Investors in Opportunity Zones also get a business profits tax break

Surprised NH House panel hears how state budget changes income calculation

Businesses that invest in federal Opportunity Zones will receive a break on their business profits tax starting this year, much to the surprise of the New Hampshire House Ways and Means Committee.

The whole matter came to light Wednesday at a hearing on House Bill 1474, which is intended to give an additional local tax incentive to investors in Opportunity Zones. It turns out that the bill, as written, won’t do that, but a little-known provision in the new state budget’s trailer bill, known as “conformity,” already has.

Conformity refers to how the state tax code conforms with the federal one. Before last year’s budget, the state conformed with the 2016 Internal Revenue Code. The House Ways and Means Committee had discussed how to bring the tax code up to date, including whether to conform to specific provisions.

“But I don’t remember this as one of them,” said Rep. Susan Almy, D-Lebanon, chair of the committee. Neither could any other of its members.

Should the developer hold on to their project for longer than seven years, they receive at least a 10 percent reduction on their capital gains taxes and earn a 15% reduction in their tax liability. They also don’t have to pay any tax on capital gains related to the qualified Opportunity Zone project they invest in, as long as they hang on to it for a decade.

New Hampshire doesn’t have a capital gains tax, but federal capital gains are included in gross business income that is used as a starting point to calculate a business’ state tax obligation. Until 2020, the state conformed to the pre-2017 tax code without the Opportunity Zone tax break, so the Opportunity Zone capital gains deduction on the federal level did not carry over income used to calculate the BPT.

But that changed because of the budget compromise passed last fall and signed into law Gov. Chris Sununu, including the provision updating the conformity of New Hampshire’s code to the federal act.

So starting Jan. 1, any business can invest its capital gains in an Opportunity Zone and would not only be able to deduct that against its federal capital gains tax but its business tax profits as well.

What was particularly disturbing to the committee is that they could get that local tax break anywhere, not just New Hampshire.

“I do hope that lot of people don’t take advantage of this, particularly outside the state,” said Almy.

The Intent of HB 1474, according to its sponsor, Rep. Werner Horn, D-Franklin, is to create an additional state incentive. He said he introduced the bill on behalf of Paul Morrissette, a Loudon businessman who invests in Franklin. Morrissette said that Opportunity Zones encourage those that invest passive income in “downtrodden areas.”

“What is good for the goose is good for the gander,” he said. “Why shouldn’t the state do the same thing? Where does opportunity go in New Hampshire? Manchester, Nashua, Concord. Franklin, Berlin, they get zero. Opportunities run to the city. We got to do something. Tilton downtown is obliterated.”

There are two Opportunity Zones in downtown Franklin, but also two in downtown Nashua. The Manchester Millyard also was also selected as one, as was one census tract in Berlin. Concord and Tilton have none. All of them are among the 27 Opportunity Zones selected by Sununu, including Waterville Valley, the ski resort owned by the governor’s family.

Horn testified that the intent of his bill is to give a local tax break in addition to the federal one – not to double the tax break on the same investment but to attract more investment and to limit that investment to Opportunity Zones in the state.

The New Hampshire Department of Revenue Administration testified that the bill doesn’t accomplish that and the committee would have to change the bill for it do so. But considering the committee’s reaction to the unintentional local tax break already granted, it is unlikely that they will pass an additional one purpose.