Removes the consideration of weighted apportionment factors under the business profits tax from inclusion in the tax expenditure report and includes the regional career and technical education center tax credit. The House amended the bill to also delay the enactment of the single sales factor for determining apportionment under the business profits tax and the business enterprise tax and amend the legislative committee on apportionment.
As many already know, New Hampshire does not have a broad-based sales, earned income, or capital gains tax. As a result, taxes on business activity in the state make up the largest portion of the revenue “pie”: an estimated 25% in 2019. In fact, business taxes in New Hampshire count for a bigger portion of revenue than in any other state in the U.S. Even the Granite State’s property taxes count for a smaller percentage of revenue, at 15%. This makes business tax policy a particularly contentious area of debate in New Hampshire.
Types of taxes
Business activity in the state is taxed in two major ways: the business profits tax (BPT) and the business enterprise tax (BET).
Business profits tax
New Hampshire’s business profits tax (BPT) is a flat-rate tax on a business’s taxable income (taxable income being determined essentially by federal income tax rules, with a few adjustments). Currently, the BPT is set at a flat rate of 7.7% through 2020. A series of triggers will determine whether it stays the same, increases or decreases in 2021. If 2020 business tax revenues exceed projections by 6% or more, the business profits tax rate will decrease to 7.5%. If revenues are 6% or more lower than projections, the rate will go up to 7.9%.
The BPT applies to all business structures in New Hampshire, from corporations to LLCs or partnerships. Businesses with less than $50,000 in gross income (income before any deductions are taken) are not required to file a BPT return.
Business enterprise tax
The business enterprise tax (BET) was instituted in 1993 in response to revenue reports showing that only a small percentage of businesses operating in New Hampshire were paying BPT. BPT revenues also varied greatly from year to year, presenting a challenge to budget writers.
The BET is a more unusual form of business taxation which is levied not on profits, but on a business’s “taxable enterprise value base”, and is unique in the United States. This enterprise value is the sum of three factors: compensation paid to employees, owners, and directors; interest expenses; and dividends paid out. This means that a business can owe BET even if it doesn’t show any net accounting profits. BET obligations also tend to show less variation from year to year.
Currently, the BET rate in New Hampshire is set at 0.6% of enterprise value. Just like the profits tax, a series of triggers will determine whether it stays the same, increases or decreases in 2021. If 2020 business tax revenues exceed projections by 6% or more, the BET rate will decrease to 0.5%. If revenues are 6% or more lower than projections, the rate will go up to .067%.
Like the BPT, all businesses in New Hampshire are obligated to pay the BET unless they received less than $200,000 in gross receipts or have an enterprise tax value base of less than $100,000.
Relationship between BPT and BET
If a business owes both BPT and BET, only the higher of the two taxes must be paid. For example, if you owe $10,000 in BPT and $14,000 in BET, only $14,000 is paid. Additionally, in cases like this where your BET obligation is higher than your BPT, you can credit the difference against future BPT obligations. So in our example, you’d be able to carry forward that $4,000 payment against future BPT liabilities for up to five years.
Comparisons with other states
The Tax Foundation publishes a yearly “State Business Tax Climate Index” which attempts to make a more comprehensive analysis of respective state business tax environments. For 2019, the group rated New Hampshire 6th overall. Yet a breakdown of the factors used to make the ranking saw the state listed 45th for corporate taxes, this lower statistic being offset by high rankings for the absence of a sales or personal income tax.
The Small Business Enterprise Council, on the other hand, listed New Hampshire 32th in the nation in its 2017 “Small Business Tax Index”, which used 23 measures to create a broader picture of a state’s overall business tax climate.
Areas of contention
Tax rate reductions
In recent years, there have been calls to reduce New Hampshire’s BET and BPT rates. This proved a particular area of contention during recent debates over the state budget.
Who is paying business taxes?
Some critics of tax rate reductions contend that only a small portion of businesses operating in New Hampshire actually pay business taxes. Reports from the New Hampshire Department of Revenue Administration (NHDRA) do, to some extent, reinforce this assertion. In 2017, 81% of businesses registered in the state paid no BET or BPT. More strikingly, the top 2.9% of those businesses that did pay tax contributed roughly 70% of total BET and BPT revenue.
