As we reported in prior posts, the Louisiana Legislature passed several revenue raising bills this year in an attempt to address an apparent $1.6 billion budget hole for the 2016 fiscal year. One of those new bills, HB 624 (now Act 123), provides a 28% reduction to certain corporate income tax exclusions and deductions, including the net operating losses (NOL) deduction.
With regard to the NOL deduction, HB 624 simply added four words to the applicable statute in La. R.S. 47:287.86, as follows:
One question that lingered, however, following the passage of HB 624 was exactly how the Louisiana Department of Revenue planned to interpret and apply this 28% reduction to a taxpayer’s NOL deduction. In its communications to interested tax practitioners and members of the business community, the Department appeared to be waffling.
At one point, the Department seemed to properly interpret HB 624 so as to disallow a taxpayer’s ability to apply 28% of its total available NOL carryforward amount in a particular tax year. Thus, under this interpretation, there would still be a possibility that a taxpayer’s NOLs could fully offset all the taxpayer’s gains for the year if, after the 28% “haircut,” the taxpayer still had enough NOLs from which to draw.
However, the Department also alluded at one point that it might interpret HB 624 to mean that a taxpayer’s NOL deduction in a particular tax year would be limited to 72% of the taxpayer’s Louisiana net income. Such an interpretation by the Department would seem to guarantee that at least 28% of a taxpayer’s net income would be subject to Louisiana income tax (and would thereby result in revenue to the State), but for some other available deduction, credit, or exemption.
Well… the Department has now provided its opinion. And it looks like the incorrect one.
The Department has now published on its website a new worksheet, Form R-620GIW (7/15), which is to be used by taxpayers to calculate the 28% reductions required by HB 624.
The “magic” appears to be in the mechanics of that form. At the very bottom of the worksheet, the line (and related instructions) regarding NOLs seems to require that the taxpayer limit its NOL deduction to 72% of the Louisiana net income on the taxpayer’s CIFT return (Line 1A of Form CIFT-620), rather than 72% of the total available NOL carryforward amount. Specifically, the worksheet provides:
This clearly presents a problem for companies as to how they report those NOLs within the confines of the Department’s published form. We recommend taxpayers consult their tax practitioners for advice on how to address this particular issue.