CONCORD — Representatives of nonprofit organizations turned out in force Tuesday to testify against a bill that would extend the state's business enterprise tax to many hospitals, private colleges and social service organizations.
State Rep. David Hess, R-Hooksett, a sponsor of the bill, told members of the House Ways and Means Committee that extending the tax to nonprofits with more than $2 million a year in revenue from programs or services would be a good way to expand the tax base and reduce the tax rate businesses pay on payroll and interest.
"There is no rational basis to exempt all 501(c)3 organizations from the business profits tax," he said, referring to the section of the IRS tax code that establishes federal nonprofit status for a variety of qualifying organizations.
Hess, a deputy Republican leader in the House, said a fundamental principle of tax policy is to "generate the maximum tax base possible and enforce the lowest possible rate."
He said hospitals, which account for 10 to 15 percent of the state's economy, can well afford the tax.
"They are among the largest accumulators of wealth in our society today," he said. "Some of the biggest and most plush buildings around the state are being built by nonprofits. CEO income at hospitals is among the highest compensation of any business in the state."
Hess said he wasn't singling out hospitals in the bill, co-sponsored by Kenneth Wyler, R-Kingston. There is simply more data available on hospitals than the other nonprofits, he said.
Rep. Patrick Abrami, R-Stratham, hinted at the testimony to follow when he pointed out that hospitals already pay significant taxes through the Medicaid Enhancement Tax. The state used to reimburse hospitals for most of their MET payments, but ended that practice in 2010 and started keeping most of the money to balance the budget.
"To burden them with additional taxes through the BET seems unreasonable to me," said Abrami.
The Medicaid Enhancement Tax is facing several court challenges, Hess said.
"The legality of the MET is under consideration in a number of venues, and it may go away," he said.
Steve Ahnen, president of the N.H. Hospital Association, said hospitals contributed $181.3 million to state coffers through the Medicaid Enhancement Tax in fiscal year 2014, making it the fifth largest source of revenue for the general fund. At the same time, New Hampshire pays hospital the lowest rates in the country for Medicaid reimbursement.
"The burden of caring for the poor has been shifted to New Hampshire hospitals," he said, warning that the tax change would be "disastrous for patients."
A long line of speakers representing everything from private colleges to visiting nurses to performing arts centers testified against the bill. No one other than Hess spoke in favor.
David Juvet, senior vice president of the N.H. Business and Industry Association, said the BIA appreciates the effort by Hess to lower the business enterprise tax rate, but opposed his method.
"This would have a very detrimental effect on hospitals and institutions of higher learning, not to mention the other nonprofits that would be dragged into this that Representative Hess is not even targeting," he said.
He described the non-profit status of the organizations in question as a "covenant between government and charity," in which the government acknowledges by the tax exemption that the nonprofits are doing work that would otherwise have to be paid for through taxes.
Mary Ellen Jackson, executive director of the New Hampshire Center for Nonprofits, agreed.
"New Hampshire has a 225-year history of honoring this tax exemption," she said. "The nonprofits earn it in recognition of how they mobilize volunteers and community organizations to solve community problems."
She said the movement toward leaner government will mean more pressure on nonprofits to provide essential social services.
"Do we want Goodwill to serve more people," she said, "or do we want them to pay this tax?"