On November 20, 2024, the Pennsylvania Supreme Court concluded that its decision to invalidate a limitation (or “cap”) on net operating loss (NOL) carryforwards should be applied prospectively only.

The issue of whether to provide retroactive relief to taxpayers injured by the NOL cap arose based on two of its prior decisions:

• In Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, 171 A.3d 682 (Pa. 2017), the Court struck down the NOL cap as violating the Uniformity Clause of the Pennsylvania Constitution.
• In General Motors Corp. v. Commonwealth, 265 A.3d 353 (Pa. 2021), the Court had held that Nextel applied retroactively. That decision is now reversed.

The Court applied the three-factor Chevron test developed by the United States Supreme Court, see Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). Under the Chevron test, when considering whether to apply a decision retroactively, courts must consider: (1) whether the decision in question established a new principle of law; (2) whether retroactive application of the decision would forward the operation of the decision; and (3) whether the relevant equities favor prospective application. Because the Court found that each of the three factors supported the prospective-only application of Nextel, the Court determined that the General Motors Court erred in applying Nextel retrospectively.

Alcatel-Lucent USA Inc. v. Commonwealth of Pennsylvania, No. 8 MAP 2023.