NJPP’s newest report calls for permanent reform to net operating loss deductions

TRENTON — New Jersey Policy Perspective (NJPP) today released Lossmaxxing: It’s Time to Crack Down on Business Loss Deductions, showing that New Jersey’s net operating loss (NOL) deduction cost the state roughly $1.2 billion in lost corporate tax revenue in 2023 — with nearly all of that flowing to fewer than 1,000 large corporations, most of which paid $0 in corporate taxes.

“This is a $1.2 billion problem concentrated almost entirely at the top,” said Peter Chen, NJPP senior policy analyst and the report’s author. “We‘re not talking about small businesses smoothing out a rough year. We‘re talking about large, sophisticated corporations using paper losses to pay little to nothing in state taxes — while New Jersey faces a billion-dollar budget shortfall and real cuts on the table for health care, transit, and education.”

Governor Sherrill’s FY2027 budget proposes a temporary cap on NOL deductions at $1 million, which Treasury estimates would recover $485 million. NJPP supports the proposal and calls for permanent reforms to prevent corporations from gaming the deduction long-term:

• Reduce the carryforward period from 20 years to a shorter window.

• Lower the annual deduction cap from 80 percent to 40 percent of taxable income.

• Raise the minimum tax floor for large corporations that report $0 in profits.

“The governor’s cap is a good start, but it only delays the problem,” said Chen. “New Jersey needs permanent reforms that close the gap between what corporations report to shareholders and what they report to the state.”

The full report is available at njpp.org.

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About NJPP:
New Jersey Policy Perspective (NJPP) is a nonpartisan think tank that drives policy change to advance economic, social, and racial justice through evidence-based research, strategic communications, and authentic partnerships.