On May 5, 2017, the New York State Department of Taxation and Finance (the “Department”) released its long-awaited draft regulations (the “Draft Regulations”) regarding the computation of the prior net operating loss conversion (“PNOLC”) subtraction. Initial comments to the Draft Regulations were due Aug. 3, 2017; however, the Department continues to review comments. This article analyzes and provides insights with regard to two issues created by both the statute and the Draft Regulations: (i) the interplay between the reduced New York State corporate income tax (“Tax”) rates available to qualified New York manufacturers and the PNOLC subtraction and (ii) the statute of limitations set forth in the Draft Regulations regarding the PNOLC subtraction pool.
How is the PNOLC Subtraction Calculated?
Prior to the passage of New York’s 2015 Tax reform, net operating losses (“NOLs”) were accumulated and applied on a pre-apportionment basis. Since, however, the new Tax regime went into effect for tax years beginning on or after Jan. 1, 2015, NOLs are now applied on a post-apportionment basis. The new Tax law allows taxpayers to monetize their pre-tax reform NOLs into a “post-apportioned” deduction—the PNOLC subtraction—which may be used over a number of years to reduce a taxpayer’s New York apportioned income.
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