A ‘Millionaire’s Tax’ bonanza?

NH could benefit from new Mass. wealth tax

A new so-called “Millionaire’s Tax” enacted in Massachusetts has some Bay Staters looking to New Hampshire to relocate both their homes and their companies, with Gov. Chris Sununu saying his administration has fielded “countless” inquiries from “interested businesses and individuals.”

Commercial and residential real estate brokers also confirmed receiving inquiries from Massachusetts residents feeling disenfranchised by the new tax.

“Massachusetts’ loss is our gain,” said John Rice, a broker who deals mostly in high-end residential properties at Tate & Foss Sotheby’s International Realty in Rye. He noted that brokers in his office have “new clients who are actually involved, who are coming to New Hampshire because of that tax.”

Commercial real estate developer Michael Kane of The Kane Company in Portsmouth also recounted instances of the tax-spurring inquiries about New Hampshire. “There’s no question that the ‘Millionaires Tax’ is going to drive people in business to New Hampshire. It’s happening right now,” said Kane.

The new Massachusetts tax went into effect Jan. 1. It imposes an additional 4 percent income tax on the portion of annual taxable income in excess of $1 million (indexed for inflation). The tax affects high-income taxpayers annually and may affect some taxpayers on a one-time basis as a result of certain events, such as upon the sale of an expensive home or a business.

The new tax, posed as a referendum question to Massachusetts voters in November, passed with 52 percent of the vote.

While proponents say the tax on the state’s wealthiest means more money for public education — about $1.3 billion to $2 billion in the first year — opponents argue it could also drive high earners and entrepreneurs out of the state.

“Countless interested businesses and individuals have reached out to my team exploring the advantages of New Hampshire’s economy and tax structure following Massachusetts’ tax hike,” Sununu said in a statement to NH Business Review. “I encourage any business, small or large, that is considering relocating to New Hampshire to contact the NH Department of Business and Economic Affairs — the Granite State is open for business!”

Taylor Caswell, commissioner of the NH Department of Business and Economic Affairs, even thanked Massachusetts for levying an additional tax, for the reminder of New Hampshire’s lower-tax environment.

“New Hampshire has served as a destination for overtaxed Massachusetts residents and businesses for decades, and we were overdue for a reminder of one of the New Hampshire ‘Live Free or Die’ advantages: No income tax, no sales tax, and (in a few years of phaseout) no interest and dividends tax,” said Caswell. “So we thank them for that reminder.”

‘Change residence’

Some independent analyses of the tax’s potential cited moving out of Massachusetts as one way for people to cope with its effect.
“Change residence,” said one strategy cited in a December 2022 report, “Planning for the Massachusetts ‘Millionaires Tax,’” from Morgan Lewis, an American multinational law firm based in Philadelphia.

“Moving to another state can eliminate Massachusetts income tax entirely, except on Massachusetts-source income,” it said, “which includes income from a Massachusetts-based business (including employee compensation and flow-through subchapter S income or partnership/LLC income from a Massachusetts business) and income from real property located in Massachusetts.”

The Tufts University Center for State Policy Analysis said in its report, “Evaluating the Massachusetts Millionaires Tax,” that efforts to avoid the tax could mean a cut in the expected revenue by $800 million.

“Together, cross-border moves and tax avoidance would reduce millionaires tax revenue by roughly 35 percent,” the center said.

Andrew Cline, president of the Josiah Bartlett Center for Public Policy, wrote in a November 2022 blog post that the tax “represents a shift away from Massachusetts’ efforts to shed its ‘Taxachusetts’ reputation and make itself more economically competitive in the Northeast.” The center is a New Hampshire-based free-market think tank.

“If it continues to move in this direction,” Cline added, “New Hampshire could enjoy some of the spillover effects, in the form of fleeing investors, entrepreneurs and capital.”

No hard data exists yet on whether next door’s “Millionaire’s Tax” will have a residual effect in New Hampshire. And brokers interviewed by NH Business Review cannot name specific customers or their circumstances.

In-migration trends

There have been other examples of mitigating circumstances contributing to in-state migration, most recently during the Covid-19 pandemic, when the state experienced a surge in home sales to people moving to New Hampshire from more crowded areas.

A NH Housing Finance Authority report in October 2020 said that between January and August of that year there were 12,022 homes purchased statewide, a third of them by Massachusetts buyers. The report said 8,780 were buyers from within the Granite State, 1,924 coming from Massachusetts. While newcomers mostly came from the Northeast states, there was a smattering from California, Pennsylvania, Virginia, New Jersey, Texas, Arizona and Colorado.

For a variety of reasons — no income tax, no sales tax, rural feel from the seashore to the mountains — more people have moved into New Hampshire in the last few years than moved out, according to migration patterns mapped by Atlas Van Lines.

In 2022, according to Atlas, New Hampshire was one of the top 10 inbound states. The only other state in New England to share that distinction was Maine.

According to Atlas data, New Hampshire saw a big shift in moving patterns starting with the pandemic years. In 2019, 52 percent of moves were into the state, 48 percent were out of the state. In 2020, that grew to 61 percent inbound, 39 percent outbound; in 2021, 55 percent inbound, 45 percent outbound, and in 2022, 57 percent inbound and 43 percent outbound.

At certain points during these pandemic years and since, the Seacoast region has seen individual residential real estate sales top $1 million several times for a home or a condo.

In January, there were 10 sales of single-family homes that sold for more than $1 million — one home in New Castle went for $6.495 million. According to Rice, who keeps and analyzes sales data for the Seacoast Board of Realtors, those 10 million-dollar-plus home sales were a record for January. Two condos also sold for over $1 million each.

He can’t say whether any of those sales were related to the “Millionaires Tax” but added: “I did some research in terms of what it does, and I can understand why people want to move here in that price bracket.”

On average, anyone looking to buy a home in New Hampshire will find lower prices than those in Massachusetts.

The Bay State’s highest median-priced homes at the end of 2022 could be found in Dukes County (the islands of Nantucket and Martha’s Vineyard), $1,143,611; Suffolk County (metro and suburban Boston), $718,025; Middlesex County (suburban Boston) $718,025; Essex County (the North Shore), $596,926; Barnstable County (Cape Cod), $592,812; and Plymouth County (the South Shore), $530,513.

By contrast, the median-priced home in New Hampshire’s priciest county (Rockingham) was $561,000 at the end of 2022. Carroll County stood at $440,000, Merrimack at $405,000, Strafford at $367,000 and Sullivan at $310,000.

Kane also said the new tax in Massachusetts will likely be an “accelerant” to commercial/industrial activity here.

On the commercial-industrial side toward the end of 2022, the statewide vacancy rate for industrial space — which includes manufacturing, flex/research and development, and warehouse/distribution — stood at 3.1 percent. That indicates a tight market. Commercial space was more available, with an 11.2 percent vacancy rate statewide.

“New Hampshire has always been an attractive place to do business,” said Kane. He said Governor Sununu “has done an amazing job creating a real pro-business, practical approach to government, and I think that this ‘Millionaire’s Tax’ is only an accelerant.”

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