Applying State Net Operating Losses (NOLs) to Offset Tax Liabilities Is No Easy Feat
Trump, the business man, used net operating losses to cancel out federal income tax liability for up to 18 years.
When the New York Times published pages from Donald Trump’s New Jersey, New York, and Connecticut tax returns, it revealed that Trump used an often underutilized tool ▬ net operating losses (NOLs) ▬ to cancel out federal income tax liability for up to 18 years.
Yet, despite the estimated $200 billion in NOL assets sitting on the books of Fortune 1000 companies, many of these organizations do not fully leverage NOLs, therefore losing out on valuable tax cash savings. Why? Why aren’t corporations taking full advantage of NOLs, particularly at the state level? That is the exact question raised and discussed in detail in the recent CFO Magazine article,“Presidential Campaign Spotlights Net Operating Losses.”
The simple answer is complexity.
Applying state NOLs to offset tax liabilities is no easy feat. States differ on rules around modifications and apportionment. Moreover, they have two sets of rules: one to control how the taxable income/loss is computed for a given year, and a second to control how any loss is computed and utilized. On top of this, states have specific rules regarding carrybacks/carryovers, post-apportionment, pre-apportionment, group reporting, suspensions, and limitations. With each state having such varying NOL rules and regulations, the management of NOLs at the state level quickly becomes a complex and unruly process.
State Tax Analyzer™ from Bloomberg Tax Technology delivers the ability to accurately predict NOL impacts. With the latest built-in tax law, it automatically computes the generation and utilization (carrybacks/forwards) of state NOLs across multiple years and scenarios. Only by implementing best practices that automate the tracking, computation, and forecasting of state NOLs, can companies know with certainty that they are leveraging their valuable state NOLs to the fullest extent.