ONLINE EXCLUSIVE

The Art of Conforming:
New Tax Laws Align State, Federal Requirements

By Matt Ottinger

The One Big Beautiful Bill Act (OBBBA), signed by President Donald Trump on July 4, 2025, brought with it a host of new tax laws for American businesses.

The concept of “tax conformity” is the process by which states seek to bring their own laws in line with federal requirements and is now a focus of subsequent state legislative assemblies on topics like income and property tax deductions, among other aspects.

In the 2026 Indiana General Assembly, the key vehicles for this effort were Senate Bills 212 and 243, both authored by State Sen. Travis Holdman (R-Markle).

Pursuit of certainty
Bill 212 – signed into law on January 29 – includes items like adoption credits, narrow depreciation classifications and Health Savings Account telehealth rules, among other provisions.

“This bill is largely about tax-year 2025 filing certainty.” relays Natalie Goodwin, Indiana Chamber of Commerce vice president of government affairs, noting the measure broadly provides tax certainty. “It’s a targeted, technical conformity bill designed to align Indiana’s code with specific federal changes so taxpayers and preparers aren’t left guessing at filing time.”

Taking such action, Goodwin remarks, was on the Indiana Chamber priority list for 2026.

Bracing for impact
Senate Bill 243 was a larger, conformity-driven measure navigating the large fiscal impact of the OBBBA. An analysis from Gov. Mike Braun’s administration reveals a $900 million fiscal impact over the biennium if the state was to fully conform its tax code with the federal changes, based on the total state tax breaks on businesses and individuals. Therefore, the state Legislature is “decoupling” some state measures from the federal law to protect its revenue and public programs.

With SB 243, the focus is on aligning definitions and treatment where federal law changed, so Indiana taxpayers aren’t navigating mismatches between federal and state rules.

“Importantly, SB 243 does not take on the largest-ticket conformity items – like broad bonus depreciation – because of the significant fiscal impact those changes could carry for the state,” Goodwin imparts.

The state does intend to conform on several key provisions, it seems, which include no taxes on tips or overtime (and the car loan interest deduction) for tax year 2026 for taxes payable in 2027. Senator Holdman estimates a combined $250 million fiscal hit, which would come from the state’s reserves.

“The intent is to conform on a limited, one-year basis for tax year 2026, evaluate the fiscal effect and then revisit the larger conformity questions next session,” Goodwin states.

She believes the caution stems from the financial forecast put forth last April that was significantly under what was expected – to the tune of a $2 billion shortfall.

“After the April forecast came in far below expectations, lawmakers moved cautiously and made broad adjustments to protect the state’s fiscal position,” Goodwin offers.

Now, however, revenues align more closely with previous estimates.

“Revenues look more stable now, but because this isn’t a budget year, leadership appears inclined to keep conformity decisions targeted rather than opening up broader changes with larger fiscal exposure,” Goodwin clarifies.

Common ‘cents?’
Not to diminish the legacy of Abraham Lincoln – what with Presidents Day just in February – but SB 243 (signed into law March 5) also includes language addressing the handling of pennies in cash transactions. An amendment offered by co-author State Sen. Dan Dernulc (R-Highland) establishes a framework for retailers as the circulation of pennies potentially declines. The language allows cash transactions to be rounded to the nearest five cents when exact change is not available, while still permitting retailers to provide exact change when possible. The intent is to provide clarity for businesses and consumers if pennies become less common in circulation.

The discussion follows broader concerns about the cost of producing pennies, which the U.S. Mint estimated exceeded $117 million in 2024.

The OBBBA also delves into foreign investment, as it revised the Global Intangible Low-Taxed Income (GILTI) tax, which was introduced under the 2017 Tax Cuts and Jobs Act. The GILTI tax was initially designed to discourage U.S. corporations from shifting income to low-tax jurisdictions, and it imposed a minimum tax on certain excess returns earned by Controlled Foreign Corporations. The OBBBA renames GILTI as “Net CFC Tested Income (NCTI)” and modifies the calculation, including removing the tangible asset exclusion and adjusting related deductions/credits.

“It ensures Indiana isn’t taxing foreign income differently from federal treatment and avoids below- or above-the-line add-backs that can distort taxable income and create confusion for businesses at filing time,” Goodwin explains.

Business implications
Goodwin anticipates these tax measures will become law and have a positive impact on Indiana’s business community, if for no other reason than the aspect of certainty, although at this time the Indiana Chamber is technically “neutral” on the totality of these bills.

“From our perspective, following the April 2025 forecast, there was real uncertainty around state revenues and the broader operating budget,” Goodwin recalls. “The focus of these bills is providing certainty, making necessary conformity updates, cleaning up technical issues and ensuring income is treated as intended so taxpayers aren’t left with major questions when they file.”

Indiana currently boasts a favorable tax climate for businesses – coming in 10^th overall and best in the Midwest in the Tax Foundation’s 2026 State Tax Competitiveness Index.

Goodwin hopes this will continue that momentum.

“We’re in a pretty good spot, so some of these things would be nice to have, and we’d love to have that conversation when we get into a budget year, but I think we had a realistic expectation that wasn’t likely going to be something that we were able to accomplish, particularly this year,” she concludes.

RESOURCE: Natalie Goodwin, Indiana Chamber of Commerce, at www.indianachamber.com