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Reforming NOL Provisions is Crucial for Pennsylvania’s Economic Future


May 29, 2024

Op Ed: Reforming NOL Provisions is Crucial for Pennsylvania's Economic Future

by Dan DeBone, President/CEO of the Westmoreland County Chamber of Commerce


As Pennsylvania's budget discussions and negotiations continue, there is an urgent issue that needs immediate attention: the state's outdated and restrictive Net Operating Loss (NOL) carryforward provisions. For too long, Pennsylvania has lagged behind the rest of the country in providing a fair and supportive tax environment for businesses, particularly small businesses and start-ups. It's time to bring our policies in line with modern economic realities and support the growth and resilience of our local businesses.

NOL carryforward allows businesses to offset losses in one year against future profits. This is especially vital for start-ups, which often experience losses in their early years, and for businesses in cyclical industries, where profits and losses can vary widely from year to year. However, Pennsylvania currently limits NOL deductions to 40% of taxable income, while the federal government allows up to 80%. This makes Pennsylvania one of only two states with such a restrictive cap, putting us at a significant disadvantage.

Imagine you're a small business owner deciding where to set up shop. Would you choose a state that caps your NOL deductions at 40%, or one that allows you to deduct the full amount of your losses (as 25 other states do)? The answer is obvious. This restrictive policy not only discourages new businesses from starting in Pennsylvania but also hampers the growth of existing ones.

The current cap is a significant burden on small businesses, which are the backbone of our local economies. These businesses need every possible advantage to thrive, especially in the face of economic uncertainties. By limiting their ability to carry forward losses, we are effectively stifling their potential to recover and grow. Reforming NOL provisions is not just about fairness; it's about creating a more robust and resilient economy. A fairer tax system would reduce the burden on entrepreneurs and businesses susceptible to economic fluctuations. It would encourage more start-ups to establish themselves here, leading to job creation and economic growth.

The Westmoreland County Chamber of Commerce, in partnership with the PA Chamber and other chambers across the state, has been actively lobbying the Governor and state legislators to address this critical issue. We believe that modernizing Pennsylvania's NOL policy is essential for supporting business growth and making our state more attractive to employers and entrepreneurs.

As budget negotiations continue, we urge our state leaders to prioritize this reform. It's a necessary step towards ensuring that Pennsylvania remains competitive in the national and global marketplace. By aligning our NOL provisions with those of the federal government and the majority of other states, we can provide a more supportive environment for our businesses, fostering innovation, resilience, and long-term economic prosperity.

Pennsylvania has the potential to be a leader in economic growth and business development, but we must first remove the barriers holding our businesses back. Reforming NOL provisions is a crucial step in this direction. Let's seize this opportunity to support our small businesses, attract new ventures, and build a stronger economic future for all Pennsylvanians.



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