Hassan’s budget proposal: faster BPT cuts, but none in BET rate
Compromise plan also resurrects issue of ‘reasonable compensation’
A compromise budget proposed by Gov. Maggie Hassan on Thursday includes faster-track business profits tax cuts and other tax and budget changes that would benefit businesses.
But the governor insisted that the cuts be “paid for” with other revenues, including a 21-cents hike in the cigarette tax and as well as new standards for determining whether the compensation taken by business owners is “reasonable” in determining their tax bill.
The Republican leadership in the Legislature has already said it will not go along with those changes, having maintained that the more modest business tax changes included in the budget vetoed by Hassan are already paid for.
Hassan’s proposal would also:
• Leave unchanged the business enterprise tax rate, but would increase the thresholds to meet before having to pay it, meaning fewer small businesses would have to file
• Increase the “safe harbor” for reasonable compensation for partnerships and self proprietorships
• Boost the Division of Travel and Tourism Development’s budget as well as restore funding of the Renewable Energy Fund in 2017
• Add money for economic development promotion
• Increase vehicle registration and title fees
• Include some version of the so-called “Planet Fitness bill” that the governor just vetoed, though no specific proposal was outlined
• Put off any discussion of Medicaid expansion as part of the budget proposal
Her proposal “provides Republicans with what they have indicated is their highest priority – cutting corporate taxes – in a faster timeframe while addressing concerns about long-term fiscal responsibility and protecting our ability to support critical economic priorities,” Hassan said, adding that she hoped it would be the “basis for bipartisan compromise and negotiation.”
But Republicans’ initial reaction was negative.
“We can’t lower one tax and raise another,” said Senate Majority Leader Jeb Bradley, R-Wolfeboro.
“While we are happy that she came around to our position on business taxes, that budget is as good as she is going to get,” said Jim Rivers, spokesman for the House speaker’s office. But Rivers did add that lawmakers were willing to continue to talk to the governor.
New BET threshold
Hassan’s proposal would decrease the BPT from 8.5 to 7.9 percent by the end of this year – rather than gradually over three years, as the vetoed budget called for.
And while the governor’s plan would not gradually decrease the BET from 0.75 to 0.725 percent, as envisioned in the budget the Legislature passed, it would increase the threshold of those who have to pay it.
Currently, only those businesses with gross receipts of $207,000, or those with those with wages, interest and dividends of more than $103,000, have to file. The proposal would change those thresholds to $250,000 and $150,000, respectively. The governor’s proposed changes would cost the state another $12 million on top of the $20 million loss envisioned in the vetoed budget.
Hassan also appeared to be willing to make concessions on House Bill 550, just days after vetoing the measure.
That bill was originally proposed to placate Planet Fitness, a Newington-based gym franchisor which is about to launch an initial public offering. The company threatened to move its headquarters out of state unless New Hampshire altered its tax law, so it wouldn’t be hit with a huge tax bill. Under current law, the BPT is levied against the step-up in basis created by an IPO.
The Legislature, however, broadened HB 550 to exempt any partnership that increased the company’s value by seeking out investors, whether it be public or private.
Hassan spokesman William Hinkle said that the governor wasn’t asking for any specific changes in the bill. She just hoped to avoid unintended consequences by vetting the bill though a public hearing.
The proposal also involves $45 million in increased spending not in the legislative budget. The largest amount – $12 million – would fund a new state employees’ contract, and another $4.8 million would replenish the winter maintenance fund after a particular snowy season.
Hassan’s plan also would add another $500,000 to the tourism budget in fiscal 2017, tying it again to a percentage of the rooms and meals tax; add $1.5 million back to the Renewable Energy Fund in 2017 (though still allowing a Homeland Security raid to the fund of the same amount in 2016); increase economic development promotion for the biennium by $1 million; and add $300,000 to plan for Medicaid expansion if it happens, conceding that it would not be included in this budget.
The proposed 21-cent hike in the cigarette tax would bring it up to $1.99, a penny below Maine’s tax. The tax would still be $1.52 lower than Massachusetts’. The increase would raise about $32.6 million, even taking into account a roughly 5 percent drop of sales.
John Dumais, president of the NH Grocers Association, said the proposed was “very unfair, unfortunate and unreasonable.” He said it was “giving a benefit to business at the expense of those who sell tobacco products.” According to Dumais, 40 percent of tobacco sales in New Hampshire are to customers from other states.
Hassan also revised a proposal that would reopen the thorny question of reasonable compensation, the amount business owners pay themselves for their work, thus avoiding the BPT.
The proposal would increase the “safe harbor” – the threshold whereby a business owner could take the compensation without question – from $75,000 to $150,000. But if the owner should claim more than that, it would shift back the onus of proof and documentation onto the owner.
Since 2011, the state Department of Revenue Administration has had the burden of proving that the compensation was unreasonable.
The governor estimated the net gain to the state would be $20 million over the biennium. DRA Commissioner John Beardmore said that such an estimate was “imprecise, but in the ballpark.”
The only other change was a proposed $5 increase in vehicle registration and a $10 increase in title fees, resulting in a $29 million revenue gain to the state.
Bradley said he could not accept the registration and title fee increases, which he called “a tax on driving to work.” nor the change in the reasonable compensation threshold, which would undo the legislation he backed in 2011.
”We are not going to return to the days of harassing business owners,” said Bradley. “That’s not going to happen.” He added: “This governor has an obsession of raising business taxes.”
The Business and Industry Association of NH was a bit more nuanced, applauding Hassan for her efforts to resolve the budget impasse, supporting her proposal to accelerate the BPT reductions and increasing the BET thresholds, but opposing changing the burden of proof relating to reasonable compensation.