After the LLC tax, get ready for other shoes to drop
Small businesses in New Hampshire are the economic backbone of our state, creating 65 percent of all new jobs. Now, Governor Lynch and the Democratic leadership in the Legislature inexplicably want to impose newly passed taxes on these entrepreneurs at a rate nearly twice as high as any other taxpayer. And they are justifying it with the lame, inaccurate claim that they are simply “closing a loophole.” Either they really don’t know what they have done, or they don’t know how to undo it.Here are the facts from the governor’s own appointed tax Commissioner Kevin Clougherty, who claims that expanding the 5 percent dividends tax to limited liability corporations and small partnerships will raise $15 million a year in new taxes from 20,000 taxpayers.Simple 3rd grade math will tell you that the state will be collecting taxes on an additional $300 million of income ($15 million is 5 percent of $300 million). But this isn’t new money. Rather, this is $300 million that the bureaucrats in Concord want to relabel from “compensation” to “profit.”How are they going to do that? By passing House Bill 1607, the second shoe to drop in the Democrats’ tax assault. This legislation was recently heard before the House Ways and Means Committee. The purpose of HB 1607 is to empower the Department of Revenue Administration to set arbitrary standards of “reasonable compensation” for every sole proprietor, partnership and LLC in the state. That is a 180 degree change from current practice, with which the department examines or “audits” individual taxpayers that are flagged as unusual or suspicious.Moreover, HB 1607 would allow the department to set these standards by administrative rules, without legislative review and approval. This would make the commissioner the New Hampshire “pay czar” over every small business.Once this income stream — remember DRA projects it will affect 20,000 taxpayers — is relabeled “profit,” guess what? It will also be taxed as business profits at a rate of 8.5 percent, imposing additional taxes on these entrepreneurs of $25.5 million.What is the final tax bite? The overwhelming majority of partnerships and LLCs in New Hampshire are small businesses with only one, two or perhaps a handful of active members and partners — active in that they work long hours, often for years, before they begin to take home a decent income. These are people who take risks everyday, who wake up in the middle of the night worrying about their business, who put themselves and their families on the line by incurring personal debt.And how are the Democrats in Concord going to reward them? By taxing them at an effective rate of 13.5 percent. So much for the New Hampshire Advantage.Rep. David Hess, R-Hooksett, is deputy House minority leader.