Of course, many registered businesses may be small operations which constitute a less significant portion of the state’s economy. In fact, 51% of registered businesses didn’t even file BPT returns, meaning that their gross receipts totaled less than $50,000.
‘Phantom Gains Tax’ debate
A particularly contentious area of New Hampshire business tax policy related to a provision of the BPT that applied in certain situations: for instance, when someone sells their interest in a partnership at a profit.
For federal purposes, the tax on that profit is levied at the personal, not the business, level with the individual who made the sale paying a capital gains tax on their earnings.
New Hampshire doesn’t have a capital gains tax, so if the partner making the profit lives in the Granite State, he or she won’t have to pay any personal state-level tax on the money they made in the transaction.
Things used to get tricky when the partner who made the purchase opted to have their new interest in the partnership “stepped up” for federal tax purposes, reflecting the price they paid for their share of assets. That’s a common enough move, as taking the “step up” allows the purchaser to take full advantage of potential federal deductions.
But in New Hampshire, this had a fiscal side effect. The “step up” adds value to the company, and the state therefore levied its business profits tax against the increase. This effectively saddled the remaining partners in the company—who did not profit from the transaction—with a sometimes significant tax obligation.
In 2016, the Legislature addressed criticisms of this policy by amending the state tax code to make the “step up” optional for businesses; that is, a company may opt to maintain its lower asset basis for New Hampshire tax purposes, eliminating the need to pay business profits tax on the “phantom” income. Companies may still opt to report the “step up” and pay tax if they choose.
Research and development tax credit
As an alternative—or in addition to—lowering rates on business taxes, some lawmakers and industry advocates have called for New Hampshire to raise the cap on its research and development tax credit.
This credit can be applied to up to 10% of a business’s qualifying manufacturing research and development expenses, with a maximum of $50,000. It is applied first against the business’s BPT obligation, and then BET obligation if there is any credit still remaining. Businesses must apply for the credit by submitting an application to the Department of Revenue by June 30th of the year following that in which the expense was incurred. Any unused credit may be carried forward for up to five years.
Currently, funding for the credit is derived from business tax revenue, and is capped at $7 million per year. In recent years, demand has far exceeded the cap, leading the Department of Revenue to divide the available credit between businesses with qualifying applications. In 2015, businesses received, on average, only 29.75% of the credit they might have been approved for had the cap been raised or lifted.
This has lead some to argue that the cap on the credit should be raised higher, or to push for eliminating the cap entirely.
Limitation on net operating loss carryforwards
When a business finishes a year with a net operating loss (NOL), federal tax policy will allow it to “carry forward” the loss against future tax obligations for up to twenty years. New Hampshire law similarly allows businesses to “carry forward” an NOL, but for only ten years, and with a cap of $10 million.
Proponents of raising the cap or extending the period over which it can be applied argue that it would bring New Hampshire more into line with policy in the majority of other states, thirty of which offer a twenty year carry forward period, with only five imposing a cap. They argue this would make us more competitive in attracting businesses.
Others call for lowering the cap or reducing the carryforward period as a means of increasing revenue.
In June 2009 the Legislature passed a short-lived tax on LLC owners. LLC owners became subject to the state's 5% interest and dividends tax. The tax was repealed in June 2010 following a public uproar.
PROS & CONS
“New Hampshire should lower business tax rates.”
- Lower tax rates help existing businesses remain profitable, encouraging them to stay or expand operations in New Hampshire, which will ultimately create more revenue.
- New Hampshire already has high costs for business expenses such as electricity, health insurance, and unemployment insurance, which makes lower business taxes a crucial factor in attracting and keeping companies here.
- Tax cuts have stimulated economic growth in other states, reducing unemployment and increasing wages.
- New Hampshire’s corporate tax burden is ranked 45th in the nation, and must be changed for the Granite State to continue to attract and retain new business.
- New Hampshire ranks low for business startup activity; lowering the corporate tax burden would help attract more new businesses to the state.
