House budget: no business tax hikes, but no cuts either

Business groups take aim at aspects of $11.2 billion plan

While the New Hampshire House didn’t include any business tax increases in the $11.2 billion budget it passed on Wednesday, there weren’t any business tax cuts either – cuts that were previously approved by the Senate.

Whether that’s enough to assuage the business community remains to be seen, considering that the House budget plan also could have a negative impact on some key sectors of the economy, including health care, construction, tourism and the renewable energy industry.

Taxes

Remember all the hoopla in the Senate over cutting business taxes? Well, unless the Senate finds a way to restore them, there will be no reduction in the business profits tax from 8.5 to 7.9 percent, nor a 0.25 percent cut in the 0.75 percent business enterprise tax.

As for the proposal to raise the cap on the research and development tax credit from $2 million to $7 million – a top priority of the Business and Industry Association and New Hampshire High Tech Council, that’s missing in action in the House budget as well.

There was a modest attempt at a tax cut in Governor Hassan’s budget proposal, and it came with a big string attached, which caused the BIA to oppose it.

That proposal would have raised the “safe harbor” reasonable compensation deduction for small businesses from $75,000 to $100,000. That means that those business owners could have paid themselves an extra $25,000, with no questions asked by the Department of Revenue Administration, which has been questioning the reasonableness of reasonable compensation to avoid paying state business taxes.

The catch for owners of larger businesses – those paying themselves more than $100,000 – would have been that they would have borne the burden of justifying that higher pay if they were to be audited by the DRA. Currently that burden is on the agency.

“They [larger businesses] are the ones who are going to be targeted with audits anyway,” said David Juvet, senior vice president of the BIA “They [the DRA] are not going after those between $75,000 to $100,000.”

The BIA is also happy that the House did away with the governor’s proposal to target businesses funneling their money to tax havens overseas because “it would have a chilling effect on foreign investment,” said Juvet.

On the whole, he said, his organization is happy that, at least for now, business tax increases at least seem off of the table. As for decreases, said Juvet, “this is a maintenance budget that is now negotiable. They did the best they could under the circumstances.”

Health care

The good news for hospitals is that the House plan does not back out of funding a settlement on the Medicaid enhancement tax.

The bad news are the cuts in the mental health budget and the ending of the Medicaid expansion at the end of 2016. Both of those measures would mean more people showing up at the emergency room door, and that’s bad for health care costs, said Steve Ahnen, president of the New Hampshire Hospital Association.

“We are very concerned about the overall direction of the budget,” said Ahnen. “Just because you avoid paying for services doesn’t mean the need doesn’t exist. And treating them in the emergency is the most costly way of dealing with them.”

The BIA shares the concern. Ending the Medicaid expansion means leaving a total of $500 million of federal funds on the table.

“To remove that much from the New Hampshire economy can’t be very good for business,” Juvet said. “It would just get shifted to private insurance, which is mainly paid for by business.”

Construction

Last legislative session, the state gasoline tax was increased by 4.2 cents a gallon, money that was to be earmarked for to the widening of Interstate 93 and improving roads and bridges.

This year, the governor proposed increasing motor vehicle registration fees to raise another $95 million for highway infrastructure.

The House budget nixed the registration fee hike and grabbed about $25 million of the gas tax increase revenue, using it to fund the Department of Transportation’s administrative budget, according to Gary Abbott, vice president of the Associated General Contractors of New Hampshire.

The widening of I-93 won’t be affected, but local highway maintenance will take a hit, which Abbott and others say would affect the road construction industry and the people they hire this season. Abbott said he didn’t yet have a job estimate.

Tourism

Ever since 2009, the state’s tourism promotion budget was tied to the rooms and meals tax – 3.15 percent of it, to be exact. It would have been brought in about $8.1 million, but the House chose a different number, which Mike Somers, the president of the New Hampshire Lodging and Restaurant Association, said is about 45 percent of that amount.

“It would eliminate out-of-state promotion of New Hampshire,” said Somers. “If you stop telling them to come, then you will have a drop in out-of-state visits. You can’t cut the funding that makes that happen and expect it not to happen.”

Somers said he hopes the Senate will realize how much this will hurt rooms and meals revenue, because he said this is one budget cut that would actually lose the state money.

The NHLRA is still evaluating how it feels about another part of the House budget – Keno.

According to the House plan, allowing restaurants, bars and convenience stores to offer Keno to customers would bring in $9 million – far less than the $26 million the governor estimated it would yield.

Somers’ organization opposes establishing a casino in New Hampshire, “but we are still assessing the impact [of Keno],” he said. “We are skeptical.”

The New Hampshire Grocers Association is pretty sure that “Keno will be a benefit, by drawing the customer in the store,” similar to lottery tickets, said President John Dumais. “It’s a natural extension, but we still have to see how the licensing is going to work.”

But the Keno “sideline” is nothing compared to the House’s elimination of a proposed 21-cent cigarette tax hike that was included in the governor’s budget, Dumais said. That would have cross-border sales, at least along the Maine boarder, he said.

Renewable energy

The $50 million raid on the state’s renewable energy fund would “decimate the industry,” said Kate Epsen, executive director of the newly formed New Hampshire Clean Tech Council. It would virtually wipe out wood pellet and solar programs for residents and business that receive rebates through the fund, which in turn gets it money from utilities that have yet to meet renewable energy standards.

Businesses, for instance, can receive a $50,000 rebate from the purchase and installation of an automatic-feed wood pellet furnace and as much as $325,000 on a commercial solar installation project. In addition, there would no longer be a competitive bid program on larger-scale renewable projects of all sorts.

Even the cuts in the residential side of the program will hurt the businesses that install such projects, said Epsen.

“A lot of businesses have ramped up and hired new people based on this funding,” said Epsen. “They are either going to have to let go of those workers, or move to another state.”