Rewriting State Tax Risk

Several states that previously opted to exempt international corporate income—specifically the tax on Global Intangible Low-Taxed Income (GILTI)—are now on a collision course to unintentionally tax its successor, the Net CFC-Tested Income (NCTI). This shift could surprise both lawmakers and businesses, as state tax codes suddenly incorporate a much broader tax on the foreign earnings of U.S. parent corporations.

4 States Risk “Sleepwalking” into Taxation

The most straightforward risk exists in four states that decoupled from the former GILTI tax by name, rather than by the underlying Internal Revenue Code (IRC) section (§ 951A):

Iowa
Kansas
New Hampshire
Tennessee

Because the tax provision is now called NCTI (though it occupies the same code section, § 951A), the explicit exclusion for “GILTI” may no longer apply. This is problematic because NCTI, when applied at the state level without foreign tax credits, functions as a tax on the apportioned share of all income of foreign subsidiaries, regardless of their foreign tax liability.

Crucial Difference: At the federal level, NCTI is a minimum tax, offset by foreign tax credits to avoid double taxation. States, however, do not offer these credits. Thus, state-level conformity to NCTI results in a significantly more aggressive tax on international income than the federal provision intends.

Ambiguity in 12 Other Jurisdictions

Twelve other states and the District of Columbia currently exclude most or all of GILTI by treating it as a deemed dividend or Subpart F income, for which they have pre-existing deductions.

Arizona, Arkansas, Connecticut, Delaware, Kentucky, Louisiana, Massachusetts, Missouri, New Jersey, Oklahoma, Pennsylvania, and the District of Columbia.

While the same treatment should be logically extended to NCTI—since it shares the same characteristics that led tax administrators to apply those rules to GILTI—this outcome is not strictly guaranteed. Arizona’s statutory language, which explicitly names GILTI in its dividend income deduction, is a key point of uncertainty.

Tax administrators in these jurisdictions are expected to maintain the prior determination, but aggressive interpretation remains a possibility, making legislative clarification a prudent step.

📝 Call to Action: Legislative Fixes Needed

To prevent the accidental taxation of NCTI, lawmakers in the risk-prone states need to act quickly:

For Iowa, Kansas, New Hampshire, and Tennessee: Amend state decoupling statutes to reference the relevant IRC section, § 951A, instead of or in addition to the outdated term “GILTI.” This is a technical fix that honors the original legislative intent to exclude this category of international income.
For the 12 Ambiguous Jurisdictions: Policymakers should seek assurances or explicitly enshrine the exclusion of NCTI into law to resolve any ambiguity and guard against future changes in administrative interpretation.

While NCTI is viewed as poor tax policy in all states—including those that already taxed GILTI—the highest priority lies in the four states where legislative action was previously taken to exempt this income, only to have that intent undermined by a technical change in the federal tax code.

State Tax Treatment of NCTI Summary

State Category	Tax Treatment of NCTI	Key States	Rationale & Risk
Accidentally Taxing	Newly Taxed (High Risk)	IA, KS, NH, TN	Decoupled from GILTI by name, not by code section (§ 951A).
High Uncertainty	Likely Exempt, but Unsure	AZ, AR, CT, DE, KY, LA, MA, MO, NJ, OK, PA, DC	Exclusion based on administrative/statutory treatment as Dividend/Subpart F Income; needs confirmation for NCTI.
Intentionally Taxing	Taxed	IL, ID, MD, MN, NE, OR, RI, VT, WV	Conforms to IRC and has not adopted an exclusion.
Exempt	Exempt	AL, CA, CO, FL, GA, HI, IN, MI, NC, SC, VA, WI	Explicitly excludes IRC § 951A or foreign income.

17 thoughts on “Rewriting State Tax Risks: GILTI’s Successor, NCTI, Creates New Headaches for Taxpayers”

4 States Risk “Sleepwalking” into Taxation

Ambiguity in 12 Other Jurisdictions

📝 Call to Action: Legislative Fixes Needed

State Tax Treatment of NCTI Summary

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17 thoughts on “Rewriting State Tax Risks: GILTI’s Successor, NCTI, Creates New Headaches for Taxpayers”