“New Hampshire should not lower business tax rates.”
- A more comprehensive view of the overall business tax climate in New Hampshire that includes rates for taxes such as property, unemployment, personal income and sales, sees the state ranked much more favorably: 6th nationally according to the Tax Foundation and 13th by the Council on State Taxation.
- Taxes are not solely a burden on business; they are also the means of funding for public services that enable economic activity or reduce the overall cost of doing business.
- New Hampshire would do more to attract new business by addressing our relatively high energy and labor costs and improving our infrastructure.
- Reducing corporate income tax rates without cutting spending accordingly has led to fiscal challenges, including budget shortfalls and lower bond ratings.
- Because New Hampshire relies more heavily on business tax revenue than other states, cuts have a more significant impact on revenue here than they might elsewhere.
Changes the water's edge method of taxation for unitary business groups under the business profits tax to worldwide combined reporting for taxable periods starting in 2022. A unitary business group under worldwide combined reporting, unlike a water's edge combined group, includes foreign incorporated business organizations and entities referred to as 80/20 companies where 80% or more of the average of their payroll and property is located outside the United States. Such an overseas business organization is subject to the business profits tax under the water's edge method as a separate entity provided that the business organization by itself is engaged in business activity in NH.
Establishes a deduction from gross business profits under the business profits tax for income invested in an Opportunity Zone located in New Hampshire as established under federal the Tax Cuts and Jobs Act.
Requires the Commissioner of Business and Economic Affairs to certify each application for an economic revitalization zone tax credit, modifies the calculation of the credits, and extends the prospective repeal of the those credits from July 1, 2020 to January 1, 2028. This bill also requires the Department of Business and Economic Affairs to certify the agreements that employers participating in the New Hampshire college graduate retention incentive partnership (NH GRIP) offer to employees.
Establishes a tax credit against the Business Enterprise Tax or Business Profits Tax for the NH Graduate Retention Incentive Partnership (NH GRIP) Program.
Postpones scheduled decreases in the business profits tax and business enterprise tax to 2021.
Clarifies when the business profits tax applies to sales of a business organization with activity in other states. According to analysis from the Department of Revenue Administration, "This bill amends the Business Profits Tax method for assigning service-based revenue and income from the use of intangibles to New Hampshire from a cost-of-performance to market-based sourcing method." Ideally this bill is going to increase how much out-of-state businesses pay for sales they make in New Hampshire. This bill also reestablishes the commission to study apportionment under the business profits tax.
Increases the threshold to file a Busines Profits Tax return from $50,000 to $100,000. The Senate amended the bill to raise the threshold to just $75,000.
Establishes a credit against the business profits tax for donations to regional career and technical education centers programs.
Keeps the Business Profits Tax rate at 7.9% and the Business Enterprise Tax rate at 0.675% and stops future planned decreases in those tax rates. This bill sends the extra revenue to towns and cities.
Exempts some income, distributions and transfers of ownership of publicly offered real estate investment trusts from the interest and dividends tax, the real estate transfer tax, the business enterprise tax and business profits taxes. The Senate amended the bill to instead establish a commission to study the incentivization of publicly-offered real estate investment trusts in New Hampshire.
Establishes an exemption from business taxes for media production companies producing film, video, television, or digital media in New Hampshire.
Increases the filing threshold and income exemption for the Interest and Dividends Tax from $2,400 to $3,500. The bill also decreases the research and development tax credit against business taxes from $7 million to $2 million.
Gives the fiscal committee the opportunity, four times a year, to use the Revenue Stabilization Reserve Account (commonly known as the Rainy Day Fund) to provide funding for the general fund of all tax revenue and the education trust fund, if combined revenue in both funds is below 95% of expectations. At the time of this bill's submission, the Rainy Day Fund may only be used for a general fund deficit at the close of each two-year budget. This bill also allows the fiscal committee to raise business taxes if the rainy day fund has a projected zero balance within six months.
