United States

Pennsylvania: Department Publishes Notice to Implement Increased Net Operating Loss Percentage Limitations

Feb 05, 2018
From KPMG TaxWatch

Loading the player...

In last year’s Nextel case, the Pennsylvania Supreme Court (agreeing with the Commonwealth Court) held that the $3 million net loss deduction limitation in effect for the 2007 tax year at issue violated the Uniformity Clause of the Pennsylvania Constitution. The Pennsylvania Supreme Court, however, departed from the lower court on the question of an appropriate remedy. The Commonwealth Court had allowed the taxpayer to take an uncapped loss deduction for the 2007 closed tax year at issue. The high court severed the flat-dollar limitation, but kept intact the percentage limitation (12.5 percent of taxable income for the tax year at issue).

In response to the litigation, the Pennsylvania General Assembly amended the relevant statute to include an enhanced percentage limitation for future tax years—35 percent for tax year 2018 and 40 percent for tax year 2019 and beyond. Per the legislation, these new limits would not take effect until the Secretary of Revenue published a notice that the Pennsylvania Supreme Court had decided that all or part of the existing net operating loss deduction limitations were unconstitutional. After Nextel’s request for re-argument before the state’s high court was denied, the Secretary published the required notice on January 27, 2018. Thus, the increased net operating loss deduction percentage limitations are now effective. Please contact Howard Sklaroff at (267) 256-2891 with questions.

For more information about TWIST or to view archived episodes, please visit our TWIST homepage.

 Subscribe to TWIST via iTunes, or  Subscribe via RSS.

To receive TWIST e-mails each Monday morning, make sure that state, local and indirect is checked off as one of your topics of interest on the KPMG TaxWatch registration site.

The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.