NH budget compromise means bigger one-year business tax cuts

Measure to be voted on Wednesday also includes revenue-linked future rate decreases

A newly announced compromise state budget means that New Hampshire businesses will see a slightly bigger tax cut next year if lawmakers approve the deal reached by Gov. Maggie Hassan and Republican legislative leaders.

In addition, subsequent tax cuts in the compromise budget could either be implemented more quickly than in the vetoed version – or they could not happen at all. It all depends on how much revenue the state raises over the period.

The budget will be also altered to pay for a previously negotiated cost of living increase for state employees – an appropriation paid for through the savings generated by the delay in a budget taking effect.

The compromise otherwise leaves the budget unaltered, putting off until next year decisions that include Medicaid expansion and implementing a tax break for businesses looking to go public, as Planet Fitness recently did.

“While this agreement is not perfect and does not include everything that either side wants, it is a fiscally responsible, bipartisan, compromise path forward that includes business tax cuts while ensuring long-term fiscal responsibility and safeguarding our ability to support critical economic priorities,” said Hassan in a statement.

“This is a big win for New Hampshire,” Senate Majority Leader Jeb Bradley, R-Wolfeboro, told NH Business Review. Bradley predicted that the compromise would pass both chambers Wednesday.

“We have the 48th-highest tax rate in the nation, and we are addressing that in a modest way, lowering business taxes for the first time in 20 years,” he said.

The compromise would lower the business profits tax rate from 8.5 to 8.2 percent in calendar year 2016 – a tenth of a percent lower than the 8.3 percent 2016 rate contained in the vetoed budget.

The business enterprise tax rate would be lowered to 0.72 percent next year, compared to the 0.725 percent rate contained in the vetoed budget.

Both the compromise and the vetoed budgets would eventually lower the BPT rate to 7.9 percent and the BET to 0.675 percent.

The vetoed budget would have accomplished this in two steps in 2017 and 2019, whereas the compromise would do it all at once in 2018. The hitch is that the compromise includes a “trigger” that will ensure state revenues are high enough to sustain the current budget before allowing those tax cuts go into effect. Of course, it would be the next Legislature that would have the final word on the 2018 tax cuts, whereas this Legislature would determine whether any cuts happen in 2017.

“By including a trigger mechanism for the second phase of tax cuts contingent upon state revenues meeting certain targets after the first phase, we have put in place an important safeguard against a massive hole in future budgets,” said Hassan.

Bradley said that the most recent revenue estimates means that the revenue trigger is “attainable.”

He said, “It’s no guarantee, but it’s very reasonable chance that we can meet it.”

‘Something we can embrace’

Senate Minority Leader Jeff Woodburn, D-Whitefield, also put out a statement endorsing the compromise on behalf of his party, so the main question is whether the proposal will pass the House, where House Speaker Shawn Jasper, R-Hudson, is on board.

“Both the BPT and BET rates will reach their lowest prescribed rate a year sooner“ under the compromise, Jasper said, adding that the relief would benefit businesses employing “95 percent of New Hampshire private-sector workers.”

He said, “We are confident that this proposal is something we can embrace.”

But there is a strong conservative contingent that has bucked leadership in the past, as well as some liberal Democrats who might be squeamish about some of the reductions included in the budget.

The Business and Industry Association of New Hampshire will be backing the compromise.

“The BIA is pleased that legislative leaders and the governor have been able to agree on a compromise two-year budget that preserves reductions to the business profits tax and business enterprise tax,” said the organization in a statement. “While modest, any initiative that reduces costs to business, such as the tax reductions in the budget compromise, is welcome relief to New Hampshire businesses of all sizes. The ‘triggers’ for the second round of tax cuts are unfortunate, but we’re confident state revenues will meet the agreed-upon targets.”

If the compromise is approved, business groups will be pleased about some of the items that will finally take effect, including an increase in the amount of money available to fund research and development tax credit. The R&D cap would be raised from $2 million to $5 million.

The budget would raid the Renewable Energy Fund to the tune of $2.25 million over the biennium as funds for Division of Homeland Security.

The fund is expected to collect $7 million this year, rather than the $21 million that had been anticipated when the Legislature voted for the budget in June.

The budget also contains less money for the Division of Tourism and Travel Development, which would have received $1 million more under a formula based on the rooms and meals tax revenues.

Hassan had originally wanted to include Medicaid expansion in the budget, but Republican leaders firmly opposed that idea.

She also expressed a willingness to support a measure that would address a tax break for companies “stepping up their basis,” either by going public – as Planet Fitness did in August – or by obtaining other outside investment. But that is in a separate bill, and her veto of the original measure during the session is expected to be sustained.

“We hope to fast-track that bill next year and address the governor’s concerns,” said Bradley.

Other changes proposed earlier by Hassan – increasing the threshold for those who have to pay the BET, a change in the reasonable compensation law for partnerships and increasing the cigarette tax and registration fees – were all left out of the compromise.

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