House seeks control over new tax forms
The release of New Hampshire’s new scan-friendly business tax forms for 2011 will be a crucial step in paving the way for electronic filing, but that step might become a stumble if the Legislature slows down the process by asserting its control over regulators.House Bill 564, endorsed last month by the House Ways and Means Committee, would require that business tax forms would have to go before the Joint Legislative Committee on Rules (JLCR) — a process that could take months.The state Department of Revenue Administration, New Hampshire Society of Certified Public Accountants and Democrats in the Legislature are concerned that it could prevent software vendors from including these forms in time.And if JLCR ends up tweaking the forms at the last minute, “we would have a major problem on our hands, and business would have a major problem,” said Rep. Sue Almy, D-Lebanon, the leading Democrat on the House Ways and Means Committee. In the House Calendar, she said requiring JLCR approval would be “bad for business.”But committee leaders countered that they got an earful of complaints from businesses after the DRA’s decision to require the filing of separate business profits tax and business enterprise tax 2010 forms. So they want to make sure that lawmakers have the final say on forms in the future.Business tax forms “should be subjected to the highest level of transparency and accountability whenever changes to their structure or associated tax forms are contemplated,” wrote Rep. Norman Majors, R-Plaistow, for the majority of the committee.The House might vote on the amended bill in the legislative session on Dec. 14, though more likely they won’t get to it until January.’Modernization’ savingsWho would think that what seemed like a technical fix would become a hot political issue?The DRA was attempting to update its forms — which had not had a serious overhaul in decades — to make things easier on the department, taxpayers and accountants, according to DRA Commissioner Kevin Clougherty.”Modernization” would save the state money and staff time, process the returns (and refunds) quicker, uncover errors sooner, put them in synch with federal returns, make it easier for accountants and software companies, and enable the department to capture more information to satisfy the curiosity of lawmakers, journalists and think tanks, he said.The DRA receives as many as 30,000 documents a day, and half of its staff is devoted to keying in the data during crunch time. A scanner can process 15,000 documents in an hour, he said.But that’s not the end of it. Once the department can scan its paper forms, then it will be better able to switch over to electronic filing, saving even more time, he said.That’s what both accountants and businesses that file their own taxes want. After all, federal filing is electronic, so it’s very frustrating “to break out the paper and pen. It’s much more time-consuming” to fill out New Hampshire tax forms, said Judith Labbe-Huard, president of the CPA society.But integrating state tax forms with federal forms is easier said than done, since New Hampshire’s tax system is unique — and that’s not just because it doesn’t have an income tax.One issue is that state taxes businesses differently, and putting that difference into the forms requires various interpretations. In addition, the DRA concluded that the old forms sometimes don’t even match state law.That was the reason it wanted to separate the BET and BPT forms last year, and was even considering eliminating the summary form that taxpayers and accountants found so helpful.Thus, for the past few years, the DRA, with the CPA society’s help, has been going though the forms line by line, trying to solve painfully complicated questions.Here’s one “simple” example given by Jim Usseglio — a CPA who authored a white paper on the subject:”Say a business in New Hampshire, organized and taxed as a partnership, makes $100,000 in 2011, and has a $100,000 net operating loss carryforward from 2010. The question is, can the partnership claim a personal services compensation deduction for 2011, for say $100,000, before deducting its NOL carryforward and therefore preserve and carryforward its 2010 NOL to 2012, or does the law require that the NOL be deducted in 2011 before the comp deduction (and therefore no comp deduction can be claimed since can’t create a loss), and thus eliminate any NOL carryforward?”That’s the simple example, according to Usseglio.”Not having tax practitioners involved in this process would not serve the public well,” Usseglio said.Clougherty agreed.”We encouraged criticism to clarify issues,” he said. “And sometimes you have to balance the input of the practitioner with efficiency for the department. But we want them looking over our shoulder, to have a good working relationship, to say what doesn’t work.”Thus far, it has been an informal process, one that has been working well, Labbe-Huard said.”We are not so much working with the DRA,” said Labbe-Huard. “We don’t have any control over it. We are not writing the forms. All we are doing is making comments.”The society wouldn’t mind formalizing that process, as an alternative to HB 564.Originally, the bill would have required that all 344 of the state’s tax forms go through JLCR. The Ways and Means amendment narrowed it to the BPT, BET and interest and dividends taxes. While the society supported the goal of accountability, it was “still very concerned that the JLCR process would be much too lengthy to properly serve the taxpayers of New Hampshire,” said Labbe-Huard in a prepared statement.As an alternative, the committee could set up a statutory committee, made up of practitioners, regulators and lawmakers, suggested Bruce Berke, a lobbyist who represents the CPA society.Such a committee would turn around forms in a matter of weeks, not months. And while having practitioners on the committee might not add to the timeliness, “it could add to the quality of the product,” he said.But Ways and Means Committee Chair Rep. Stephen Stepanek, R-Milford, said he thought that JLCR would provide more legislative oversight. Besides, the JLCR committee could use its emergency powers to accelerate the process, he said.