In this story:
- State legislators have put forth bills to address the NOL tax provision.
- Bipartisan legislation includes Senate Bill 346 and House Bill 2226.
NOL, an acronym for Net Operating Loss, is the result of a business spending more money than it makes each year.
For Pennsylvania’s business leaders and legislators, NOL may just as well stand for No Opportunities Lost.
“We all know that (semiconductor manufacturer) Intel selected Ohio (to build a $20B facility) and did not look at Pennsylvania, and other large entities have picked other states other than Pennsylvania,” PA Chamber of Business CEO and President Luke Bernstein said in a conference call. “We need to work harder to ensure that we get jobs and attract employers that want to be located right here.”
Business leaders and legislators on the call addressed the NOL tax provision that allows businesses to carry forward losses from a given year and deduct them from profits in future years. Carrying losses forward benefits businesses that are start-ups as they often experience heavy losses in formative years that can be reinvested, and benefits employers whose profits and losses fluctuate due to business cycles.
Aware of an historically high outmigration of residents and businesses, including some 40,000 from July 2021 to July 2022, Pennsylvania legislators are reaching across the aisle and seeking solutions to an outmigration problem that has been more pervasive in just seven other states.
“As we talk about NOLs, legislation has received bipartisan support in both the (Pennsylvania) House and Senate and would make Pennsylvania significantly more competitive,” said Bernstein. “It’s legislation that would improve Pennsylvania’s uniquely harsh treatment of net operating losses, which effectively imposes a tax on startups and inhibits our ability and businesses’ ability to grow here or attract new businesses and prevents us from retaining other businesses and future investments as businesses are looking to make that investment.”
Bipartisan legislation includes Senate Bill 346 and House Bill 2226. Both are?steps forward from a competition standpoint since Pennsylvania is one of just?two states that caps NOL carryforward deductions below the federal limit of 80% of taxable income, the commonwealth capping at 40%.
Introduced by Sen. Greg Rothman, R-Cumberland/Dauphin/Perry, Bill 346?aims to amend the Tax Reform Code of 1971 by increasing the net operating loss carryover limitation. The legislation passed the Senate Finance committee by unanimous vote last summer and looks to?bring sustainable jobs to Pennsylvania and grow existing commonwealth businesses.
“The Net Operating Loss not allowing Pennsylvania businesses to take those legitimate losses against future income is a penalty, but the effect of it is that we’re losing to other states that don’t have this penalty,” Rothman said on the call.
“Think of the types of businesses we’re losing - high-tech businesses, medical related and greenhouse businesses, big pharma companies. These spend millions of dollars up front to get a product to market and then are unable to recapture those losses. We’re just trying to bring Pennsylvania in line with the federal government and I would love to go even further and eliminate any of the losses and write off those losses against income.
“We’re losing to Ohio and we’re losing to other states too... We need to send a message to the business community that Pennsylvania is open for business.”
In his bill, Rothman noted that being?one of only two states that does not permit businesses to carryover NOLs consistent with the federal limit leaves Pennsylvania at an economic disadvantage. The restriction hurts?job creators and turns away businesses who might otherwise be located in Pennsylvania.
Bill 346 will?gradually increase the NOL carryover limit from the current 40% to 80%, a phase-in that will occur over four years and bring Pennsylvania in line with both the federal limitation and the limitations of 48 other states. The legislation states that increasing Pennsylvania’s NOL carryover limitation is “a critical step to ensuring Pennsylvania is a place that businesses want to invest and grow.”
Reaching across the aisle, Sen. Nick Miller, D-Lehigh/Northampton, called Sen. Rothman’s bill “very reasonable.” He added that small businesses are the backbone of Pennsylvania’s economy and pointed out that there are approximately?15,000 businesses in the Lehigh Valley and 90% of them have 20 or fewer employees.
“We need to improve our overall business environment. It’s important to continue to build our economy,” said Miller.
HB 2226 was introduced by Rep. Paul Friel, D-Chester, and referred to the Finance committee on April 17. Like Senate Bill 346, HB 2226 looks to amend the Tax Reform Code of 1971.
The legislation states that start-up businesses, particularly technology and biotechnology businesses, face “significant challenges when entering the marketplace and often require several rounds of funding to reach maturity.? These companies often have a need to raise capital to scale and bring innovations to the marketplace (C)ompetition for capital can often result in the relocation of the business to other states with more favorable capital markets or operating and tax policy conditions.”
Friel’s legislation would allow early-stage businesses to sell their net operating losses and unused research and development tax credits to unrelated companies, converting their losses to capital. HB 2226?will permit monies received from these sales to be used to build and grow the operating business in Pennsylvania, investing in high paying jobs.
“If we want to attract people here and build jobs and build our economy, we have to recognize that losses are an investment,” said Friel. “When you’re building a business, hiring people, and making purchases, that drives the economic engine. We’re losing some of these businesses to out of state.”
In his bill, Friel said qualifying businesses would be provided with a “valuable source of non-dilutive capital during the most vulnerable period of their development. Bolstering these new and innovative businesses supports the creation of good jobs within in-demand industries and serves to strengthen Pennsylvania’s economy now and into the future.”
While legislators seek to take steps forward with bipartisan bills, Bernstein noted that Pennsylvania does not operate?in a vacuum.
“Just as Pennsylvania enacts competitive tax reform, other states are following suit, states like North Carolina and Ohio,” he said. “Both ranks ahead of Pennsylvania in terms of competitiveness and have moved forward with more aggressive tax reforms in recent years that attract and retain businesses.”
Rep. Josh Kail, R-Beaver/Washington, called NOL a “critical” factor in keeping businesses from being lured away from Pennsylvania.
“This is about family-sustaining jobs,” he said. “In Western Pennsylvania we have seen family-sustaining jobs that went to Ohio and West Viginia because of this (NOL) provision. This is not just a Western Pennsylvania problem. This is a problem for the Commonwealth of Pennsylvania.”
Nick Bertram, CEO of Flashfood, represented Pennsylvania business owners on the call. Bertram said one can go back to 2014 to find what the commonwealth has lost due to its NOL provision.
“If you go back a decade, Elon Musk and Tesla were looking for a site for its Gigafactory,” said Bertram. “We were one of the choices, Pennsylvania was an opportunity for that. We lost out to Nevada and Nevada did have a $1.3 billion incentive plan that was a part of that, but beyond those headlines there was no NOL provision, no net operating losses. That’s very important.”
The Gigafactory opened in Nevada in 2016 and provides jobs for 12,000 employees.
“We missed out,” Bertram said. “Pennsylvanians missed out on great jobs. I don’t want to miss out on the next one.”
Copyright © 2024 BridgeTower Media. All Rights Reserved.
Most Popular
Comments / 0