House bill seeks to swap R&D cap cut for increase in I&D tax exemption

Proposal calls for raising individual I&D exemption by $1,100, cut R&D max by $5m

Rolling back New Hampshire’s research and development tax credit to help out those paying the interest and dividends tax sounds like a far-fetched idea.

Until you see who is behind it.

Indeed, House Bill 1554 not only has the support of the House majority leader, five of the 13 Republican members of the House Ways and Means members, all of whom couldn’t ask questions about the measure at the committee’s public hearing on Tuesday. That’s because they were sponsors.

The bill would increase individual exemptions from $2,400 to $3,500 for all I&D taxpayers, and raise the additional exemption from $1,200 to $1,750 for the elderly blind and disabled. But to remain revenue neutral, the measure would cap the amount of money the state can offer for those taking the R&D tax credit to $2 million. That’s the amount it was before the R&D cap was increased to $7 million for this biennium.

“It’s just a way to shift the tax breaks from businesses to plain folks,” said bill sponsor Rep. Bill Ohm, R-Nashua.

The idea had an appeal for some Democrats. “I always thought it was high at $2 million,” said Richard Ames, D-Jaffrey.

The Business and Industry Association, which is pushing for a bill to lift the R&D cap entirely in the Senate, strongly opposed the bill while remaining neutral on the rest.

The R&D tax credit was revised in 2008 with a $1 million cap, increased to $2 million in 2013, and went to $7 million starting this year. Each year the number of applicants exceeded the cap so that businesses only got a fraction of the credit, which was individually capped at $50,000.

The number of applications in the first year of the R&D credit attracted 71 business requesting $2.4 million, who received 41 percent of what they asked for under the $1 million cap. By 2016, 193 businesses requested $7.4 million and received 27 percent under the $2 million cap.

This is evidence that the program is needed, said David Juvet, the BIA’s senior vice president of public policy. “This growth took place in the teeth of the worst recession since the Great Depression,” Juvet said.

But the growth in requests for the R&D credit slowed a bit, despite the fact that the cap more than tripled to $7 million, according to updated figures from the Department of Revenue Administration.

There were 200 applicants in 2017, exceeding the new cap by $600,000. So they receiving 92.4 percent of what they asked for. Indeed, the main reason the BIA was seeking to remove the cap is not so much because of the money, but because the department would be able to give the tax break upon filing, not wait until everyone filed to find out how much was the cap exceeded.

The state R&D tax credit isn’t as generous as the surrounding states, so taking it away again would undermine trust, said Juvet.

“In my mind it is bait and switch,” said Christopher Way, deputy director at NH Division of Economic Development. “That sends a bad message.”

But the tax credit had its critics from the left and the right.

The conservative House Freedom Caucus backed the bill, arguing that I&D taxes discourage savings, while the R&D credit really doesn’t encourage investment because it is so low. Companies invest for other reasons, and then just collect the tax break, went the argument.

Rep. Susan Almy, D-Hanover, the top-ranking Democrat on the committee, also questioned whether the R&D credit actually resulted in more research. She urged the DRA to come up with a better breakdown of the businesses that use it, and for the NH Department of Business and Economic Affairs to update a five-year-old survey of businesses about how they use it. Both said they would try.

Almy, however, was wary of bill. She worried that the R&D tax credit would survive in a committee of conference, leaving about a $5 million revenue loss via the I&D tax cut.

Ohm assured her that he wanted the bill to remain revenue-neutral.