Refund Saves Jobs

According to the National Retail Federation (NRF), the $10 billion business tax refund in the recent unemployment bill will help save retail jobs. The legislation will bring recession plagued retailers and other businesses more than $10 billion in badly needed cash by lengthening the period during which they can “carry back” current losses, to claim a tax refund from previous years when they made a profit. “This legislation will provide retailers with an important source of capital to finance their operations and keep employees on the payroll,” said NRF VP and tax counsel, Rachelle Bernstein. “Because retail sales have fallen so dramatically over the past year and access to capital has been so limited, retailers are experiencing severe challenges in finding the cash they need to operate their businesses, as the economy moves toward recovery.”

“The congressional vote comes at a crucial time, because most retailers see between a quarter and half of their annual sales during the final quarter of the year, as consumers buy gifts for the holidays,” Bernstein pointed out. “If retailers can’t find a way to finance inventories for the 2009 holiday season, many could be forced to close stores, lay off workers or even go out of business. This will help keep that from happening.” The bill extends unemployment insurance benefits, but also includes a provision added in the Senate that will expand businesses’ ability to “carry back” net operating losses suffered during the current recession, in order to claim a refund from taxes paid in previous years.

Existing law allows companies to carry back a loss for up to two years. Economic stimulus legislation enacted in February expanded the period to five years for companies with up to $15 million in annual gross receipts, but larger businesses were still restricted to two years. The provision included in the unemployment bill will expand the five year period to include all businesses that suffer a loss, regardless of size, and gives companies the choice of using the carryback for losses from either 2008 or 2009, rather than just 2008, as provided in the stimulus bill.

In the fifth year, the carryback will be limited to 50 percent of a company’s taxable income for that year, but any loss not utilized can be carried forward. Small companies that took a five year carryback under the stimulus bill will be able to carry back 2009 losses as well. The proposal is estimated to provide $10.4 billion in tax relief over 10 years.