House, Senate near agreement on business tax deal

Section 179 deduction, ‘Planet Fitness’ compromise nears

NH House and Senate conferees on Wednesday worked on a business tax package acceptable to Gov. Maggie Hassan that would quadruple the up-front deductions for major capital expenses, alleviate the tax burden on businesses that go public and update the state’s entire business tax code.

“The support of these two bills today builds on our long record of incentivizing business to grow, expand and create jobs in our state while ensuring that prospective new business owners know that New Hampshire is open and supportive of business,” said Sen. Jeb Bradley, in a statement following the conference.

But while other lawmakers were congratulating themselves on the compromise, Sen. Andy Sanborn, R-Bedford blasted it as not going far enough.

“I’m frankly staggered at how anti-business the governor and the House are being,” he said, arguing that even after the changes, New Hampshire remains “number one for exporting job and business growth” and couldn’t even bring itself up from being the “derriere of the rest of the country.”

The major dispute was over Senate Bill 239, concerning the Section 179 capital equipment deduction in the federal tax code. That code currently allows a $500,000 deduction up-front for major capital expenses – an amount matched by 37 other states, including every other state in New England. New Hampshire, which has been out of sync with the federal code since 2000, currently caps such deductible expenses at $25,000.

Both chambers sought to raise the limit. The Senate wanted to synchronize the tax code automatically with the federal law on a rolling basis, with a few exceptions, Section 179 not among them, starting this tax year.

The House wanted to update the code annually, but exclude the Section 179 deduction, which it would cap it at $100,000 starting next year.

The House was prepared to compromise, starting with $100,000 and increasing it gradually to perhaps $250,000. The governor was not, blaming the cost.

Based on 2013 tax returns, the Department of Revenue Administration estimated that the state would have lost $7.6 million in revenue if the cap were at $100,000 and $15.2 million with a $500,000 cap.

Sanborn has argued that the state wouldn’t really lose that money, because business wouldn’t be able to depreciate it, and suggested it was just a timing issue.

The DRA disputed that, saying that some businesses will either shut down, leave or outgrow New Hampshire, so the amount received on the back end won’t be as much.

There also is usually an advantage to the business, and a disadvantage to the state, for businesses to pay sooner rather than later.

But Sanborn also argued that the amount deducted represented business investment that would help spur economic growth and that the loss of revenue diminishes with the size of the deduction.

‘Planet Fitness bill’

While other conferees agreed with many of Sanborn’s points, they argued to move cautiously, saying that they could always revisit the deduction in future years. Besides, they said, they didn’t want to risk a veto by the governor.

They noted that lawmakers recently reduced business profits tax and business enterprise tax rates and more than tripled the research and development tax credit to $7 million.

“It’s an incremental step,” said Rep. Brian Gallagher, R-Sanbornton. “The turtle wins the race. It’s a matter of doing it efficiently versus quickly.”

But Sanborn was scornful of what he called the “turtle approach,” arguing the state has the “worst business tax climate in America.”

He added: “When is the Legislature going to wake up to the challenges we have self-inflicted by this body? I’m furious at this. I’m tired of paying more than anyone else.”

Bradley later apologized to the House members for Sanborn’s “tongue-lashing,” as did Sen. Lou D’Alessandro, D-Manchester, who called it “despicable.”

Sanborn voted against the compromise, and said he wasn’t sure if he would sign off on it. Bradley indicated that if he didn’t, he would be replaced on the committee by someone who would.

Sanborn wasn’t named as a conferee on the committee recommending the second part of the tax package – a version of SB 342, which was the most friendly toward business.

The measure, known as the “Planet Fitness bill,” is similar to one vetoed last year. It would no longer count the step-up in basis as income, resulting in an increased business profits tax. Instead, that step-up would be taxed as a capital gain, to be dealt with if the company is sold.

The House version allowed the business the option to take that gain on either end, depending on which situation saved the firm (and cost the state) the most money. The governor’s office opposed that option, but was willing to accept it if the Legislature agreed to limit the Section 179 deduction to $100,000.