A one-word drafting error in the 2017 tax code overhaul has sent companies ranging from specialty retailer PetSmart Inc. to Nissan Motor Co. scrambling to Capitol Hill for relief.

As part of the effort to offset a dramatic reduction in the corporate tax rate in the 2017 law, Republicans limited the ability of firms to claim tax breaks on net operating losses, or when deductions exceed income.

Under prior law, companies could “carry back” net operating losses to offset taxes paid in the previous two years, generating refunds on those earlier tax bills. They could also “carry forward” such losses for up to 20 years, reducing future tax liability. The 2017 law eliminated carrybacks and imposed new limits on carryforwards, though the 20-year time frame was removed.

According to the Joint Committee on Taxation, the change was estimated to raise $201 billion over a decade, one of the largest revenue raisers affecting businesses. But there was, according to the law’s drafters, an unintentional mistake: The loss carryback elimination and other changes applied to firms’ tax years “ending” after Dec. 31, 2017, rather than “beginning” after that date.

That creates a particularly acute problem for the retail industry, where companies’ fiscal years often end on Jan. 31 rather than Dec. 31, so they have an extra month after the holidays to tally profits and losses.

Retailers are “the poster child of not being a calendar year industry,” said Rachelle Bernstein, vice president and tax counsel at the National Retail Federation. Her group and another representing big retailers, the Retail Industry Leaders Association, is lobbying for legislation that would fix the net operating loss flaw and give affected companies four months to apply for tax refunds.

As a result of the law’s wording mistake, companies whose tax year ended just after the end of calendar 2017 would be hit by the new net operating loss restrictions, meaning companies are penalized for actions taken before the law passed.

“Because of the way it was drafted, it became a retroactive tax increase. That was not their intention,” said Nicole Kaeding, an economist with the National Taxpayers Union Foundation. Senate Finance Committee Republicans pointed out in an August 2018 letter to Treasury Secretary Steven Mnuchin that their clear intent, as outlined in the conference report accompanying the 2017 bill, was to apply the provision to “taxable years beginning after December 31, 2017.”

The lead sponsors of the two net operating loss bills are Arizona Republicans David Schweikert in the House and Martha McSally in the Senate. Phoenix-based PetSmart, which sells pet food, furniture, supplies and services like dog grooming and boarding, is lobbying for the measures, according to records filed with the Senate.

In a statement, PetSmart said it has been urging Congress to ensure “companies are treated fairly regardless of what date they end their fiscal year. This drafting error has put PetSmart at a significant disadvantage which was clearly not the intent.”

PetSmart is “a local company for me,” said Schweikert, who represents northeast Phoenix.

McSally is one of the most vulnerable senators up for reelection this year, with her race ranked a Toss-up by Inside Elections with Nathan L. Gonzales. Aides to McSally didn’t respond to a request for comment.

It’s not just retailers who are affected. Nissan, the big Yokohama, Japan-based car manufacturer, is pushing for a fix because its fiscal year ends on March 31. “Congress did make a mistake; it was an honest mistake,” said Tracy Woodard, director of government affairs for Nissan North America.

Nissan’s U.S. headquarters are in Franklin, Tennessee, and the company has manufacturing facilities elsewhere in Tennessee as well as Mississippi. Tennessee GOP Sens. Lamar Alexander, who is retiring after this Congress, and Marsha Blackburn, as well as Mississippi Republican Cindy Hyde-Smith are co-sponsors of McSally’s bill, as is Arizona Democrat Kyrsten Sinema.

‘Charming’ lawmakers

Texas Republican Sens. John Cornyn and Ted Cruz are co-sponsors of the Senate version, and Texas Democrat Lizzie Fletcher is a lead sponsor of the House bill. Among their constituent interests supporting the fix: Houston-based jewelry and apparel chain Charming Charlie.

The company is emerging from its second bankruptcy in three years, and was forced to close hundreds of stores and liquidate assets last summer while waiting for lawmakers to act on the net operating loss correction, which never came.

According to its July 2019 bankruptcy court filing, Charming Charlie suffered, like many others, from “a challenging commercial environment brought on by increased competition and the shift away from shopping at brick-and-mortar stores.”

The company also blamed bad weather in early 2019, which reduced foot traffic in stores, as well as a decline in tax refunds from consumers adjusting to the new personal income tax rates and deductions in the 2017 law. Tariffs on goods sourced from China also played a role in Charming Charlie’s misfortune.

Fletcher, who knocked off longtime GOP Rep. John Culberson in the Houston suburbs in 2018, said Charming Charlie’s predicament was one reason she got involved with the legislation. “I’ve heard from a lot of small businesses and retailers in the district that this truly technical error is a huge impediment,” said Fletcher, who faces a potentially tough reelection battle this year.

Charlie Chanaratsopon, who founded his namesake company in 2004, didn’t respond to a request for comment.

Cornyn wouldn’t address the Charming Charlie connection, though he chuckled when the name was brought to his attention.

Still, he called it “completely reprehensible” to put businesses in this situation of seeking back refunds from the IRS for a perfectly avoidable situation. “People have a right to plan their affairs and their business based on the existing rules and then when Congress goes back on that retroactively, obviously it creates a lot of disruption, a lot of chaos and it’s just fundamentally unfair,” Cornyn said.

Double whammy

It’s been a tough go for retailers across the country in recent years as online behemoth Amazon chews up competitors and tariffs eat into profit margins.

CB Insights, a research firm, tallied up 81 industry bankruptcies since 2015. According to the Bureau of Labor Statistics, production and nonsupervisory employment in the retail trades, which rebounded strongly after the Great Recession, has plateaued since 2016 and is now lower than it was before the tax overhaul passed.

Compounding matters, retailers got hit with a double whammy of mistakes in the 2017 law. Republican authors meant to allow retailers and restaurants to write off the entire cost of property improvements the same year they occurred, but a drafting error saddled these companies with a requirement to depreciate these costs over 39 years.

While that flaw was a subject of furious year-end tax and spending negotiations, Senate Finance Chairman Charles E. Grassley of Iowa said Wednesday that other fixes were “equally important,” and an aide later said the net operating loss fix was among them.

House Democrats have sought something in return for passing technical corrections, which they view as a Republican problem since the 2017 law passed without a single Democratic vote. Republicans, including House Ways and Means ranking member Kevin Brady of Texas complain the technical corrections are being held “hostage” by Democratic demands to enhance refundable tax credits for low-income individuals and families who pay little to no income tax.

On Wednesday, House Ways and Means Chairman Richard E. Neal of Massachusetts said he planned to renew his push for legislation expanding earned income and child tax credits for the working poor, suggesting the effort was still tethered to GOP technical correction hopes.

Pennsylvania Democratic Rep. Brendan F. Boyle, a Ways and Means member and a co-sponsor of the House bill with Schweikert and Fletcher, said his support for the legislation wasn’t because of any particular company in his northeast Philadelphia district.

Boyle said he thinks it’s time for Democrats to stop pointing out all the Republican tax law errors and “do the responsible thing and fix it, which is in the best interests of the American people.”