Corporate Income Tax

Computation of Net Operating Loss Carryover

By Jermane Wright, senior attorney, DOR

Florida law (220.13(1)(b), F.S.) substantially follows federal net operating loss procedures, with certain important exceptions. One such limitation is that Florida subtractions may not create or increase a federal net operating loss (NOL), but may offset the amount of additions. Thus, taxpayers are allowed to carry over the net operating loss, for Florida purposes, up to the apportioned amount of the federal net operating loss for the current year.

The following example illustrates the computation of a Florida net operating loss and the computation of the Florida net operating loss carryover (with limitation).

The Florida Corporate Income Tax Code does not provide for the carryover of net operating losses resulting from a Florida subtraction. Therefore, taxpayers must limit the corporate income tax net operating loss carryover to the amount of the federal net operating loss (multiplied by the current year apportionment factor).

Jermane Wright, Esq., CPA, LL.M., is a senior attorney for the Florida Department of Revenue. His primary focus is corporate income tax.

The statements in this article do not reflect the official position or opinions of the Florida Department of Revenue.

ABC Corporation, Year 1
Federal net income (loss): ($1,400,000)
State income taxes deducted on 1120: $2,000
Total nonbusiness income: $150,000

ABC Corporation’s Florida net operating loss available for carryover is computed as follows:

Federal taxable income (Line 30) (1,400,000)
Adjustment -
Subtotal (1,400,000)

Additions and Subtractions:  
State tax add back 2,000
Federal NOL add back -
Nonbusiness income subtraction (150,000)
Net additions and subtractions (148,000)

Adjusted federal taxable income (1,548,000)
Apportionment Factor 0.900000
Florida net income (1,393,200)
   
Current year NOL (1,393,200)

A Florida addition or subtraction under s. 220.13(1), F.S., never creates an NOL or increases the amount of federal NOL. Thus, a taxpayer’s Florida NOL may not exceed the federal NOL multiplied by the apportionment factor. This means ABC Corporation’s Florida NOL carryover for Year 1 is limited to $1,260, 000 ($1,400,000 x .900000).

NOL carryover to Year 2: (1,260,000)
   
ABC Corporation, Year 2  
Federal net income (loss): ($1,000,000)
State income taxes deducted on 1120: $2,000
Total nonbusiness income: $450,000
Federal NOL deduction: $650,000

ABC Corporation’s Florida net operating loss available for carryover is computed as follows:

Federal taxable income (Line 30) (1,000,000)
Adjustment -
Subtotal (1,000,000)
   
Additions and Subtractions:  
State tax add back 2,000
Federal NOL add back 650,000
Nonbusiness income subtraction (450,000)
Net additions and subtractions 202,000
   
Adjusted federal taxable income (798,000)
Apportionment Factor 0.700000
Florida net income (558,600)
   
Current year NOL (558,600)

ABC Corporation has a Florida NOL carryover of $1,818,600. The Florida rule against a subtraction increasing a federal loss is not relevant in this year because the Florida NOL ($558,600) does not exceed the Federal NOL multiplied by the apportionment factor ($1,000,000 x .700000 = $700,000).

NOL carryover from Year 1: (1,260,000)
Current year NOL: (558,600)
NOL carryover to Year 3: (1,818,600)