By GARRY RAYNO, InDepthNH.org
CONCORD — The Senate Ways and Means Committee Wednesday was urged to cut business tax rates that would reduce state revenues $63.5 million annually.
Advocates for the reductions said the state’s financial picture allows for the decrease with the current $230 million revenue surplus.
As originally introduced, House Bill 1221 would have reduced the business profits tax rate from 7.6 to 7.5 percent and reduce the business enterprise tax rate from .55 to .50 percent, but the House Ways and Means Committee removed the business enterprise tax reduction saying changes in business tax law going into effect next fiscal year could reduce revenue significantly.
But at yesterday’s hearing on HB 1221 and House Bill 1097, which challenges another state’s attempt to collect income taxes from residents working in New Hampshire, business organizations and small government advocates urged the committee to approve cuts in both business tax rates.
Greg Moore, the state director for Americans for Prosperity, urged the committee to consider dropping the rates of both taxes, noting it would bring the rates to what lawmakers promised in 2017 when they began cutting business taxes to make New Hampshire more competitive with surrounding states.
“We support as broad tax relief as possible,” Moore said, noting business enterprise taxpayers have to pay whether they are profitable or not, while only companies making a profit pay the business profits tax.
Moore said he was talking to the owner of a business start-up who is moving to Massachusetts because he has to pay the business enterprise tax while struggling to survive.
But Democrats on the committee pushed back saying the legislature has been cutting not only business taxes this term but others as well and Sen. Cindy Rosenwald, D-Nashua, questioned what the total would be in reduced revenue.
She asked the Department of Revenue Administration if they had that information and senior analyst Devin Rodrique said they could put that information together.
Sen. Lou D’Allesandro, D-Manchester, noted the legislature has been cutting business taxes year after year after year.
“How far down do you have to go to make them competitive,” he asked.
The bill’s prime sponsor, Rep. Jeanine Notter, R-Merrimack, said “the lower the taxes the better for the economy.”
But D’Alesandro said the tax cuts lower revenue needed to manage state government,
Committee chair Sen. Bob Giuda, R-Wentworth, said the latest information from the Department of Revenue Administration shows a $38 million surplus over estimates for March and $46 million ahead of the plan for the month.
There is a $230 million revenue surplus, Giuda said. “That is more than enough room to take a .1 percent cut.”
The DRA projected the cut in the business enterprise tax rate would reduce state revenue by $55 million annually and the business profits tax rate reduction would reduce revenues by $8.5 million.
House Way and Means Committee member Rep. Dick Ames, D-Jaffrey, argued the .1 percent cut in the business profits tax would have little impact on the large multinational corporations that would benefit most from the reduction, and very little impact on medium size businesses in the state of about $49 a year.
The House committee heard testimony the .1 percent rate cut would not impact a business’s decision to move to the state or leave the state, he noted.
The inflated state revenues have been due to a large infusion of federal COVID-19 relief money and the huge profits of the major international corporations during this period, Ames said.
Since 2014, global growth and federal funding have masked state revenue losses mostly due to tax cuts to business, he said. “It is mindless and senseless.”
But Drew Cline, president of the Josiah Bartlett Center for Public Policy, said the state has overtaxed businesses by more than $600 million over the decade between 2012 and 2021 and with the current surplus over $700 million for the last 11 years.
He noted the .1 percent cut in the business profits tax would tie New Hampshire with Connecticut with the second lowest rate in New England. “That is a huge accomplishment in a short period of time,” he said.
Despite the rate cuts, business tax revenue has been consistently higher than budget writers’ estimates, Cline told the committee.
“Clearly businesses are being overtaxed,” Cline said, “and this is a good time to consider adding back into the bill the BET rate cut.”
David Juvet, vice president of the Business and Industry Association, agreed it was time to reduce the business enterprise rate as well and so did Bruce Berke of the National Federation of Independent Businesses.
Income Tax
The committee also heard that the state needs to put something in law to protect individuals who work from home although their company is based in another state.
Massachusetts collected income taxes from individuals who work for companies based in that state, but worked from home in New Hampshire during the pandemic.
New Hampshire sued but the U.S. Supreme Court declined to hear the case.
The original version of HB 1097 declared a state could not tax income earned exclusively in another state, but had no way of enforcing the declaration, according to Rep. Walter Spilsbury, R-Charlestown, who worked with the DRA and the Attorney General’s Office on the bill, because one state cannot assert power over what another state does.
The bill now makes it state policy to object to similar tax attempts and requires the legislature to respond to another state’s attempt to collect income taxes from residents working in New Hampshire.
Spilsbury said that should give the state more standing with the court should the issue arise again.
But much of the discussion about the bill Wednesday centered on two paragraphs added at the request of the Department of Revenue Administration, which was concerned another state may use the first statement to claim New Hampshire could not collect business taxes from companies based in another state.
Ames said the bill wants to have it both ways, it wants to say New Hampshire has a sovereign interest in protecting its citizens, but on the other hand says it can collect taxes on income earned in another state through business taxes.
“We can’t have it both ways,” Ames said. “On the one hand we say we have a sovereign interest and on the other hand we say for people working in another state New Hampshire can tax their income and that is OK. That is not going to get very far with the Supreme Court.”
He argued more work needs to be done, that it does not need to be addressed immediately as Massachusetts is no longer pursuing individuals.
Others suggested the language be tightened up and sought additional information from the DRA such as defining a remote worker before deciding on the bill.
The committee did not make an immediate recommendation on either bill.
Garry Rayno may be reached at garry.rayno@yahoo.com.