Opportunity Zone Magazine Volume 1, Issue 3 | Page 65

STATE TAX CONFORMITY WITH OPPORTUNITY ZONES 65 the OZ incentive program: Arkansas, California, Hawaii, Massachusetts, Mississippi, North Carolina and Rhode Island. While California, Mississippi, and North Carolina do not conform to federal OZ rules for either corporate or individual income tax purposes, Massachusetts is nonconforming for individual income tax purposes only. This means that corporations can still take advantage of federal OZ incentives in Massachusetts. Arkansas, Hawaii and Rhode Island conform to the federal OZ treatment for individuals and corporations only if the OZ is located within the state. If it isn’t, those states will disallow the related federal deduction and deferral through the use of an addition modification to the taxpayer’s federal taxable income. Minnesota will conform to federal OZ rules for tax year 2019 and forward for taxpayers other than C corporations, but has issued guidance stating that it will retroactively conform to the federal OZ deferral for tax year 2018 for corporations. New Hampshire conforms for corporations beginning Jan. 1, 2020, but doesn’t impose tax on capital gains for individual income tax purposes. CALIFORNIA NONCONFORMITY As previously mentioned, California does not conform to the federal tax law for OZ incentive purposes. In 2019, the state legislature faced many disagreements concerning limitations and budgetary issues regarding OZ conformity, which raised questions and concerns throughout the state. As the most populous state in the country, California has 879 OZs, 274 of which are in Los Angeles County alone. 1 The state estimates that some 3 million Californians are living in OZs. 2 While the state proposed legislation to conform to the federal OZ guidelines for low and moderate income housing projects and green energy projects, the proposed legislation did not provide benefits for market-rate housing, or office, industrial, and retail developments, which proved to be problematic in getting the bill passed. 3, 4 The disagreement over whether and how much California should conform to federal guidelines will likely have longterm impacts in the state, because investors are instead investing in states that are currently conforming to the OPPORTUNITYZONE.COM