As a result, if no provisions were made for considering neighboring years in determining taxes, corporations would have incentives to arrange incomes and costs to push incomes into loss years and costs into profit years. For example, a firm experiencing current losses and expecting profits next year may be tempted to delay making payments near the end of the year into the next year. This could cost expensive resources and distort the true picture of a corporation's performance. Since states do not have the ability to run deficits the way the federal government does, many states have limited this provision, particularly in the backward direction. For the states the problem is more acute in the backward direction, since a large loss carryback may require the refunding of three years' taxes all in one year, whereas a carryforward would spread the cost of a current loss to the state over several future years.
Most states allow a fifteen year carryforward, which is what Utah allows.
Although we do not have supporting data, we find it difficult to believe a 15 year carryback is worth much more than 8 or 10 years for most corporations. Put differently, we find it difficult to believe there are many corporations for which one year's loss would amount to 15 years' profit. An obvious exception would be a corporation in start-up mode, which has a long gestation period, such as, perhaps, a utility or a sophisticated pharmaceutical. Column 2, tax share, reports the ratio of corporate taxes to all taxes collected, as reported to the Census Bureau. We have used 1997 data since that is the most recent available for all states.