Ms. Colin proceeded to discuss the Colorado Net Operating Loss (NOL) Deduction for C Corporations. The NOL deduction allows C corporations to carry forward their net operating loss to future tax years when computing taxable income. The federal NOL deduction now allows an indefinite carry forward of a net operating loss, replacing the earlier 20 year limitation. Since Colorado's deduction is tied to the federal deduction, this change likely applies in Colorado as well. Additionally, there had been no limitation on the amount of the loss that could be deducted, but federal tax law changes limit the deduction to 80 percent of taxable income.
OSA suggested that the state legislature may want to consider either retaining the indefinite federal carry forward or establishing its own carry forward limitation. OSA also suggested that the state legislature may want to consider whether the state NOL deduction is capped, as the 80 percent cap in federal law may now apply in Colorado depending on how the law is interpreted.