Assume the state of AZ raises its corporate tax rate to help cover the budget shortfall, this increase causes the combined federal and state tax rate to increasefrom 40% to 42% for AZ based companies.
Assume the rate increase is enacted June 30, 2011 and backdated so that it is effective Jan.1, 2011.
Happy company is a AZ based company that had net deferred tax liabilities of $300 million at 1/1/11, all originating at the "old" 40% rate. Will the company make any adjustment because of the tax rate increase? If so, what will be the impact of the adjustment on 2011 tax expense and net income?