By GARRY RAYNO, InDepthNH.org
CONCORD – A look at the Department of Revenue Administration’s fiscal year 2020 first quarter report on business tax refunds is sobering.
Legislative and executive branch budget negotiators had to have been aware of the business tax refund trend when they lowered estimates for business tax receipts for the next two years as part of the recent budget settlement.
In the budget agreement, business tax receipts for the biennium were reduced by $44 million from the $896 million in revenue the business enterprise and business profits taxes were estimated to produce in the House and Senate passed budget Gov. Chris Sununu vetoed.
The DRA report on refunds for business taxpayers, which the Joint Legislative Fiscal Committee will review this week, shows the highest tax refunds to businesses in the last six fiscal years during the first quarter of the new biennium from July to September at $27.52 million dollars.
The report from DRA Commissioner Lindsey Stepp shows $22.75 million in outstanding refund requests at the beginning of the quarter, with an additional $22.1 million in requests from 1,200 businesses during the three-month period.
While the department paid $27.52 million to 963 businesses in the quarter, the department begins the second quarter with $17.2 million in outstanding refunds from businesses.
That is not good news as history shows over the past six fiscal years, refund payouts are the highest during second quarters by far.
Last fiscal year the department paid out $21 million in refunds and $22.7 million in fiscal 2017 in the second quarter and between $10.5 million to $12 million in the other three fiscal years.
Outside of this year’s first quarter refunds, none of the other quarter refund payouts top $10 million in any of the last six years.
There is little doubt the first two quarters of the fiscal year 2020 will see significant refunds paid to businesses for both the business enterprise and business profits taxes.
The refund may be made for many reasons.
Some businesses fearing the budget approved by the legislature would go into effect freezing the business tax rates at the fiscal 2019 level instead of the rate decreases that went into effect Jan. 1. That did not happen so the rates will continue at the lower level for this fiscal year.
But that is not likely the major reason for the increase in refunds, which is businesses overpaid their tax liabilities believing they would experience greater activity than they did during the last fiscal year or even the last fiscal quarter.
If that is the case the refunds are likely to continue for at least the remaining eight months of this fiscal year.
Business taxes have shot up the last few years for several reasons, including the change in federal tax law which allowed many businesses to bring money parked overseas back into United States without penalty.
That helped increase the business profits tax receipts for New Hampshire and other states.
Also, at the end of the last recession, New Hampshire greatly increased the amount of losses a company could use to offset future tax liability to $1 million and said the period to claim an offset would last for 10 years.
That reduced businesses’ taxes until the losses could be absorbed but largely ended two years ago, which also helped to boost businesses’ taxes.
And obviously the economy has been booming and the business tax collection reflected that, particularly the business enterprise tax.
Naturally the increases in business tax collections could not be maintained at the rate they were over the last four or five years and were expected to return to earth to the 2 or 3 percent range.
And while that is happening, there is something more concerning, which is business tax returns are well below what they were a year ago at this time.
September is the first really big business tax collection month, although it is far short of March and April, but substantial.
For September, business taxes were $20.5 million less in September than a year ago, which is almost 15 percent lower.
For the first three months of the 2020 fiscal year, business taxes are $26 million less than a year ago or 14 percent below what was collected last year.
Last fiscal year, which ended June 30, showed a $162.2 million surplus for businesses’ taxes, so the reduction in collections is a stark contrast to the last few years.
Coupled with the refund requests, it is apparent lawmakers may be making some significant adjustments in the operating budget before the 2020 fiscal year budget ends June 30, 2020.
And it could well mean there may not be any further reductions in business tax rates any time soon unless the trend changes.
Business taxes are not all the state’s revenue, but they account for more than a quarter of state general fund revenue.
The overall revenue picture without figures for October which will be released this week, is not showing any great strengths to overcome the business tax revenue loss.
Tobacco tax revenue is down $3.5 million for the first quarter of the new fiscal year. Tobacco revenues are always volatile due to timing issues when wholesalers purchase stamps, so this slowdown may not be a major trend.
However, the trend for liquor revenue for the state has been below projections for some time and does not appear to be turning around.
Profits from liquor sales paid into the general fund is $3.5 million less than a year ago.
The state’s hot real estate market and the resulting spike in real estate transfer tax revenues appears to be cooling off.
For September, revenues were $2 million less than a year ago. The DRA notes that both the number of sales and the value of the properties sold were down over a year ago.
The agency notes that revenue was less in seven of the state’s 10 counties for September, which really reflects August sales.
And the state utility property tax, which supports reduction, is down $1.6 million over a year ago. The DRA said much of the decrease is due to the revaluations of generating facilities, which recently changed ownership.
Not a promising picture as the state’s and nation’s politicians head into an election year. The question is who will voters blame for a potential economic slowdown in the coming year.
Garry Rayno may be reached at email@example.com
Distant Dome by veteran journalist Garry Rayno explores a broader perspective on the State House and state happenings for InDepthNH.org. Over his three-decade career, Rayno covered the NH State House for the New Hampshire Union Leader and Foster’s Daily Democrat. During his career, his coverage spanned the news spectrum, from local planning, school and select boards, to national issues such as electric industry deregulation and Presidential primaries. Rayno lives with his wife Carolyn in New London. InDepthNH.org is New Hampshire’s only nonprofit, online news outlet dedicated to holding government accountable and giving voice to marginalized people, places and ideas.