‘Carryback’ Legislation Would Help Struggling Retailers Survive Holiday Season

Some retailers could be forced to lay off workers or close stores unless Congress moves quickly to pass “net operating loss carryback” tax legislation that would give them the cash they need to buy inventory for this year’s holiday season.

“Because retail sales have fallen so dramatically over the past year and access to capital has been so limited, retailers are struggling to find the cash they need to operate their businesses as the economy moves toward recovery,” NRF Vice President and Tax Counsel Rachelle Bernstein said. “If struggling retailers cannot finance inventories for the 2009 holiday season – their greatest opportunity for revenue for the year – they could go out of business. Extension of the NOL carryback period would provide an important source of capital to finance ongoing operations and retain employees. If NOL carryback is not enacted soon, tens of thousands of additional retail jobs will be lost.”

Congress needs to pass H.R. 2452, the Net Operating Loss Carryback Act, sponsored by Representative Richard Neal, D-Mass., chairman of the House Ways and Means Committee’s Select Revenue Subcommittee. Under the legislation, businesses suffering losses during 2008 or 2009 would be able to “carry back” those losses to offset profits from up to five years ago. The companies would then receive tax refund checks that would provide an infusion of cash to help keep doors open and workers on the payroll. Losses can already be carried back for up to two years, but in the current economic climate some companies have seen low profitability for several years.

The five-year carryback period was included in the $787 billion economic stimulus bill signed into law by President Obama in February, but was limited to companies with up to $15 million in annual gross receipts and applied only to losses suffered during 2008. Obama’s budget proposal for Fiscal Year 2010 would allow the five-year period to apply to companies of any size and to losses from either 2008 or 2009, as provided under the Neal legislation.

Most companies are not on the brink of survival, but some could face additional downsizing without sufficient operating capital. For others, extension of NOL carryback would allow them to make improvements to their stores and other new investments that would create badly need jobs, Bernstein said.

In addition to being carried backward, tax law allows net operating losses to be carried forward and applied against future profits for up to 20 years. That means the proposed five-year carryback period is “merely an advance on a tax refund that would be due to them in the future” but would come in time to make a difference in whether a company survives.