Newly filed Pennsylvania legislation would temporarily increase net operating loss deductions to offset COVID-19 pandemic losses.
H.B. 2871 was introduced by House Finance Committee member George Dunbar (R) on September 17 and was referred to that committee. The bill is designed to support businesses with excess losses resulting from pandemic shutdowns by temporarily relaxing deductibility limits for NOLs next year.
“Many of our businesses both large and small have suffered huge losses due to circumstances out of their control,” Dunbar said in his sponsorship memo for the bill. “As we continue to battle the Covid-19 pandemic, it is also important to begin the task of identifying economic recovery tools that we can utilize to reinvigorate these businesses. One such tool would be the temporary relaxation of deductibility limits for NOLs.”
Pennsylvania law allows NOL deductions of up to 40 percent of a business’s income. Dunbar’s bill would allow a deduction of up to 100 percent of income for 2021. The additional 60 percent of taxable income could be offset only by losses incurred after December 31, 2019, and before January 1, 2021.
The legislation is one of several NOL expansion bills under consideration by state lawmakers.
H.B. 2420 would authorize corporations to carry forward NOLs indefinitely. H.B. 1101 would increase the cap on NOL deductions from 40 percent to 50 percent. H.B. 1603 and S.B. 1278 would authorize NOL deductions for passthrough entities.
Revenue Secretary C. Daniel Hassell spoke against an NOL expansion without a move to combined reporting at a September 16 Finance Committee meeting.
“Our concern about extending the carryover of NOL is simply that we have a system now that allows companies to create accounting fiction-type losses, and extending the ability to use those losses to even more years seems like going in the wrong direction,” Hassell said.
Hassel supported an NOL expansion to be included in legislation with combined reporting, which requires a group of companies to file as a single entity for tax purposes. Gov. Tom Wolf (D) called for mandatory combined reporting in his February budget address. In a January hearing held by the Senate Democratic Policy Committee, a range of groups, including the Tax Foundation and the Greater Pittsburgh Chamber of Commerce, argued that any combined reporting legislation should include the removal of the cap on NOL carryforwards.