Revision: May 4, 2012, midnight
HB 242-FN-A – VERSION ADOPTED BY BOTH BODIES
11Jan2012… 2568h
2011 SESSION
09/01
HOUSE BILL 242-FN-A
AN ACT relative to the net operating loss carryover under the business profits tax.
SPONSORS: Rep. Seidel, Hills 20; Rep. Tucker, Rock 17; Rep. Cebrowski, Hills 18; Rep. Ohm, Hills 26; Rep. W. Smith, Rock 18; Rep. Twombly, Hills 25; Sen. Luther, Dist 12
This bill changes the effective date of the increased amount of net operating loss in a tax year that may be carried forward.
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Explanation: Matter added to current law appears in bold italics.
Matter removed from current law appears [in brackets and struckthrough.]
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
11Jan2012… 2568h
11-0324
09/01
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Eleven
AN ACT relative to the net operating loss carryover under the business profits tax.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Net Operating Loss Carryover. Amend 2011, 224:363 to read as follows:
363 New Subparagraph; Business Profits Tax; Net Operating Loss Carryovers. Amend RSA 77-A:4, XIII by inserting after subparagraph (d) the following new subparagraph:
(e) On or after [July] January 1, 2013, the amount of net operating loss generated in a tax year that may be carried forward may not exceed $10,000,000.
2 Effective Date Change. Amend 2011, 224:413, V to read as follows:
V. Sections 19[,] and 221[, and 363] of this act shall take effect July 1, 2013.
3 New Paragraph; Effective Date Change. Amend 2011, 224:413 by inserting after paragraph XII the following new paragraph:
XII-a. Section 363 of this act shall take effect January 1, 2013.
4 Effective Date. This act shall take effect upon its passage.
LBAO
11-0324
Amended 02/07/12
HB 242 FISCAL NOTE
AN ACT relative to the net operating loss carryover under the business profits tax.
FISCAL IMPACT:
The Department of Revenue Administration states this bill, as amended by the House (Amendment #2011-2568h), will decrease state revenue by an indeterminable amount in FY 2014 and each year thereafter. This bill would have no fiscal impact on state, county, and local expenditures, or county and local revenues.
METHODOLOGY:
The Department of Revenue Administration states this bill would increase the net operating loss (NOL) carryover under the business profits tax (BPT) from $1,000,000 to $10,000,000 on or after January 1, 2013. Current law increases the NOL on July 1, 2013. The proposed change would allow fiscal year filers who have taxable period end dates from January 1, 2013 to June 30, 2013 to start generating greater NOLs sooner. On February 25, 2011, all tax year 2009 BPT tax returns that showed a loss on the NH gross business profits line for proprietorships, partnerships, fiduciaries, and corporations were downloaded by the Department. The corporate waters edge (WE) tax returns were not downloaded because their NOL calculation limitation is based upon the number of entities filing within that combined return. The specific number of allowable $1,000,000 NOL per entity filing within a combined return cannot be determined by querying the tax information system.
The Department states in an attempt to estimate the impact of raising the NOL carry forward allowance from $1,000,000 per entity to $10,000,000 per entity, the tax year 2009 losses of 17,225 entities were multiplied by their respective apportionment percentages to arrive at their apportioned gross NOL. Under the current $1,000,000 limitation, it was determined that these taxpayers would have $914,149,805 in available NOL deductions. If taken in the next ten years, this one year of NOL deductions would reduce their BPT liability by $64,161,184 at the 8.5% BPT rate if their apportionment percentage remains the same as tax year 2009. When the same analysis was done, but allowing a $10,000,000 limitation, instead of a $1,000,000 limitation, $1,234,769,267 in NOL deductions would have accumulated, an increase of $320,619,462. If taken in the next ten years, this one year of NOL deductions would reduce the taxpayers BPT liability by $83,214,038 at the 8.5% BPT rate if their apportionment percentage remains the same as tax year 2009. The extra tax effect that this would have in reducing their BPT liability would be $19,052,854. Using the data in this analysis, 169 taxpayers will benefit from the increase in the NOL carry forward allowance under current law. This estimate does not include the possible loss of BPT revenue from increased NOL deductions allowed for the WE or combined filers. If the Department uses the 14.67% rate of usage of NOL deductions as shown in the Tax Expenditure Report, then the $19,052,854 loss could increase to a possible total loss for all filers in the amount of $22,415,122. A loss of an extra $22,415,122 may occur again as a result of losses in another year.
The Department states changing the affected period for generating this increased NOL from July 1, 2013 to January 1, 2013 would impact 3,671 fiscal year taxpayers (included in the review above by virtue of having a loss) whose tax year 2009 tax returns were based upon taxable period end dates between January 1, 2010 and June 30, 2010. When the effect of these taxpayer’s possible increased NOLs data used in the above review was isolated, they will be able to tax a collective $5,132,377 more in NOLs sooner because of the revised applicability date. If all of these taxpayers could fully utilize these NOL carry forward amounts in the subsequent tax year, the next tax impact of their deductions would be a $436,252 tax loss. No actual revenue loss, under either the current applicability date or the proposed date would occur until at least FY 2014.
The Department is unable to project the loss of revenue due to this NOL expansion as the Department cannot predict a business’ future BPT losses, or when or how much a business’ profits will be in future years for which this deduction will apply. For tax returns filed in calendar year 2009, NOL’s were taken on 4,531 tax returns filed. For those returns, $162,541,000 in NOL after apportionment, was taken to offset taxable business profits. The net tax effect of those deductions was a $13,815,000 loss of revenue. The Department states the 2009 tax returns reflected less total NOL deductions because the economy reduced profits, and thus, the taxpayers did not have to avail themselves of their loss carryovers. The Department states it would not be unreasonable to assume that the proposed increase of the NOL deduction would have a substantial, but indeterminable, impact on BPT revenues for years to come.