Opportunity Zone Magazine Volume 1, Issue 3 | Page 64

64 OPPORTUNITY ZONE MAGAZINE | VOLUME 1 • ISSUE 3 STATE TAX CONFORMITY WITH OPPORTUNITY ZONES By Matt Johnson and Markie Zick Some states conform to federal OZ rules, while some do not and others offer state-level benefits beyond federal conformity. While most states generally conform to the federal Opportunity Zone (OZ) rules, a handful of states have elected either to decouple from these rules or to impose additional limitations on OZ benefits. Other states have decided to expand existing OZ benefits, creating additional incentives for taxpayers who invest in the defined OZs of those states. In either case, it is important to consider the state tax impact when investing in an OZ. STATE NONCONFORMITY IN GENERAL Because most states begin the calculation of income tax with the taxpayer’s federal taxable income, generally states “conform” to the federal OZ regime unless they include a modification on their income tax return that disallows, or adds back, the federal deferral and deduction. Currently, there are seven states with either corporate or individual income taxes that do not fully conform to OPPORTUNITYZONE.COM