In detail

Possible early sunset of NOL suspension 

S.B. 167 when enacted suspends net operating loss deductions for tax years beginning on or after January 1, 2024 and before January 1, 2027 for taxpayers with net business income or modified adjusted gross income of at least $1 million for the tax year.  

S.B. 175 provides for a potential early sunset of the NOL suspension period in either the 2025 or 2026 tax year if the Director of Finance and the Legislature agree that General Fund money over the multiyear forecast is sufficient without the revenue impact of the NOL suspension and credit limitation provisions of S.B. 167.  

Observation: Under the legislation, it is possible that the NOL suspension could be lifted for the 2025 tax year and then reinstated for the 2026 tax year, depending on state revenues.  

Election for refundable credit 

S.B. 175 also allows taxpayers to make an irrevocable election on an original timely filed return for each tax year beginning on or after January 1, 2024, and before January 1, 2027. The election provides taxpayers with an annual credit during the refundable period equal to 20% of the credit that otherwise would have been available to reduce net tax in the tax year of the election but for the limitations established by S.B. 167.  

The “refundable period” is the first five consecutive tax years beginning the third tax year after the tax year for which the taxpayer makes the election. In each tax year of the refundable period, the annual refundable credit amount will be allowed as a credit against the tax computed for the tax year, and the excess, if any, will be credited against any other amounts due. Any remaining balance then will be paid to the taxpayer. 

Observation: As an example, an election made for the 2024 tax year would provide a refundable credit equal to the amount of credits that could have been taken in that tax year but for the limitation under S.B. 167. The credit would be 20% of that limitation amount for each of the five years beginning three years after the election, i.e., 20% for each year from 2027 through 2031.  For 2025 limited credits, the refund period for electing taxpayers would be 2028 through 2032, and for 2026 limited credits, the refund period would be 2029 through 2033.  

The legislation provides that “no portion of the annual refundable credit amount can be assigned to another taxpayer.” 

Observation: While it is described as a “refundable” credit, the 20% annual credit is only refunded to taxpayers to the extent that the unused annual credit and other credits and/or NOLs exceed the amount of tax due for that tax year.  

Please note: S.B. 175 also amends provisions from S.B. 167 related to the utilization of motion picture credits.