WASHINGTON — States that automatically conform their tax codes to federal law are racing to assess the fiscal impact of sweeping federal tax changes enacted last year, with lawmakers in several states considering whether to decouple from portions of the legislation to protect state revenues.
The concerns center on the federal tax package known as the One Big Beautiful Bill Act, which made extensive changes to the Internal Revenue Code. Because many states use federal taxable income or other federal tax definitions as the starting point for their own tax systems, the federal changes could flow directly into state tax calculations unless legislatures intervene.
According to the National Conference of State Legislatures, states generally follow one of three approaches: rolling conformity, under which federal tax changes are adopted automatically; static conformity, which requires legislative updates; and selective conformity, in which states choose specific provisions to adopt. States with rolling conformity have faced the most immediate pressure to evaluate the budgetary consequences of the federal law.
Lawmakers in several states have already moved to limit or modify the effect of the federal changes. Virginia shifted from rolling to static conformity earlier this year, while other states have debated targeted departures from federal provisions that could significantly reduce state tax collections.
Tax policy specialists say the issue extends beyond revenue estimates. States must determine whether new federal deductions, credits and business tax provisions align with their own fiscal priorities and budget obligations. The Tax Executive publication noted that conformity decisions will play “a large role” in determining how federal tax changes affect state finances and that many legislatures are expected to revisit the issue during their 2026 sessions.
In Idaho, lawmakers approved legislation earlier this year to align the state tax code with most of the federal changes. State fiscal analysts estimated the conformity measure would reduce state revenues by more than $150 million in the current fiscal year and by an even larger amount in the next budget cycle, according to legislative estimates reported by local media.
Business groups have generally supported conformity efforts, arguing that alignment with federal rules simplifies tax compliance for individuals and companies operating across multiple jurisdictions. Tax professionals, however, have reported growing complexity as states adopt different approaches to the federal law.
“Lawmakers continue to adopt measures to limit the revenue impacts” of the federal tax law, the National Conference of State Legislatures said in a recent review of state responses.
As state legislative sessions continue, officials are weighing whether to adopt, modify or reject portions of the federal changes. In many states, final decisions on conformity are still pending, and revenue estimates remain subject to revision as tax agencies complete their assessments.
