NH Senate panel hears of ‘irreparable harm’ if R&D credit is cut

Proposal seeks to hike interest and dividends tax deduction but reduce R&D cap total

Reducing the state’s research and development tax credit cap will cause “irreparable harm,” David Juvet, the Business and Industry Association of New Hampshire’s vice president of policy, warned the Senate Ways and Means Committee Wednesday. The reduction, he said, would “cause budget ramifications that all of us and all of you will have to deal with.”

Juvet was speaking about House Bill 1554, which passed the House three weeks ago.

The bill would increase interest and dividend tax deductions from $2,400 to $3,500, with an added deduction for the elderly and disabled going from $1,200 to $1,750. To pay for those changes – estimated to cost about $5 million in 2015 figures from the Department of Revenue Administration – the bill would cut decrease the total R&D credit cap from $7 million to $2 million, reversing a change that went into effect just last year.

No one at the hearing took issue with the I&D tax cuts. Dan McGuire, testifying for Granite State Taxpayers, called it the “worst tax” in New Hampshire, a tax on “saving and investment,” which is related to “human happiness.”

It was the R&D tax credit that was in contention. McGuire called it “corporate welfare for a few hundred” that “comes from hundreds of thousands who pay for other taxes. He noted that it was more narrow that the federal R&D tax credit, because it was limited to manufacturing. “There is nothing special about these particular companies compared to others,” he said.

McGuire, who is an angel investor, also said the companies that he invests in don’t make decisions because of a tax.

But Juvet strongly disagreed with both points.

“Not all jobs are equal,” he said. “Manufacturing is the single biggest contributor to the economy,” more than “all the other sectors combined.”

And, he said, reversing course on the tax would send the wrong message to companies that could easily go somewhere else. He asked the committee “to think carefully the affect that could have on manufacturing in order to find $5 million to lower the I&D tax.”

Having it both ways

Liz Gray, testifying as a board member of the NH High Tech Council echoed Juvet, noting that the high-tech sector contributes billions to the state’s economy. She said that the tax credit “is an incentive that encourages more R&D in New Hampshire, and it would be a negative that New Hampshire is going back on the change [it made last year to raise cap].”

When Sen. Dan Feltes, D-Concord, asked Juvet how he thought the state should pay for the I&D cuts, he would not come up with an alternative, noting that the BIA didn’t have a position.

At least one business group does support cutting the I&D tax. Bruce Berke, director of the state chapter of the National Federation of Independent Business, did not testify at the hearing, but he told NH Business Review, “Any time we can cut a broad income tax is a good thing for New Hampshire.” Indeed, Berke seemed more interested in the I&D tax than the R&D tax credit, though he said, “we don’t like to put one tax reduction against another. We hope we can have both our cake and eat it too.”

Some of the Republican members of the Ways and Means committee member felt the same way.

Lawmakers “are not required to be revenue-neutral (in times of prosperity). We should be just cutting taxes,” said Sen. Andy Sanborn, R-Bedford, chair of the committee.

Sen. Bob Giuda, R-Warren, seconded that. “The wealth created will accelerate our revenue. We don’t have to make this kind of choice,” he said.

A different change to the R&D credit might emerge from the bill. While the credit is limited to manufacturing, its definition of manufacturing is partly based on the federal tax code, which is an extremely broad definition, said Carollynn J. Ward, tax policy analyst for the DRA. But the state presumably leaves out some companies covered by the federal definition.

Sanborn suggested that the state match the federal definition to broaden the tax a bit.

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