Revenue impact of tax law changes eludes estimation
CONCORD - The House revenue estimating committee is having a difficult time sorting through changes in tax law made over the past two years, particularly in business taxes.
Much of the state revenue loss will not be felt until the second year of the next biennium, Department of Revenue Administration officials told the House Ways and Means Committee Thursday.
The agency has little experience with many of the changes and does not have the data to make firm predictions, the committee was told.
Increasing the business losses that can be used to reduce future tax liability from $1 million to a $10 million and extending the period from five to 10 years was expected to reduce state revenue from $10 million at year to $22 million.
However, John Lighthall of the DRA said he looked at one year - 2009 - and during that period 169 businesses would benefit from the increase, and most of those companies are large multinational businesses.
"Many companies may or may not use it all," he told the committee. "You have to be profitable in the next year to use the loss."
Some companies may use the loss in one year or carry it over a 10-year period, and some companies with large losses may go out of business, Lighthall noted.
That caused former Ways and Means Committee chair Rep. Norman Majors, R-Plaistow, to say "it's a crap shoot."
A similar problem exists with a law change last year prohibiting the state from taxing Internet access that was expected to reduce communications tax revenues by $6 million to $18 million a year.
Lighthall noted the tax is down nearly $9 million dollar so far this fiscal year. "We're already seeing the fiscal impact of this law change," he said.
House Bill 1418 allowed the communications companies to ask for refunds for taxes already paid for three years, and he said although no company has received a refund, some have asked for credits going forward so the impact of the change could be felt for some time.
The DRA charged the communications tax to bundled services if the providers did not single out Internet access from two-way communications that can be taxed.
Committee chair Susan Almy, D-Lebanon, noted the state had been grandfathered under federal law that forbids taxing Internet services, so the state cannot begin collecting the tax again.
Other changes to tax law that could affect state revenues passed in the last two years include increasing the threshold before a business has to pay the business enterprise tax, accelerating depreciation credit, setting reasonable compensation for business owners at $50,000 for business profits tax liability, retaining the $1 million annual research and development credit, changing who has to pay the interest and dividends tax for trusts and business education tax credit for a scholarship program.
The Ways and Means Committee will need to develop its revenue estimates for the next two years before the House Finance Committee can finalize it version of the budget.
Gov. Maggie Hassan has to present her proposed budget for the next two fiscal years to lawmakers by Feb. 15.
The House has to act on its version of the budget by April 4, and the Senate's deadline is June 6.