Why is Gov. Hassan bashing bipartisan tax reforms?
The real problem facing the New Hampshire budget is spending
It’s puzzling to hear Gov. Maggie Hassan claim that recent changes in New Hampshire’s business tax code are causing problems with the state budget. Not only were the reforms of the past few years approved with overwhelming bipartisan support, but they were fully accounted for in the budget.
During last year’s budget debate, Senate Republicans insisted on revenue projections more conservative than the governor’s optimistic estimates. It’s a good thing we did. Fiscal Year 2014 revenues came in just $3.1 million higher than our forecast.
As I conclude my time as chair of the Senate Ways and Means Committee, I’d like to review why Republicans and Democrats joined forces to reform New Hampshire’s businesses taxes, and why we shouldn’t reverse this progress.
1. Exempting the Internet from the communications services tax: Since 1998, Congress imposed a moratorium on new state and local taxes on Internet access. Despite this federal law, the New Hampshire Department of Revenue Administration began applying the CST to Internet access charges without legislative approval.
In 2012, the Legislature corrected this bureaucratic overreach by passing House Bill 1418, which clarified that the tax does not apply to Internet access. The Senate approved the bill, 23-0, and the House passed it, 244-46.
2. BET threshold: HB 1418 also included a provision to provide tax relief to New Hampshire’s smallest businesses. By increasing the threshold for the Business Enterprise Tax and adjusting it for inflation, we ensured that rising prices wouldn’t slowly force more and more small businesses into the BET. Avoiding “bracket creep” was a necessary and overdue reform to New Hampshire’s business tax code, and received wide bipartisan support.
3. Net operating loss carryforward: One area where New Hampshire was losing ground to neighboring states was the ability of new business to write off their startup losses against future profits, known as net operating loss carryforward. New Hampshire only allowed businesses to use $1 million in NOL to offset their first few profitable years, which was one of the very lowest in the nation.
In 2012, we approved HB 242, which increased NOL carryforward to $10 million. This encourages struggling startups just as they are taking off. The House approved the bill by a vote of 259-89, the Senate approved it unanimously, and Governor Lynch signed it into law.
4. Interest and dividends tax against trusts: In 2012, the Legislature also updated the interest and dividends tax. The tax had been applied when trusts earned interest on their investments, even if no one in New Hampshire actually received any income that year. Senate Bill 326 amended the law so that the tax now applies when interest income is actually distributed to a beneficiary. The Senate voted 23-0 to override Governor Lynch’s veto of SB 326, and the House overrode him by a vote of 312-18.
Governor Hassan seeks to blame this small change for a $16 million large drop in I&D revenue last year, but trusts only account for $5 million a year in revenues. The real source of the dip was the fiscal cliff standoff in Washington, which temporarily increased federal taxes on dividends. This discouraged companies to hand out dividends last year, cutting into New Hampshire’s I&D tax base.
5. R&D tax credit: Last year, I sponsored SB 1 to double the research and development tax credit and make it permanent. It passed the Senate unanimously and the House 342-7. Governor Hassan lauded the bill when she signed it into law.
All of these tax reforms were passed with broad, bipartisan support. The revenue impact of these reforms, if any, was factored into the revenue forecasts included in the FY 15-16 budget that Hassan praised. So why now is Governor Hassan falsely claiming that these tax changes are causing problems with the budget?
The real problem facing the New Hampshire budget is spending. Revenue forecasts were right on target for FY 14, which ended in June. But we still don’t know whether spending stayed within the budget. The governor has been warning since May that state departments might exceed their authorized spending, but she has declined to share that data with the Legislature and the public.
If New Hampshire is facing a budget deficit, we need to see the spending data as soon as possible. We don’t need to reverse the bipartisan business tax reforms that this past Legislature has approved.
State Sen. Bob Odell, R-New London, is chair of the Senate Ways and Means Committee.