Opportunity Zone Magazine Volume 1, Issue 3 | Page 65

STATE TAX CONFORMITY WITH OPPORTUNITY ZONES
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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
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