The One Big Beautiful Bill Act (OB3) has reshaped the corporate tax landscape in ways that large organizations can’t afford to ignore. That’s why we’re launching this new article series to guide you through the changes that matter most and what they mean for your business.
At the center of OB3 are three powerhouse corporate tax provisions — research and experimental expensing (R&E), interest expense limitations, and bonus depreciation — each with significant implications for how companies invest, borrow, and plan for the future. With OB3 restoring or expanding key benefits such as immediate R&E expensing, easing interest deduction rules under EBITDA, and reinstating 100% bonus depreciation for qualifying assets, the stakes have never been higher for tax teams navigating year-end strategy and current-year tax compliance. Over the next few months, this series will break down these shifts state by state so you can stay informed and stay compliant.
OB3 was signed into law on July 4, 2025. For calendar-year taxpayers, the retroactive applicability of many provisions has created uncertainty at both the federal and state levels. At the federal level, additional guidance and Treasury regulations will eventually provide necessary clarity. At the state level, however, conformity with the Internal Revenue Code varies significantly across states. At the federal level, major tax changes, such as OB3 and the 2017 Tax Cuts and Jobs Act (TCJA), routinely create challenges and additional compliance burdens for corporate income tax practitioners.
As state legislative sessions convene in the coming months, taxpayers are hoping for timely action on the most pressing conformity issues. In this post, we will address the major components of OB3 that affect state corporate income taxes. Upcomingposts will cover states whose legislative sessions were still active after OB3’s passage and have already issued legislation or guidance. GTM will continue to monitor legislative activity through 2026 and provide additional updates as new developments emerge.
R&E Expenditures: The First Major Source of State‑Level Complications
OB3 introduces several significant changes to the treatment of R&E expenditures. Domestic R&E expenditures are once again fully deductible under IRC §174A, while foreign R&E expenditures are still amortized over 15 years under IRC §174. Additionally, OB3 also allows taxpayers to accelerate the recovery of their pre-2025 domestic R&E expenditures by deducting all remaining unamortized amounts over a one- or two-year period (in 2025 and 2026).
Key state conformity questions include:
- How will states that previously conformed to federal amortization rules treat the accelerated deduction of unamortized amounts under OB3?
- Can taxpayers “balance” the federal and state tax impacts of the accelerated R&E amortization recovery?
- Taxpayers with sufficient taxable income may be inclined to maximize their R&E expenditures.
- If maximized R&E expenditures generate net operating losses (NOLs) at the state level (especially in separate company filing states), limitations on NOL deductions could result in permanent tax cost, not just timing differences.
- How will states that previously decoupled from §174 approach §174A?
- States that previously decoupled from §174, allowing a full deduction of all R&E expenditures, will not need to decouple from §174A if they conform to the current version of the IRC.
- A state’s decoupling from the current §174 will allow for the full deduction of foreign R&E expenditures, and conformity with §174A will allow for the full deduction of domestic R&E expenditures.
- Will any states reconsider their historical treatment of R&E expenditure?
Interest Expense Limitations: A New Fork in the Road for §163(j)
OB3 returns the calculation of adjusted taxable income (ATI) for §163(j) to the pre-2022 TCJA method (EBITDA, with depreciation, amortization, and depletion added back). Historically, most states either conformed to the §163(j) limitation or did not. Now, states have an additional option: conform to the TCJA’s 2022 version of §163(j) (EBIT) or adopt the OB3 version.
Taxpayers already face challenges computing §163(j) across different state-combined groups and separate company filers. OB3 may require them to maintain multiple ATI calculations — one under TCJA and one under OB3.
A key interaction planning opportunity:
- Taxpayers that previously faced business interest expense limitations in recent years, when ATI was determined by including deductions for depreciation, amortization, and depletion, may recoup disallowed business interest expense more quickly by continuing to amortize pre-2025 domestic R&E expenditures.
Bonus Depreciation: Familiar Territory, New Twists
OB3 restores 100% bonus depreciation under IRC §168(k) and introduces 100% bonus depreciation for qualified production property under IRC §168(n). The impact at the state level should be well known, as many states have decoupled from bonus depreciation under the TCJA and prior legislation. It is extremely likely that states that have decoupled from IRC §168(k) will continue to do so. However, these states will need additional legislation to decouple from the provisions of IRC §168(n).
Additional considerations include:
- Some states conformed to the TCJA’s version of bonus depreciation, which is phasing out. These states may or may not conform to the new OB3 100% bonus depreciation.
- Some states adopted their own versions of 100% bonus depreciation, which include assets (based on the placed-in-service date) that are not eligible for 100% bonus depreciation under federal law.
- While differences may be small in these circumstances, additional tracking may be necessary to monitor federal-state depreciation differences.
- The biggest challenge will be the expanded compliance burden of tracking more federal-state depreciation differences.
Looking Ahead
State conformity will continue to evolve over the next five to six months, and taxpayers should expect ongoing complexity. A trusted state income tax adviser can help navigate these changes, model the impact across federal, international, and state tax regimes, and reduce the risk of unintended consequences. With so many interconnected provisions, proactive planning will be essential. Stay tuned as our OBBB State of Mind series officially kicks off its state‑by‑state tour.
