A coalition of more than 70 chambers of commerce statewide recently sent a letter to Gov. Josh Shapiro and General Assembly members, asking them to improve Pennsylvania’s tax treatment of Net Operating Losses (NOLs).
NOL deductions allow businesses to offset tax liabilities with losses from a previous year. The federal cap is 80 percent of losses while 24 states have no cap. Pennsylvania caps at 40 percent, one of only two states below the federal cap, which means entrepreneurs pay a higher effective tax rate than if they had started their business in another state.
“Pennsylvania’s uniquely harsh business tax and regulatory climate is stifling economic growth,” the letter said. “Recently, Pennsylvania was identified as the fourth worst state in the entire country in which to find a job. Additionally, three separate analyses found Pennsylvania among the bottom third of states nationwide for key economic indicators. Perhaps most strikingly, the Kauffman Foundation found that Pennsylvania has the lowest rate of new entrepreneurs out of all 50 states.”
Shapiro and House and Senate leaders have acknowledged the need for net operating loss reform. Doing so would attract more employers, reduce hurdles to entrepreneurship and business growth, and promote tax fairness by reducing additional tax burdens on entrepreneurial risk, cyclical businesses, or those more susceptible to economic downturns, the letter said.
“We appreciate the many proposals that policymakers and advocates have put forth to spur Pennsylvania’s economy and urge lawmakers to focus on competitiveness,” the letter said. “We urge you to prioritize correcting Pennsylvania’s treatment of start-up businesses so the commonwealth can compete on an equal playing field to attract entrepreneurs, new employers, and the jobs, economic development, and prosperity they bring to communities.”