable income or adjusted gross income. The link between the two systems is the state's conformity rule, and states use two broad approaches.

Rolling conformity. The state adopts the Internal Revenue Code as it is amended from time to time. Federal changes flow into the state base automatically unless the legislature passes a law to decouple from a specific provision.

Static (fixed date) conformity. The state adopts the Code as of a specific date and updates that date only when its legislature acts. Federal changes enacted after the date do not apply for state purposes until the state moves its date forward.

California is a clear static example. The Franchise Tax Board's 2025 Form 100 instructions say that "for taxable years beginning on or after January 1, 2025, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2025." Because the OBBBA was signed in July 2025, it falls after that date, and the same instructions state that California law does not conform to federal law for "In general, the OBBBA" (FTB 2025 Form 100 instructions).

Georgia also adopts the Code as of a fixed date and reviews that date each year. Its Department of Revenue explains that "The Georgia General Assembly annually considers updating certain provisions of state tax law in response to federal changes to the Internal Revenue Code (IRC)," and it lists provisions Georgia has decided not to adopt (Georgia DOR federal tax changes).

Even a rolling conformity state can decouple from a single provision, so the label alone never settles the question. Check the state's conformity statute and its current return instructions for each year you plan around.

The OBBBA Provisions Where State Conformity Matters Most

Bonus depreciation under Section 168(k)

The OBBBA rewrote Section 168(k) so that the additional first-year allowance equals "100 percent of the adjusted basis of the qualified property," and the change applies to property acquired after January 19, 2025. The IRS interim guidance is explained in our article on Notice 2026-11 and the permanent 100% bonus depreciation transition rules.

Bonus depreciation is a provision both example states decline to adopt. Georgia's DOR lists "30%, 50%, and 100% bonus depreciation rules, I.R.C. Section 168(k)" among the provisions Georgia has not adopted. California's Form 100 instructions likewise list "IRC Section 168(k) relating to the depreciation deduction for certain assets" among the federal rules California does not follow. In both states, an asset written off in full on the federal return is depreciated over its regular life on the state return, so the business keeps separate federal and state fixed asset ledgers and tracks a basis difference until the asset is sold.

Domestic research costs under Section 174A

The OBBBA added Section 174A. The IRS summary of the law says: "For taxable years beginning after Dec. 31, 2024, taxpayers may deduct domestic research or experimental expenditures which are paid or incurred by the taxpayer during the taxable year" (IRS One Big Beautiful Bill provisions). Our guide to how the One Big Beautiful Bill Act changed Section 174 covers the federal transition rules for costs incurred from 2022 through 2024.

State treatment of research costs is uneven, and the history matters. California never adopted the 2017 federal change that forced research costs to be amortized; its instructions list "The federal modifications to amortization of research and experimental expenditures (IRC Section 174)" among the 2017 changes it did not follow. Georgia's 2025 corporate instructions say that "Georgia does not follow I.R.C Section 174 under the 2017 Tax Cuts and Jobs Act for research and experimental expenditures paid or incurred in tax years beginning after December 31, 2021." For businesses in states like these, the federal catch-up deductions for 2022 through 2024 costs may have no state counterpart, because the state already allowed those costs under its own rules. Model the catch-up separately for each state before you elect a federal transition method.

PTET Elections and the SALT Cap

The OBBBA raised the federal cap on itemized state and local tax deductions. Under 26 U.S.C. 164(b)(7), the "applicable limitation amount" is "$40,000" for taxable years beginning in 2025 and "$40,400" for taxable years beginning in 2026, rising by 1% a year through 2029 and returning to "$10,000" for years after 2029 (26 U.S. Code 164, Cornell LII).

The higher cap shrinks for higher earners. The statute reduces it by "30 percent of the excess (if any) of the taxpayer's modified adjusted gross income over the threshold amount," with a threshold of $500,000 for 2025 and $505,000 for 2026, and the reduction "shall not result in the applicable limitation amount being less than $10,000." For 2026, an owner whose modified AGI exceeds about $606,334 is back at the $10,000 floor.

The same section says the individual limit does not apply to taxes "paid or accrued in carrying on a trade or business." That is the basis for state PTET regimes, which let a partnership or S corporation pay state income tax at the entity level and deduct it in computing the income that flows to the owners. Our explainer on how the pass-through entity tax turns state tax into a federal deduction covers the mechanics in detail. For federal and state coordination, the points to watch are the election rules in each state:

• New York: "An eligible entity may opt in on or after January 1, but no later than March 15," the election must be made by an authorized person of the entity, and estimated payments are due quarterly (New York PTET).
• Georgia: "S Corporations and Partnerships may annually make an irrevocable election to pay income tax at the entity level," and "The election must be made by the due date or extended due date of the entity's income tax return" (Georgia DOR PTET FAQ).

Because one state wants the election by March 15 and another accepts it with the return, a multistate owner needs a single calendar. A PTET election also changes how much income and credit each owner reports in their home state, so it should be modeled for every owner before the entity opts in.

Apportionment Basics for Multistate Businesses

Once a state's starting point is set, apportionment decides what share of the business income it can tax. California and Georgia both use a single factor based on receipts, which looks only at where sales are earned.

