Tom Sheehy Testifies in Support of Tax Deduction Reinstatement
On April 4, 2022, Tom Sheehy, Principal and Founder of Sheehy Strategy Group, testified before the California State Assembly’s Revenue and Taxation Committee in support of Assembly Bill 2065. Sheehy testified on behalf of SSG client Coronal Energy, LLC.
AB 2065, authored by Assembly Member Blanca Rubio, will help California’s businesses to recover from COVID by reinstating the net operating loss (NOL) tax deduction for the 2020 and 2021 tax years.
While a bill has already passed that reverses the NOL suspension for the 2022 tax year, Sheehy told the committee that the NOL deduction needs to be reinstated for prior years so businesses can recover needed capital for investments in their companies.
“A company may be more willing to make investments in machinery and in people, knowing they are going to lose money on the front end, with the understanding that they can carry those losses forward and [later] recoup some of [their investments].”
During the COVID-19 pandemic, California lawmakers suspended NOL deductions as a way to raise General Fund revenues out of budget concerns related to the recession.
According to the nonpartisan Legislative Analyst’s Office and the Department of Finance, instead of losing tax revenue over the past two fiscal years, California has seen unprecedented general fund surpluses totaling over $100 billion. Sheehy says this renders the NOL suspension “pointless.”
Explaining the importance of NOL to California’s businesses and economy, Sheehy testified: “A net operating loss… occurs when a business's expenses exceed its taxable income in a given period. [It] can then be carried forward to offset future taxable income… to reduce future tax liability. NOL helps smooth out the income and taxes paid over a business cycle. This allows businesses to make efficient decisions regarding financing and their investments.”
Without restoring the NOL deductions from the 2020 and 2021 tax years, California’s businesses will be unable to recover capital lost to the suspensions and this will impede investments in the California economy.
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