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NH ranks high in business climate but low for business profits tax rate

State House Bureau

October 28. 2014 10:37PM

CONCORD — Lowering the state’s business profits tax rate has to be a priority for the 2015 Legislature, said representatives from two fiscally conservative organizations Tuesday.

Greg Moore, state director of Americans For Prosperity-NH, and Charlie Arlinghaus, president of the Josiah Bartlett Center for Public Policy, both said the tax’s current rate of 8.5 percent makes it among the highest in the country and makes New Hampshire less competitive when trying to attract businesses.

“We need to make reducing our taxes on employers a top priority in the next legislative session, so that New Hampshire can become a leader again,” Moore said. “It’s flat out embarrassing that the Granite State has higher taxes than every other state in New England.”

The two based the state’s business tax ranking on the Tax Foundation’s annual business tax climate rankings, which was released Tuesday. According to the organization, New Hampshire is the seventh business friendliest state in the country, the same ranking it has held for the past three years, despite its high business tax rate.

The foundation based its ranking on five factors: business, income, sales and unemployment tax rates, and property taxes.

The organization more heavily weights income (32 percent) and sales (22 percent) taxes, and then business taxes (20 percent), property taxes (15 percent) and unemployment taxes (11 percent).

Arlinghaus said businesses taxes have controlled the state’s economic destiny during the last 30 years. While Massachusetts has dropped it rate, New Hampshire’s has not, he noted.

“When you look at ways to better compete, you look at areas that are outliers like our business tax rate,” he said. “It sends the strongest signal to businesses over any other.”

But Jeff McLynch, executive director of the New Hampshire Fiscal Policy Institute, said you cannot talk about reducing business taxes without talking about what the impact would be in others areas such as education or local aid to cities and towns.

Reducing aid to education and local communities will increase the property taxes, which is the largest tax businesses pay in New Hampshire, he said.

And McLynch said while Massachusetts lowered its business tax rate lower than New Hampshire, the reduction was part of reform package that also broadened the tax base and produced higher state revenue.

The Tax Foundation report ranked New Hampshire 48th in the country for business taxes, which is where it was ranked last year and down two places from several years ago when it was 46th and ranked 50th in 2006.

Reducing the business profits tax rate is a key component of GOP gubernatorial candidate Walt Havenstein’s proposal to spur the economy and create jobs.

But Democratic Gov. Maggie Hassan has said reducing the rate would blow a $90 million hole in the state budget and make investments in education other programs impossible.

While the state ranks 48th in business taxes according to the Tax Foundation, it ranks ninth for income tax, second for sales tax, 44th for unemployment tax and 43rd for property tax.

New Hampshire is the only New England state to rank in the top 10. The top seven states in the ranking do not have an income tax.

The top state for business climate is Wyoming, followed by South Dakota, while the worst is New Jersey with New York in 49th place.

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