NH Revenues Are a Mixed Bag for This Fiscal Year

Print More

Paula Tracy photo

New Hampshire State House

By GARRY RAYNO, InDepthNH.org

CONCORD — The state revenue picture for the final three quarters of the fiscal year is not projected to be as grim as it appeared earlier this year.

The state Department of Revenue Administration, which collects the state’s largest revenue sources like business and rooms and meals taxes, gave House and Senate Ways and Means Committee members its latest update Monday.

Agency officials indicated, as expected, the rooms and meals tax has been most impacted by the COVID-19 pandemic, while other revenue streams are expected to produce significantly more revenue than anticipated when the budget was approved in September 2019.

The pandemic, unlike recent recessions, has not uniformly slowed businesses activity, said DRA Commissioner Lindsey Stepp. Some segments like hospitality have seen a significant impact, but many large manufacturers or retailers have experienced greater economic activity, she said.

The result is a mixed bag for state revenues as the department projects either a $56.3 million revenue shortfall at $1.68 billion or a $15.9 million surplus at $1.75 billion for the 2021 fiscal year.

Complicating this fiscal year’s revenue picture was a $30.8 million adjustment of taxes collected this fiscal year for activity in the prior fiscal year.

Stepp said the amount is larger than normal mostly due to a change in federal and state deadlines from April to July on the federal level and from April to June for the state.

The adjustment impacted both business and interest and dividends taxes particularly accounting for much of the revenue.

She noted the agencies estimates have changed significantly since May when the House approved a revision in estimates.

“We have no idea what the future holds and no road  map on how this pandemic will impact revenues,” Stepp said, but noted other states are in similar situations expecting significant shortfalls, but generally seeing revenues performing better than expected.

Rooms and Meals

The rooms and meals tax is the state’s second biggest source of revenue behind business taxes.

The agency sees a significant shortfall in revenue for the month, although overall activity has rebounded somewhat over the summer.

Melissa Rollins of the DRA said the source of the revenue has changed for both restaurants and lodging with fast food establishments doing a greater portion of the food business, and campgrounds and cottages have rebounded more than large hotel establishments.

Historically, food accounts for 80 percent of the revenue, rooms 17 percent and rental cars 3 percent. Revenue from food has rebounded more than from rooms and autos, she said.

The agency predicts the tax will provide $262.3 million for the fiscal year on the low end, $94.6 million below the state revenue plan, and $3121.6 million on the high end, $74.3 million below plan.

House Ways and Means Committee Chair Susan Almy, D-Lebanon, thought those estimates were too high.

“I don’ t see how we get anywhere near the high,” she said. “We were in Indian summer most of October and a lot of people came out as (good) weather continued and ate outside at restaurants.”

She said it is now winter and people are going to remain in their houses instead of going to restaurants.

Rollins said many restaurants adapted quickly to take out operations when the stay-at-home order was issued by the governor and many will continue that operation to help sustain their business rather than completely shut down.

“We’re in a weird time,” Rollins said. “How to predict where it will go, how the virus continues to spread and what the activity will look like (is hard to predict).”

Business Taxes

The agency is predicting the business profits and enterprise taxes will produce between $768.4 million, a $17.7 million shortfall, to $792.2 million, a $6.1 million surplus for this fiscal year.

That is different from the last revenue estimates in May, Rollins said. “We anticipated quite a nosedive with these taxes, but that has not come to fruition at this point.”
She said other states are seeing similar increases in business taxes. “We are not alone in this trend,” Rollins said.

The majority of business taxes are paid by the largest 300 to 500 companies.

“The largest taxpayers are not impacted by the pandemic as originally anticipated,” she said. “Home improvement stores, medical industries, technological industries and box stores seem to be performing better than prior year, decreasing the anticipated loss of revenues.”

She said the agency anticipates they will continue to drive the revenue stream this year.

Senate Minority Leader Chuck Morse, R-Salem, asked if the agency took into account the federal payroll protection program money many New Hampshire businesses received as well as the federal money distributed through the state from the CARES Act.

Stepp said the agency did not specifically, but did in a general sense, noting some businesses that used the money to cover expenses would be a “net zero” to state revenue.

Has anyone tracked all the money that has come into the state for businesses, Morse asked, noting it could be huge revenue for the state if they are all grants.

Interest and Dividends

Like business taxes, the interest and dividends tax was impacted by the later deadlines, but is still producing more than the state’s budget plan anticipates.

The agency believes the levy will produce between $133.3 million this fiscal year, a $16.4 million surplus, to $140.7 million, a $23.8 million surplus.

Rollins noted over the years, the revenue from the tax is “all over the place” with lots of peaks and valleys.

She said 38 percent of the tax is derived from dividends so when stocks do well, the returns are greater.

The levy does not appear to be impacted by the pandemic, she said.

Tobacco Tax

Tobacco tax revenues do appear to be impacted by the pandemic and from Massachusetts banning menthol and other flavored cigarettes.

Revenue has been greater than anticipated for the last year and Stepp said Rhode Island has seen a similar increase due to the Massachusetts ban.

The agency believes the levy will produce between $233.3 million, a $22.1 surplus, and $244.8 million, a $42.5 million surplus.

Other Taxes

The agency estimates the real estate transfer tax will produce from $168 million, a $9.6 million surplus, to $177.2 million, a $18.8 million surplus.

The agency estimates the communications tax will produce $38.9 million, a $900,000 shortfall.

And the agency estimates the state utility property tax will produce $43 million, a $1.4 million shortfall.

The joint committee also heard from other revenue generating agencies Monday but will not determine new revenue estimates for the remainder of the fiscal year.

Garry Rayno may be reached at garry.rayno@yahoo.com.

Comments are closed.