On November 16, 2017, the Pennsylvania Department of Revenue (“Department”) issued Corporation Tax Bulletin 2017-01 in order to clarify the Department’s stance on the net operating loss deduction. The Department will revise its forms and procedures to implement the Pennsylvania Supreme Court’s decision in Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth of Pennsylvania, Dkt. No. 6 EAP 2016 (10/18/2017), which found that the $3 million cap on the net operating loss deduction (“NOL”) violated the Uniformity Clause of the Pennsylvania Constitution. The decision left in place the portion of the statute that limits the NOL deduction at 12.5% of taxable income for the 2007 tax year at issue.
On November 1, 2017, Nextel filed an Application for Reargument with the Court regarding the appropriate remedy to apply to the 2007 tax year. Accordingly, while this NOL issue remains open, the Department is taking a proactive approach to provide clarity to corporate taxpayers. Taxpayers are therefore advised that the flat-dollar cap on the NOL, currently at $5 million, will not be available for taxable years beginning in 2017 and thereafter. However, the NOL limitation of 30% of taxable income will continue to be effective for taxable years beginning in 2017.
Please contact a member of the McNees SALT Group if you have questions regarding the Pennsylvania NOL deduction or the Nextel case.