Business tax hikes appear unlikely

Lawmakers catch up on the floor of the Whittemore Center at UNH in Durham on June 11. The Legislature reconvened at the hockey arena because of COVID-19 after suspending gatherings in March. Democratic legislative leaders rejected Gov. Chris Sununu’s call to take off the books a trigger that could raise business taxes in January. An unofficial report on revenues concludes it’s now unlike those business taxes will go up.

CONCORD — Thanks in part to a healthy real estate market, business owners appear likely to avoid an increase in their two state taxes.

The state’s financial year ended last week, with state taxes and fees unofficially coming in at 5.4% or $143 million less than forecast.

A 6% drop would mean an automatic increase in both the state’s business profits and business enterprise tax rates this January.

This trigger was contained in the two-year state budget plan Republican Gov. Chris Sununu signed last September.

Democratic legislative leaders sought the condition, maintaining that multinational companies were the beneficiaries of most of the business tax cuts lawmakers passed in 2015 and 2017.

The triggers also prevent another round of business tax cuts from going into effect early next year unless state taxes and fees come in at least 6% over the forecast, which would seem practically impossible now because of COVID-19.

State budget analysts stressed that revenues for the past budget year will not be finalized until a private accounting firm completes its audit of New Hampshire’s books in December.

Later this month, state officials will release an updated report on accruals, which are expenses or revenues that came in after July 1 but get credited to the previous budget year.

“It should be noted that revenue numbers...can change significantly as a result of accrual adjustments calculated during the state’s fiscal year-end extended closing period in July,” Administrative Services Commissioner Charles Arlinghaus concluded in the revenue report for June.

A conservative celebration

Fiscal conservatives nonetheless said the development was cause for celebration.

“While it’s still too soon to say we’re completely out of the woods, businesses across New Hampshire can start to breathe a sigh of relief that they won’t get hit with a big tax increase while they are still pulling themselves up off the mat from the impact of the pandemic,” said Greg Moore, state director of Americans for Prosperity. “It’s particularly true for small businesses, who would have taken the biggest hit — a 12.5% hike in the BET.”

Andrew Cline, president of the fiscally conservative Josiah Bartlett Center for Public Policy, criticized the Legislature for continuing to support these tax triggers.

“Legislators should have taken this tax-hike trigger off the books when employers asked,” Cline said in a statement. “Instead, legislators gambled with the livelihoods of many small business owners and their employees. Though employers seem to have gotten lucky, they should’ve been able to rely on their legislators, not Lady Luck.”

Democratic legislative leaders accused Sununu and leading Republican lawmakers of trying to falsely hype the likelihood of a business tax increase.

"During the pandemic, Governor Sununu and House and Senate Republicans used the trigger to score political points on the backs of our small business owners and even attempted to grind the work of the New Hampshire House of Representatives to a halt," said House Finance Chairman Mary Jane Wallner, D-Concord.

Senate Finance Committee Chairman Lou D'Allesandro, D-Manchester, had publicly been saying for months that he doubted the tax hike trigger would be hit.

“House and Senate Democrats have been consistent in saying it was premature to discuss the business tax triggers that were agreed to in the budget compromise by the Legislature and the Governor before we had the full economic picture —not conjecture," D'Allesandro said.

"Unfortunately, the Republican Party has used this as a political opportunity rather than acting in the best interest of the state.”

The business enterprise tax is a tax on a firm’s payroll, dividends and interest, which is currently .6%.

If the trigger kicked in, it would rise to .675%.

The tax on corporate profits is 7.7%, which would increase to 7.9% with the trigger.

“Reducing taxes on employers helped our economy thrive, and keeping these lower rates, which businesses have now been paying for the past six quarters, will go a long way to speeding up our recovery,” Moore said.

For the year, the two business taxes brought in $675 million, 14.6% less than forecast.

Other taxes up, down

The state’s third-biggest tax, the levy on restaurant meals and hotel room rentals, also fell well short (11.6 %) of its target.

By contrast, the state’s tax on real estate transactions brought in $159 million, the amount predicted.

Another strong tax performer was the levy on cigarettes and other tobacco products, which brought in $213 million, 7.3 % more than expected.

The sale of wine and liquor sales netted the state $141.2 million in profit which was 1.5 percent more than the previous year and just ahead of the forecast.

The agency gave $10 million of that profit to help finance the Medicaid expansion program that provides health care to low-income adults.

The tax trigger issue already has been hotly debated in the race for governor.

Last month, Sununu urged the Legislature to get rid of the trigger while both his Democratic primary opponents, Senate Majority Leader Dan Feltes and Executive Councilor Andru Volinsky, have supported the tax triggers.

“Any insistence that we enact even more business tax breaks would guarantee our state’s inability to provide a budget that tackles the critical issues facing New Hampshire — including mental health, workforce development and public education,” Feltes argued during the state budget debate last year.

Monday, August 03, 2020
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