New Hampshire House OKs delay in single sales factor implementation
In marathon session, lawmakers also back Calif. emissions standards and local rooms and meals tax
New Hampshire lawmakers won’t be meeting this week because of the coronavirus crisis, so this is a good time to catch up on the House of Representatives’ extraordinary sessions in the wee small hours of the morning last week, when it passed at least 18 bills affecting Granite State businesses.
The session started after 9 a.m. on Thursday morning, March 12, and ended just before 4 a.m. on Friday, March 13. The House passed a host of bills that the media – eyes focused on the virus – didn’t report on. Here are three of them.
Single sales factor
At 3 a.m., Friday, without debate, the House passed House Bill 1200, which as amended put off for four years using the single sales factor in determining business taxes.
Large multi-state businesses have been pushing for a single sales factor for years, and it was finally passed with little attention when it was inserted into last year’s compromise budget.
Single sales factor is how companies that operate in multiple states can apportion their business profits tax bill. In other words, how much of their profits are derived from the Granite State?
Currently, New Hampshire determines the BPT based on payroll, property taxes and sales. Sales are double-weighted, so the final bill is based half on sales and the payroll and property taxes make up the other half.
About half the states use a single sales factor, meaning that only a company’s sales determine what percentage of profits should be taxed in each state.
This is used to attract manufacturers, which, since they sell most of their goods out of state, would mean paying hardly any business taxes in their home state — think Timberland, Velcro or BAE Systems. On the other hand it would mean New Hampshire would get a larger share of business taxes from out-of-state retailers, like Walmart, and Target.
When enacted, lawmakers thought the state would come out ahead, but the Department of Revenue Administration isn’t so sure, since sales can be much more volatile from year to year. So the measure that was enacted won’t take effect until January 2022.
The new bill, HB 1200, would delay the change further, to January 2026. The House Ways and Means Committee wants more time to see how market-based sourcing, also passed last year, is working out.
Market-based sourcing is another apportionment change, this one aimed at services companies, like accounting and engineering firms, on how they calculate the sales factor.
Under the old method, the tax to service companies was based on sales that take place where most of the cost of performance of those services occurred – the home state of the business. Under market-based sourcing, New Hampshire would look to where the buyer, not the seller, is located.
This change is more of a no-brainer in terms of a net positive for the state, according to DRA estimates, but the House Ways and Means committee isn’t so sure, especially as the economy seems to be entering uncharted territory as the coronavirus spreads.
“Consideration of a single sales factor should await as a result of this new situation, said Rep. Susan Almy, D-Lebanon, in the written blurb on the House calendar. She didn’t speak on the floor on this bill, and neither did anyone else. It passed easily on a voice.
Auto emissions standards
Earlier, at 1:15 a.m., the House passed HB 1444, which would adopt California’s auto emission standards.
This is the first time in the last 15 years the House has voted on the proposal, and since that time some 23 other states have adopted them, according to Rep. Rebecca McWilliams, D-Concord – including every other state in New England.
States that adopt the standard give discounts to dealers that sell zero emissions vehicles, or ZEVs, which are currently mostly electric cars. As a result, manufacturers are more likely to send the cars to states where such discounts are available.
“By not participating, New Hampshire is inadvertently throttling commerce in electric vehicles resulting in a loss of $36 million,” McWilliams said on the House floor.
But Rep. Fred Plett, R-Goffstown, said that the bill would be “twisting dealers’ arms. You only get so many trucks if you get so many ZEVs,” which don’t sell, he claimed, because the “cold weather and hills make them impractical.”
Dealers only make a profit by “jacking up the price of all the other vehicles,” he added.
Further, he said enforcement wouldn’t start until 2025, when California’s standards are about to expire and be replaced, so “unelected Californians will be imposing new rules and we don’t even know what they are,” he said
But the federal government will also be adopting new rules by then, retorted McWilliams, so it’s a matter of “how clean our state automobiles should be.”
She also said that ZEV sales rose 42% in New Hampshire in 2018, to 1,723. The problem is that they are being bought in places like Massachusetts, where sales doubled to nearly 9,000, instead of being test-driven and purchased here. The House passed the bill, 179-109.
Local rooms and meals tax
Just after midnight on March 13, lawmakers passed HB 1160, which would enable municipalities to collect a local $2 rooms and meals tax, on top of the state top tax of 9%, to support a local fund to support tourism. The House passed a similar bill last year (HB 641), but the Senate let it die.
Many states allow a local rooms and meals tax, including Massachusetts and Maine. Tourist towns or those that attract a lot of business-related travel have long been advocates of this, since they spend a lot on local services for visitors that swell their population. They complain that they are not getting the 40% share of the statewide rooms and meals tax that was originally promised
Rep. Tom Dolan, R-Londonderry, argued in his written blurb that the state should up its share rather than allow a local tax. The House passed the bill 174-113. We’ll see what the Senate does with it this time.