Increases the business profits tax rate from 7.7 percent to 8.5 percent and reduces the business enterprise tax rate from 0.6 percent to 0.5 percent. The bill also repeals planned future decreases in the business profits and business enterprise taxes. The House amended the bill to freeze the business profits and business enterprise tax rates at the levels paid for tax year 2018, 7.9% and 0.675% respectively.
Ends the Interest and Dividends Tax credit for scholarship donations, and then repeals the entire education tax credit scholarship program in 2020.
Establishes a commission to study financial incentives for professional media production activity in New Hampshire.
Establishes an aggregate annual tax credit of $10 million for 50% of the payments made by a business to an employee for paid maternity or paternity leave.
Moves scheduled business tax reductions up six months, from July to January of 2019 and 2021.
Adds a requirement that the business tax rate reductions adopted in 2017 shall not take effect if state revenue for the fiscal year ending June 30, 2018 does not exceed the change in the Consumer Price Index for the period, plus one percent.
Establishes an early childhood development tax credit against business taxes for contributions to construction or renovation of child day care agencies, through the Community Development Finance Authority.
Establishes a committee to study business tax credits for companies that pay a liveable wage and provide adequate benefits to their employees.
Increases exemption amounts under the interest and dividends tax and decreases the annual total amount of the research and development tax credit.
Establishes a business tax credit for donations made to the Community Development Finance Authority for recovery friendly workplace initiatives. According to the bill, "'recovery friendly workplace initiatives' means evidence-based practices that reduce substance misuse in the workplace and create a work environment that is conducive to enabling persons in addiction and mental health recovery to sustain and re-enter the workforce as productive members of society."
Removes the cap on the Research and Development tax credit. The Senate amended the bill to instead require applicants for the Research and Development tax credit to fill out a survey. The House and Senate failed to agree on a final version of the bill.
Establishes a ten-year exemption from business taxes for regenerative manufacturing companies, which create tissue for medical purposes. This bill also establishes the Regenerative Manufacturing Workforce Development Program and State Regenerative Manufacturing Workforce Development Fund, including student loan repayment for graduates that work in regenerative manufacturing.
Increases the minimum gross business income threshold for filing the Business Profits Tax (BPT) return from $50,000 to $75,000.
Requires that business profits tax taxpayer records obtained by the Revenue Administration for an audit or in judicial proceedings shall be confidential and not disclosed.
Increases the annual allowable contributions to the Community Development Finance Authority that may be used as a tax credit, from $5 million to $6 million.
Establishes a credit against business profits taxes for media production expenditures made in New Hampshire.
Gradually reduces the business profits tax, from 8.2% to 6%. This bill also gradually reduces the business enterprise tax from 0.72% to 0.4%.
Amends the business enterprise tax by stating that any business not required in any year to file a tax return on its gross business profits shall not be required to file a business enterprise tax (BET) return.
Reduces the Business Profits Tax (BPT) from 8.2% to 7.7% in 2018 and 7.5% in 2021.
Establishes a commission to study a carbon reduction investment program for New Hampshire, including how such a program could be used to reduce business taxes.
Reauthorizes the commission to study apportionment of gross business profits under RSA 77-A and the committee to study the process by which business names are authorized by the secretary of state.
Establishes the technology sector marketing tax credit, to be used against business taxes for businesses recruiting and employing skilled technology sector professionals. The tax credit is equal to 75% of the contribution made to the Community Development Finance Authority by an eligible business as determined by the New Hampshire High Tech Council, with the aggregate of tax credits awarded to not exceed $1 million in any given tax year.
Increases the research and development tax credit against the business profits tax for first-time recipients of the credit.
Reduces the Business Profits Tax (BPT) from 8.2% to 7.5% and the Business Enterprise Tax (BET) from 0.72% to 0.5% in 2020. Business tax cuts were instead incorporated in the budget bill for this year.
Establishes the small business jobs fund act and tax credit. The business tax credit is available to taxpayers that make a capital contribution to a small business jobs fund, which is in turn used for small business investments.
Makes changes to the process for economic revitalization zone tax credits. The bill also increases the aggregate total limit of the credit from $825,000 to $1.5 million per calendar year.
