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1 Timothy Vermeer, Net Operating Loss Provisions: State Treatment and the Economic Benefits 1 (2022)

handle is hein.taxfoundation/ntoglspsss0001 and id is 1 raw text is: Net Operating Loss Provisions: T State Treatment and the Economic Benefits FI SCAL Timothy Vermeer Senior Policy Analyst FACT No. 786 Jan. 2022 Key Findings Well-designed Net Operating Loss (NOL) provisions benefit the economy by smoothing business income, which mitigates entrepreneurial risk and helps firms survive economic downturns. Forgoing tax revenue in the short term affords businesses the opportunity to prioritize human and physical capital investment. Start-ups and industries with profits highly correlated to the business cycle are often harmed by weak NOL provisions. NOL provisions promote tax neutrality by reducing additional tax burdens on businesses with highly cyclical income streams or higher exposure to economic downturns. The federal government allows NOL provisions to be carried forward indefinitely, and to reduce tax liability by up to 80 percent in any given year. Many states either conform to this provision or provide uncapped 20-year carryforwards, but some are far stingier than the federal government. These states should improve their treatment of NOLs to match or exceed federal allowances. The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)(3) nonprofit organization. ©2022 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org

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