To the editor:I read with interest Tom Katsiantonis’ defense of the added tax on LLCs “Close loopholes, tax businesses fairly,” Jan. 15-29 NHBR).The assumption that because there is already one unfair business tax, that of double taxation on Subchapter S corporations, that it makes sense to add the same faulty reasoning and the same double taxation to an LLC is faulty logic.In a high percentage of cases the Subchapter S corporation and the LLC is used in entrepreneurial business formation often for the reason of liability protection. Often there may be silent (passive) investors – either a friend, relative or pure investor – that is taking a huge risk and hoping for a reward. In most cases, there is also job formation in forming the business entity.I believe to tax profits at 8.5 percent and then add a 5 percent tax to income already taxed if there is a distribution (a nontaxable event at the federal level) is putting way too much burden on the entrepreneur and/or the silent (passive) investor.The Subchapter S corporation and LLC by IRS code is supposed to be a pure flow through of profits and not taxed like a C corporation, which is taxed at the corporate level and then a dividend tax, if dividends are made. New Hampshire has subverted this concept of the LLC and the Subchapter S corporation by taxing distributions to be distinguished from dividends, which in realty become a 13.5 percent income tax on only one segment of the state’s population. This in turn leaves less capital for future investment and resultant job creation, is unfair to the small startup businessman and his investors, and is a disincentive to future investment.The small-business man seeking liability protection by using an LLC is paying much more than his share of the New Hampshire tax burden. Is this fair? What of the executive, administrator or technician making $100,000 plus and taking minimum risk? He is paying nothing and often is not a job creator but often a job cutter in recessionary time like this.I believe this distortion is similar to national economic policy that seems to be quickly growing out of favor as unemployment climbs. Are job-seekers beginning to see that policies that inhibit the flow and overtaxes capital has something to do with business’s reluctance to take risk and invest creating new jobs?
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This article appears in the February 12 2010 issue of New Hampshire Business Review