In a move that could potentially bring billions of dollars to cash-strapped retailers and other industries, Senate Majority Leader Harry Reid and Finance Committee Chairman Max Baucus are crafting an amendment that would add an expanded operating loss “carryback” provision to unemployment insurance legislation scheduled to be considered this week.
The amendment is expected to give both large and small businesses the ability to “carry back” net losses suffered in the current recession in order to claim a refund from taxes paid in previous years when they made a profit.
Carryback is normally limited to two years, but economic stimulus legislation signed into law by President Obama in February expanded the period to five years for companies with up to $15 billion in annual gross receipts. Larger businesses are still restricted to two years.
While details are still being worked out, the Reid/Baucus amendment could expand the five-year period to all businesses that suffer a loss regardless of size, and could give businesses the choice of using the carryback for losses from either 2008 or 2009 rather than just 2008 as provided in the stimulus bill.
Because of revenue constraints, the five-year period might not apply to the full amount of losses, but businesses could still “carry forward” the remainder for up to 20 years as already provided under federal tax law.
In addition to the amendment from Reid, D-Nev., and Baucus, D-Mont., Finance Committee member Senator Jim Bunning, R-Ky., may offer an amendment that would provide a full five-year carryback for all sizes of businesses for losses from both 2008 and 2009.
With many retailers both large and small struggling because of slumping sales and tight credit, NRF has been lobbying to have the five-year period apply to all businesses that suffer a loss regardless of size, and to have 2009 losses included as well. NRF told the House Small Business Committee last month that the influx of cash from tax refunds could help some retailers avoid store closings and layoffs, and keep others from going out of business altogether.
The Joint Committee on Taxation has estimated that an unrestricted five-year carryback for both large and small businesses for both 2008 and 2009 would provide $16.3 billion in tax relief over 10 years. Restrictions in the Reid/Baucus amendment would limit the amount to about $10 billion.
Earlier in the week, House Speaker Nancy Pelosi, D-Calif., also expressed support for an expanded carryback period.
“We’re looking at some remedies in the tax code,” Pelosi, D-Calif., said during a CNBC interview on Wednesday. “We’re considering a $3,000 tax credit for hiring, net operating loss carryback, accelerated depreciation – a number of initiatives that might be helpful to business.”
Pelosi’s comments came after House Democrats met with half a dozen nationally known economists to gather ideas on initiatives that could result in job creation. She said the House is not planning a second stimulus bill but might move a series of targeted bills or attach job-oriented provisions to other measures already moving through Congress.
Among the economists was Mark Zandi of Moody’s, who was briefed on the importance of the net operating loss issue earlier in the week by NRF and other members of a coalition that wants large businesses included under the five-year period. Zandi joined Pelosi at her news conference and said that the five-year carryback should include losses up through 2010.
House Select Revenue Measures Subcommittee Chairman Richard Neal, D-Mass., said five-year carryback should be available to all businesses regardless of size and that retailers in particular are suffering.
“The retailers are having a real problem,” said Neal, whose panel is part of the tax-writing House Ways and Means Committee. “And if the retailers are having problems, it won’t be long until the commercial developments are having problems, which creates problems for community bankers.”
Neal said the carryback is a simple way to provide aid to companies that need help.
“You are not setting up a bureaucracy,” he said. “You are not setting up an agency. You are allowing retailers, community bankers and a host of others … to go back five years and address some of the losses they’ve had. The fact that it is so concise strikes me as a very reasonable approach.”
Neal is the sponsor of H.R. 2452, the Net Operating Loss Carryback Act, which would allow businesses suffering losses during 2008 or 2009 to carry back the losses for up to five years regardless of the company’s size. Obama’s budget proposal for Fiscal Year 2010 would do the same.
For more information, contact NRF Vice President and Tax Counsel Rachelle Bernstein.
The article above is reprinted from the current issue of Washington Retail Insight, NRF’s weekly e-newsletter covering public policy issues affecting the retail industry.
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[...] said the bill will include only two additional amendments: A tax credit for homebuyers, and a tax benefit allowing businesses to recoup taxes they paid in recent profitable [...]
[...] Reid said the bill will include only two additional amendments: A tax credit for homebuyers, and a tax benefit allowing businesses to recoup taxes they paid in recent profitable [...]