Net Operating Loss Carryovers
A House Ways and Means Sub-Committee met on Wednesday for a work session on Senate Bill 383, an act relative to net operating loss (NOL) carryovers under the business profits tax and relative to economic revitalization zone tax credits.
This bill was amended in the Senate and would now limit the amount of net operating loss generated in a tax year that may be carried forward under the business profits tax to $10,000,000. It is expected that approximately 110 of the largest companies operating in the State could be affected by this change.
The bill would also repeal the 2011 repeal of the economic revitalization zone tax credits and makes certain changes regarding the eligibility for and determination of the eligible amounts for the credits.
The Department of Revenue Administration (DRA) and Department of Resources and Economic Development (DRED) state this amended bill, will decrease state general fund and education trust fund revenue by an indeterminable amount in fiscal year 2011 and each fiscal year thereafter. DRA went on to say this bill increases the limitation amount of net operating loss (NOL) generated in a tax year that may be carried forward under the business profits tax (BPT) from $1 million to $10 million. The Department states they cannot project the loss of revenue due to this expansion of the NOL deduction because the future BPT profits and losses are not known. The Department did, however, provide the following background of the NOL deduction: The NOL deduction is a provision of the BPT law added in 1988. The NOL provision was effective for losses incurred after January 1, 1989. On July 1, 2002, the law was revised to permit carry forward of NOLs for 10 years following the loss year instead of 5 years. The amount of NOL generated each year per entity was limited to $250,000. For taxable periods ending between July 1, 2003 and June 30, 2004, the NOL generated was limited to $500,000, between July 1, 2004 and June 30, 2005, limited to $750,000, and for taxable periods ending on or after July 1, 2005, limited to $1 million and the requirement to carry back losses prohibited.
DRA further states that since the expansion of the deduction to $1 million in 2005, there has been an increased loss in BPT revenue of more that $5 million. While unknown, the Department indicates an increase in the NOL deduction to $10 million would result in an indeterminable loss in BPT revenue (a $10M loss would mean $850K in BPT tax credits).
There were questions from several committee members suggesting that passage of this law would incent businesses to move and/or expand in New Hampshire but there was no way to determine that fact. Many see this as a jobs creation bill but the conundrum is how can figures be tracked that would identify this tax credit as an incentive to add jobs? There was also some concern that expanding the NOL could draw out the affects of the recession into subsequent state budgets.
As for the economic revitalization zone tax (ERZ) credits, The Department of Resources and Economic Development states this bill eliminates the repeal of the ERZ tax credits that was scheduled for July 1, 2011 and makes certain changes regarding the eligibility for and determination of the eligible amounts for the credits. The Department states eligibility criteria changes from a fixed amount, to a variable equation; 80 percent of state median household income will not have a fiscal impact. The repeal change provisions may have a fiscal impact, however. The bill does not change the credit caps that can be taken in any fiscal year: $825,000 in total; $40,000 per taxpayer, but the bill repeals the provision that would have eliminated the credit beginning in FY 2012. Since the tax provisions in this bill impact both business profits and business enterprise taxes, the revenue decrease identified would be split between state general fund revenue and education trust fund revenue in accordance with statute.
To learn more about how an ERZ is designated visit the General Court website:
http://www.gencourt.state.nh.us/rsa/html/XII/162-N/162-N-2.htm
