Should NH postpone business tax rate increases?
Last year’s state budget compromise included a “trigger” for business tax rates to increase or decrease, depending on how much money the state pulls in. Now business tax revenue is plummeting during the coronavirus pandemic, and businesses are lobbying for tax relief.
On Thursday, April 23 Gov. Sununu said he will ask the Legislature to keep business tax rates at the lower level when this fiscal year ends.
Business tax rate triggers
In September 2019 Gov. Sununu and legislators agreed to the following business tax rates:
If total 2020 revenue stays near expectations, the Business Profits Tax (BPT) will stay at 7.7% and the Business Enterprise Tax (BET) will stay at 0.6%.
If total 2020 revenue falls 6% or more below expectations, the BPT will increase to 7.9% and the BET will increase to 0.675%.
The budget compromise included further business tax rate cuts if revenue exceeds expectations, but that scenario is virtually impossible at this point.
Current business tax revenue outlook
According to the New Hampshire Fiscal Policy Institute, revenue from the BPT and BET was 15% below expectations in March.
The governor did not start closing schools and businesses until mid-March, so April business tax revenue will probably take an even bigger hit.
At this point it looks very likely that revenue will be low enough to trigger a tax rate increase at the end of the state fiscal year, June 30.
Businesses desperate for relief
On April 22 a legislative advisory committee heard testimony from business leaders about the economic impact of the coronavirus pandemic. That committee is part of the Governor’s Office for Emergency Relief and Recovery (GOFERR), tasked with spending $1.25 from the federal government in coronavirus aid.
Businesses had almost no good news. Restaurants have switched to take-out only, but they are still bleeding cash. Hotels are forbidden from accepting tourists at this point, and with the summer and fall season in limbo, they’re expecting to lose millions. Retail sales (besides groceries and pharmacies) have fallen 60% to 100%, according to the New Hampshire Retail Association.
Policymakers are debating low-cost loans, grants, property tax relief, chipping in for testing and protective equipment, and more ways to help businesses.
Jim Roche, President of the Business & Industry Association, has asked lawmakers for a break on business taxes. On April 17 he wrote, “To enact BPT and BET tax increases at this time ... would be extremely insensitive to the struggles of employers of all sizes and will adversely impact their ability to rehire employees at the very time rehiring is desperately needed.”
Americans for Prosperity-New Hampshire, a conservative advocacy group, is similarly launching a digital ad campaign to stop business tax increases during the pandemic.
Higher business taxes may be necessary
New Hampshire government is also facing a grim budget shortfall. Meals and rooms tax, sports betting and keno, gas tax, and toll revenue is all plummeting during the coronavirus pandemic.
The federal government has provided some funding to the state to help address the coronavirus crisis, but Gov. Sununu says that money cannot be used to cover a general budget shortfall.
Realistically, an increase in business tax rates may be necessary to keep the state government afloat. Business tax revenue accounts for close to a third of all general and education funding in New Hampshire.
New Hampshire businesses are also familiar with higher tax rates. The 7.7% BPT and 0.6% BET only kicked in last year; prior to that the rates were 7.9% and 0.675%. In earlier years the rates were even higher, over 8% for the BPT.
New Hampshire’s tax future
Gov. Sununu said he will ask the legislature to stop business tax increases at the end of the fiscal year. For a host of reasons, there’s a good chance legislators will reject this idea in favor of other business relief programs. Last year Democrats battled to freeze business tax cuts. Plummeting tax revenue is blowing a hole in the current state budget. The federal government is limiting how much of their aid can go to regular state government operations. Last but not least, the 400-member House has not been able to meet since the beginning of the coronavirus emergency.
With or without a triggered business tax rate increase, New Hampshire legislators may have to look to other tax increases to avoid extreme budget cuts. The New Hampshire Fiscal Policy Institute identified the interest and dividends tax, the gas tax, the tobacco tax, an inheritance tax, fines and fees, and a sales tax on luxury goods as possible revenue sources.
Increasing the gas tax, tobacco tax, fines and fees would hit low income residents the hardest.