Establishes a tax credit for donations to career and technical education centers that can be applied against the business profits tax, with an aggregate allowable amount not to exceed $500,000 per fiscal year.
Allows a taxpayer to request a rebate equal to 75% of the research and development tax credit in lieu of a credit being awarded against business profits taxes. The bill appropriates $2 million over the next two fiscal years for rebates.
Reduces the business profits tax rate from 8.2% to 4%; repeals the business enterprise tax, statewide property tax, utility property tax, and interest and dividends tax; establishes an income tax of 3.95%; and requires the state pay 35% of contributions of retirement system employers to some members beginning in fiscal year 2021.
Removes the New Hampshire limitation of $100,000 for the Internal Revenue Code Section 179 deduction under the business profits tax. The removal of this limitation will allow taxpayers to use the current Internal Revenue Code Section 179 deduction of $500,000.
Provides an exemption from the business profits tax and the business enterprise tax for some manufacturing businesses that start up or relocate to Coos, Grafton, Carroll, Sullivan, or Cheshire county.
Provides for a three year tax exemption from the business profits tax and business enterprise tax to any business organization which begins conducting new business activity in New Hampshire.
Modifies the business profits tax provisions affecting a business organization when owners sell or exchange ownership interests in the business.
Limits the inclusion in the business profits tax of the net increase due to certain sales or exchanges of an interest or beneficial interest in a business organization.
Creates a ten year exemption from the business profits tax for new businesses in New Hampshire.
Repeals certain provisions relative to burden of proof in determining the reasonable compensation deduction and advises the Department of Revenue Administration to use certain averages of compensation when determining reasonableness.
Establishes a commission to study apportionment of gross business profits under the business profits tax.
Updates the effective version of the United States Internal Revenue Code of 1986 applicable to the business profits tax, subject to certain adjustments. The bill also requires the Commissioner of Revenue Administration to report biennially on changes to the Internal Revenue Code.
Allows taxpayers to elect to receive a rebate of the Research and Development tax credit instead of applying the credit as an offset of tax liability. The rebate is 65 percent of the amount of the credit awarded.
Permits the sharing of information between the Department of Revenue Administration and the Liquor Commission’s Division of Enforcement for purposes of enforcement of the tobacco tax. The bill also specifies the formula for the biennial adjustment of the filing threshold for the business enterprise tax. This bill was requested by the Department of Revenue Administration.
Exempts proprietorships from the Business Enterprise Tax (BET).
Establishes a statewide tax credit against business enterprise taxes for new net jobs created.
Allows an employee leasing company and a client company to elect to make the client company solely responsible for paying business enterprise taxes concerning its leased employees and be eligible for credits against such taxes.
Applies the business enterprise tax to 501(c)(3) nonprofits with annual revenues - less contributions and grants - exceeding $10,000,000. This bill also lowers the rate of the business enterprise tax.
2016-2017 state budget bill (part 1). The budget cuts business taxes, restores the Rainy Day Fund, and increases funding for some social services. The budget does not reauthorize Medicaid expansion or include a pay raise negotiated with state employees.
2016-2017 state budget bill (part 2).
Reduces the rate of the business profits tax.
Updates the effective version of the United States Internal Revenue Code of 1986 applicable to the business profits tax, requires the Commissioner of Revenue Administration to report annually on changes to the Internal Revenue Code.
Increases the maximum expense deductions for the business profits tax from $25,000 to $100,000. The Senate amended the bill to instead update the effective version of the United States Internal Revenue Code of 1986 applicable to the business profits tax.
As introduced, this bill makes a variety of changes to the tobacco tax laws. The bill was amended to modify business taxes so that a company going public does not have to pay the 8.5% business profits tax on any increase in the company's value from the sale of shares.
Increases the research and development tax credit against the business profits tax
Allows taxpayers to elect to receive a rebate of the Research and Development tax credit instead of applying the credit as an offset of tax liability. The rebate is 65 percent of the amount of the credit awarded.
Exempts proprietorships from the Business Profits Tax (BPT).
Reduces the business profits tax by 0.2%.
Should NH lower business taxes?
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