California's instructions state that its law "requires all business income of an apportioning trade or business, other than an apportioning trade or business under R&TC Section 25128(b), to apportion its business income to California using the single-sales factor formula," and that sales other than tangible goods are assigned "using market assignment." Georgia's 2025 corporate instructions describe a "ONE FACTOR FORMULA" based on gross receipts, with service receipts treated as Georgia receipts "if received from customers within this State."

Apportionment interacts with conformity. A $400,000 bonus depreciation add-back in a state where you apportion 5% of your income adds $20,000 to that state's base, while the same add-back in a state where you apportion 40% adds $160,000. Before you can apportion income anywhere, you need to know where you file; our guide to economic nexus thresholds by state covers sales-based nexus, and remote employees can create filing duties of their own, as explained in multi-state payroll 101 for small businesses.

Worked Example: A Bonus Depreciation Add-Back in Georgia

A calendar-year C corporation buys $500,000 of 5-year equipment in 2026 and claims 100% bonus depreciation on its federal return. It apportions 20% of its income to Georgia, and Georgia's corporate rate is 4.99%. Georgia does not adopt Section 168(k), so the Georgia return uses regular MACRS (half-year convention), which allows 20% of cost in the first year. The figures below are illustrative and ignore any Section 179 election.

Over six years the deductions match. The cost is timing: Georgia collects about $3,992 more in 2026 and returns it in later years, assuming the apportionment percentage and rate stay the same. If the company sells the equipment early, its Georgia basis will be higher than its federal basis, and the gain on the Georgia return will be smaller. Real estate owners face the same pattern, which our guide to Georgia real estate investor taxes illustrates for rental property.

Coordinating Entity Choice, Timing and Credits With State Rules

A plan that looks only at the federal return can push tax into a state instead of saving it. With the OBBBA in place, entity choice, timing and credits all need state modeling.

Entity choice. A C corporation pays state corporate tax at the entity level, while an S corporation or partnership passes income to owners who may live in a different state. Some states tax entities through franchise, minimum or gross receipts taxes regardless of profit. When you compare structures, such as in our LLC vs C corp guide, model the state result for the owners' home states and the states where the business operates.

Timing. Accelerating deductions into 2026 lowers federal tax at once, but in a decoupled state it only shifts the deduction to later years. If a state has scheduled rate cuts, a deduction taken later may also be worth less there. For California owners, our guide to Bay Area real estate accounting shows how the gap between federal and California depreciation plays out on property.

Credits and incentives. State credits for hiring, training or investment often come with job and wage targets that last several years. Forecast the full period, including what happens to your apportionment and filing footprint if you move people or property to win the incentive.

A practical way to hold all of this together is a single projection that shows federal tax and each major state's tax side by side for each option. If a federal choice saves $10,000 and adds $3,000 of state tax, it still helps. If it adds $12,000, it does not. For the filing side of the same work, see our multi-state tax compliance guide for growing businesses.

A Planning Checklist for 2026

1. List every state where the business files or may have nexus, and note each state's conformity date or rolling status for the 2026 tax year.
2. For each state, confirm whether it follows Section 168(k) and Section 174A, and set up separate state fixed asset and research cost schedules where it does not.
3. Model the federal research cost transition choice for each state before making the federal election.
4. Calculate each owner's 2026 SALT cap using modified AGI, and model a PTET election in every state that offers one.
5. Put PTET election deadlines and estimated payment dates for each state on one calendar.
6. Recompute apportionment percentages after any change in customers, sales channels or locations.
7. Review the conformity position again before year end, because state legislatures can change it during the year.

Frequently Asked Questions

What does state conformity to OBBBA mean? It describes whether a state income tax adopts the federal changes made by the One Big Beautiful Bill Act. A state that conforms lets the federal deductions flow into its tax base, while a state that does not conform requires an add-back or separate calculation on the state return.

Does California conform to the OBBBA? In general, no. The FTB's 2025 Form 100 instructions say California conforms to the Internal Revenue Code as of January 1, 2025, and list the OBBBA among the federal laws California does not generally follow. California also does not follow Section 168(k) bonus depreciation.

What is the SALT cap for 2026? Under 26 U.S.C. 164(b)(7), the cap is $40,400 for taxable years beginning in 2026. It is reduced by 30% of modified AGI above $505,000, but not below $10,000, and it reverts to $10,000 for years after 2029.

Does a PTET election get around the SALT cap? A state PTET is paid by the partnership or S corporation and is treated as a tax paid in carrying on a trade or business, which the individual SALT limit does not cover. Each state sets its own eligibility, election deadline and owner credit rules, so the result depends on the states involved.

Do states follow federal 100% bonus depreciation? Some states follow it and others decouple. Georgia and California both decline to adopt Section 168(k), which means assets written off federally are depreciated over their regular lives on those states' returns.

Next Step

Madras Accountancy supports businesses and CPA firms with bookkeeping, multistate tax preparation, federal and state fixed asset schedules, PTET modeling and year-end planning workpapers. To talk through your federal and state filing footprint, contact our team.