Keep N.H. ‘business-friendly’
The following are excerpts from testimony presented last month by Business and Industry Association of New Hampshire President Jim Roche on Senate Bill 497, which would address the tax on LLC distributions the issue of reasonable compensation.I am here this afternoon to express the BIA’s support for SB 497 FN, which offers solutions to two critical New Hampshire business issues, the taxation of distributions from LLCs and partnerships as dividends under New Hampshire’s interest and dividends statutes, and the reasonable compensation deduction against the business profits tax.The issue of reasonable compensation has been with us for several years. BIA worked on this issue two sessions ago but was unable to reach consensus on safe harbor language. We also worked cooperatively with the Department of Revenue Administration over the summer and fall trying to craft appropriate language that gives businesspeople and their tax advisers the guidance they need on this issue.Why are we and other organizations working so hard on this? Because before 2004 the Department of Revenue Administration rarely questioned a businessperson’s compensation deduction as reasonable. However, since 2004 aggressive auditing by DRA has reaped millions of dollars each year in higher business tax revenue.Businesspeople clearly are at a disadvantage in the audit process. Neither they nor their tax advisers can accurately predict what will be considered “reasonable” by the DRA. This uncertainty is not good for New Hampshire’s business community. A fundamental feature of our voluntary compliance system of taxation are rules that are fair, clear and not subject to “interpretation” by DRA auditors. SB 497 FN provides this clarity.The House Ways and Means committee recognized this inequity when it passed HB 1607 earlier this session. Obviously the safe harbor established in HB 1607 differs from that in SB 497 and some have characterized the House effort as helping the state’s smallest business while the Senate bill is of greater help to larger businesses. We believe this committee should include both safe harbors in this legislation. Both have merit, both address the problem. It seems reasonable to offer business the choice of which safe harbor, if any, they feel best meets their needs.I’m sure we are all aware of the confusion and angst resulting from last year’s extension of the interest and dividends tax to distributions from LLCs and partnerships. The fundamental question we need to ask is, “What should properly be considered a dividend?” Again, SB 497 FN provides a solution that answers that question concisely and treats businesses fairly. In doing so, it provides business owners and their tax advisers clear direction on how to properly and accurately comply with their tax obligations to the state of New Hampshire.Those that choose to criticize this legislation will point to revenue losses to New Hampshire if the bill becomes law. I would ask the Ways and Means committee to consider two things. The revenue that has accrued to the state through aggressive auditing of the reasonable compensation deduction is impure money. Small-business owners are either forced to settle with the DRA or take what could be a longer, more expensive and unquestionably more uncertain outcome by contesting the decision in court.Is this how we want to raise tax revenue in New Hampshire? Will this help maintain what has long been a perception on the part of many that New Hampshire is “business-friendly?”SB 497 provides fairness, and it modernizes New Hampshire’s outdated interest and dividends tax statutes. SB 497 underscores that New Hampshire is business-friendly.Jim Roche is president of the Business and Industry Association of New Hampshire. He can be contacted at 603-224-5388, ext. 111 or firstname.lastname@example.org.