Tax Deduction Suspension a Bust for Business

In June 2020, Governor Gavin Newsom signed budget trailer bill AB 85 into law—codifying a complete suspension of net operating loss (NOL) tax deductions for three years.

Tom Sheehy, Principal and Founder of Sheehy Strategy Group, notes that NOL is an important provision that encourages investment in expanding business operations, hiring employees, and acquiring new facilities. He says a business that is willing to “take a loss in the short run” can later use the incurred losses to offset new income and receive tax benefits.

Sheehy says the NOL law was intended to save the state general fund $4.5 billion. However, the Legislative Analyst’s Office and the Department of Finance have reported there will be a $15 billion budget surplus, rendering the NOL freeze completely unnecessary.

Many companies that planned to use NOLs to regain some of their investment costs and create more cash flow for their operations now have their hands tied. And for what?

This suspension should be reversed.

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