By GARRY RAYNO, InDepthNH.org
CONCORD — The House Ways and Means Committee unanimously backed raising the threshold for businesses to pay the business profits tax, but wants more information before deciding whether to exempt Payment Protection Program grants from state tax liability.
Senate Bill 101 increases the threshold for paying the business profits tax from $50,000 in gross receipts to $75,000 and the committee approved raising it further to $92,000.
The bill has passed the Senate and will come before the full House next month when it meets on June 3 and 4.
The committee determined the $92,00 threshold would account for inflation since the floor was set at $50,000. The committee also added a provision to automatically adjust the threshold to the rate of inflation every two years as the Department of Revenue Administration does for the Business Enterprise Tax.
The change would go into effect July 1 and the first inflation adjustment would be in 2023.
Rep. Susan Almy, D-Lebanon, said the threshold is about as close as they could come to adjusting for inflation.
Indexing the threshold to inflation will mean businesses who have not earned any more “real money,” but are hit with a tax bill, will not have to pay the business profits tax any longer, she said.
And the state will not suffer the shock of lost revenues, Almy said, and will be able to gradually adjust.
The bill was sponsored by Senate Minority Leader Donna Soucy, D-Manchester, who has said it will eliminate unnecessary paperwork and costs for many small businesses.
“New Hampshire’s economy is driven by small business owners and self employed entrepreneurs,” she said after the vote. “SB 101 will relieve thousands of our small businesses of an unnecessary financial and administrative burden at a time when many of them are only beginning to financially recover from the COVID-19 pandemic.”
According to the Department of Revenue Administration, raising the threshold to $92,000 will reduce revenues by $2.6 million.
Tax Forgiveness
The chair of the House Ways and Means Committee said it may behoove the state to delay tax cuts included in the proposed two-year operating budget currently before Senate Finance in order to maximize the $1.457 billion in federal money the state will receive from the American Rescue Plan Act.
The state’s Congressional delegation announced Tuesday the state will receive $994.6 million, while larger cities will receive $86 million, smaller cities and towns $112.2 million, and counties $264.1 million.
Schools will also receive $350.5 million to safely reopen and support students and $40.9 million for testing students. Community health centers will receive $20.2 million to expand access to vaccinations.
The state budget proposal includes rate reductions for the business profits, business enterprise, rooms and meals, and interest and dividends taxes. The interest and dividends tax would also begin phasing out under the budget plan.
The federal relief act includes a provision that does not allow states to use the money to make up lost revenues from tax cuts on a dollar for dollar basis.
The provision does not include the Payroll Protection Program loans that are converted to grants, if states exempt that money for taxation, as Senate Bill 3 would do.
Statutes in New Hampshire and nine other states require the grants be taxed, while the federal government and the 40 other states have exempted the grants from tax liability.
Committee chair Norm Major, R-Plaistow, said he hopes the confusion over how the state could be impacted by the tax cut provision is understood by the time the state’s two-year budget receives a final vote.
“If we pass a budget that cuts some taxes, we may be foolish, we may lose more money,” he said. “We may want to delay some of those things so as not to interfere with the rules for the American Recovery funds. We don’t know yet.”
Several members of the committee watched a presentation by the US Treasury Monday evening about guidance for the program and were concerned.
Rep. Dick Ames, D-Jaffrey, said it is clear the PPP grants would be exempt under the federal requirements, but the other issue depends if the tax cuts “trespass on the standard the treasury would follow in determining if some clawback of (funds would be required).”
Almy said the tax cuts are worrisome and the treasury’s action will depend on timing and different revenue levels depending on fiscal year.
Another issue is how many years the treasury will allow the state to recalculate for the pandemic induced revenue loss, she said.
“We need to get this straight,” Almy stated.
“What we need first is to understand — most importantly — the rules for how to utilize the money without having to pay money back,” Major said. “Once we understand that, we can address what people think and what we can and cannot do.”
That is why, he said, the DRA will meet with the committee Wednesday.
Major is also concerned the influx of large amounts of federal pandemic money has inflated state revenue.
Major wonders how much state revenue results from keeping businesses open and generating a profit that would otherwise not happen.
“We need to understand how much of the success we have right now is associated with a one-time (infusion),” Major said. “Once this is over and we’re back to normal, it’s not going to be with us.”
The PPP loan and grant plan was intended to help smaller businesses with less than 500 employees weather the economic devastation from the pandemic as part of the federal CARES Act.
Under the program, the loans may be forgiven and become grants if businesses used the money for its intended purpose to maintain payrolls and pay essential expenses like rent or mortgages, and utilities.
According to DRA estimates, state businesses received about $3.4 billion in PPP loans and would provide about $99 million in revenue for the state over several years if the grants are exempted from the business profits tax calculation.
Several committee members were concerned the bill might give larger, more profitable businesses a double benefit at the expense of state revenue.
Another complicating factor is when the loan forgiveness is approved by the US Small Business Administration. Some forgiveness was approved in fiscal year 2020, some in 2021, and some may not be approved for until 2022 .
The committee has a May 27 deadline for making a decision on the bill.
Garry Rayno may be reached at garry.rayno@yahoo.com.
