House panel weighs cut in BET, elimination of I&D and communications taxes

Will New Hampshire be the only state in the nation with no communications tax?

Will it join Tennessee as being one of the few “true” income tax-free states?

Will it keep its promise to businesses to lower the business enterprise tax to 0.50 percent?

And if does all this, how can it pay for services that businesses depend, without raising property taxes that businesses also pay?

These were some of the questions raised during Tuesday’s House Ways and Means Committee hearing as members looked at the most significant tax policy bills they will take up this session. The answers that emerge may very well shape the next biennial budget.

At stake is about $160 million in revenues. Some $106 million would be lost by accelerating the phaseout of the interest and dividends tax.

Repealing the so-called I&D tax would “stop the migration of wealthy people” out of state, claimed House Bill 100’s prime sponsor, Rep. John Janigian, R-Salem. “Wealthy people are more likely to invest in New Hampshire or may bring their businesses to New Hampshire.”

He said wealthy people are moving to Florida not to escape the snow, but because that state doesn’t have an I&D tax. He added that passing his bill would be a notch in the belt of New Hampshire as an income tax-free, since the I&D is a tax on income. New Hampshire had shared the distinction with Tennessee as the only state that taxed only investment income until that state repealed its I&D tax, New Hampshire as an income tax-free state with “an asterisk,” said Janigian.

The Legislature voted to repeal the I&D tax last year, but gradually over five years, with the rate falling each year (it is now 4 percent). It will be eliminated altogether on Jan. 1, 2027.

HB 100 speeds up the repeal, eliminating the tax in 2024. That would mean that the state would lose the revenue for this year’s new biennial budget.

According to the Department of Revenue Administration’s fiscal note to the bill, the $106 million in revenue lost in fiscal years 2024 and 2025 is the difference between eliminating the tax gradually and eliminating it altogether, not compared to what it was before the rate started falling. Janigian dismissed the DRA’s estimate as “static.”

“When you look at the fiscal note, you see a large number, without looking at all the positives that will happen,” he said.

That hearing followed that for HB 192, a bill introduced by Rep. Susan Almy, D-Lebanon, the highest-ranking Democrat on the Ways and Means Committee, whose membership is split evenly along party lines. Her bill would have made the tax rate 5 percent again but more than triple the interest and dividend threshold for when it would have to be paid, increasing it from $2,400 to $7,500.

That means that, despite fewer people paying the tax, it would actually bring in more revenue – $51 million over the biennium, as opposed to eliminating it all together.

The state has done well fiscally despite cutting taxes, but that can’t continue, said Almy.

“We are just exiting the biggest bucket of stimulus money ever to be dropped on our state and national economies, and we don’t know how well our business and revenues will survive, she said. “We can have some very unpleasant surprises in 2024 and 2025.”

Besides, she said, “New Hampshire requires more investments, not less,” and when the state cuts services, the costs get passed down to municipalities who end up raising property taxes – and most businesses pay more in property taxes than business taxes.

BET cut ‘promise’

If eliminating the I&D tax would bolster the states income tax- free bona fides, getting rid of the communications tax would shore up its sales tax-free status, pointed out Dennis Hull, state affairs coordinator for Americans for Tax Reform.

The Granite State’s communication tax is already on the low side, but if HB 133 is approved, “this would be the first state to get rid of it entirely and would be a step in making New Hampshire a true no-sales-tax state,” Hull said.

The 7.1 percent tax is on all voice communication, and revenues collected through it have been going as people use a greater percentage of data for streaming, say the providers – even though services like Zoom are taxable. (The DRA promised to audit this after being questioned by committee members).

The bill’s sponsor, Rep. Jason Osborne, R-Auburn, the House majority leader, downplayed his bill, calling it the least important of the quartet being heard today, because the amount of revenue loss is “$30 million and some change” (the change is $900,000). He also argued that repealing the tax is better than cutting it, since the cost of collecting it is fixed.

“Getting rid of a tax makes it harder to bring it back in the future,” and he maintained that was a good thing.

HB 15 doesn’t eliminate the business enterprise tax, but it does complete a series of cuts that started in 2015 when its rate was 0.75 percent. The goal at the time was to cut the rate to 0.50 percent, but last year, while the state made its last cut in the business profits tax rate – dropping it to 7.5 percent – the state held back on cutting the BET because of the price tag ($24 million in revenue), and left it at 0.55 percent.

Rep. Jeanine Notter, R-Merrimack, argued that the tax should be cut to complete a promise to the business community, stalled because of the pandemic.

“If the timeline had remained intact the rates in HB 15 would have already been law,” she said. “It’s not too late to keep that promise.”

Promises or not, the cuts are so small as to be meaningless, testified Rep. Tim Horrigan, D-Durham. “Generally you cut taxes as an incentive to doing something,” he said “This is just so minuscule it wouldn’t make any difference at all.”