NHBR Article

'LLC tax' repeal 'disappears' from House bill

Monday, July 26, 2010

Download Podcast

It appears that New Hampshire legislators won’t repeal the infamous "LLC tax" until and unless they pass a budget.

"They can’t have their little LLC repeal unless it is in the budget," said Rep. Dennis Vachon, D-Northwood, a member of the committee of conference on House Bill 1607, of his Senate counterparts.

Repeal of the LLC tax did not make it into HB 1607 -- which deals with reasonable compensation -- that the House and Senate are expected to vote on today.

The whole debate over extending the interest and dividends tax to limited liability company distributions (more commonly known as the "LLC tax") focused attention on the reasonable compensation issue, but House members say the two are unrelated.

Senators – particularly Sen. Bob Odell, R-Lempster, had pushed hard to include the repeal in HB 1607, especially as it became clear that there would be no easy budget compromise over the Senate's gambling proposal. In fact, Odell refused to sign off on the final HB 1607 document because it didn't contain mention of repeal, and he had to be replaced by Senate President Sylvia Larson.

Odell couldn’t be reached by deadline, but Senate Finance Chair Lou D'Allesandro, D-Manchester -- a sponsor of the LLC tax repeal -- said, "The House gave us the shaft. We were told the repeal would be in 1607 and it wasn’t. The House pulled it out because they are trying to hold it hostage on the budget."

David Juvet, a vice president of the Business and Industry Association, also said he thought that conferees agreed to include the repeal, and "it just disappeared."

But Rep. Susan Almy, D-Lebanon, chair of the House Ways and Means Committee, disagreed, saying it had always been the House position that repeal would be included in the budget.

When asked if the LLC repeal was being used to push the budget along, Almy told NHBR, "In a way, yes."

The House passed the LLC tax last year as part of a final budget compromise. Supporters said that it is just closing a loophole between, but it quickly drew fire from business groups, which opposed for several reasons

Key to this whole debate was concern over the increase in audits conducted by the Department of Revenue Administration into how much business owners could deduct from the business profits tax as reasonable compensation.

The LLC tax became a bigger concern if the reasonable compensation deduction became smaller.

The Senate and House both passed different version of a reasonable compensation bill. Both tied it to federal definitions, but the Senate wanted to include language that would give credit for management functions, while the House wanted a flat "safe harbor" of $50,000 per entity. That would mean – unless there is evidence of fraud involved – that the DRA would not audit companies that claim less than $50,000 of reasonable compensation.

The DRA torpedoed the Senate version calling it a budget-buster, leaving the House version standing. Business groups were critical of the House version, particularly because the safe harbor applied to the entire entity, not to individuals. Thus, a husband-and-wife team would only be able to safely compensate themselves $25,000 each for their work in the company -- seemingly a rather low figure for the manager of a company.

But business groups were willing to live with it, if it meant repealing the LLC tax.

"I was very disappointed that they were not able to get the repeal accomplished," said Juvet.

House members said they are sure a repeal will be included in budget eventually passes.

"It will be in whatever we end up with. The governor, the Senate and the House all want it repealed. It will be repealed," said Priscilla Lockwood, R-Canterbury, another member of the conference committee. -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

Reader Comments

Search the NHBR Business Directory

Two ways to search > Choose one from below:

Enter Name or Type of business:
Enter Location (City & state, or zip code):

Banking / Finance

View our featured, enhanced business directory listings, by NH region:

Dartmouth/Lake Sunapee	Monadnock Region
Great North Woods	Seacoast
Lakes Region	White Mountains
Merrimack Valley