Quartet of business tax break proposals get Senate hearing
R&D credit expansion among proposals aimed at boosting job creation
Tax cuts or tax breaks? That’s the underlying question behind four bills that went before the Senate Ways and Means committee on Tuesday.
Senate Bill 6, sponsored by Sen. Jeb Bradley, R-Wolfeboro, would expand the existing cap on research and development credit from $2 million to $7 million. The Business and Industry Association of New Hampshire would like to lift the cap altogether, but Bradley, in an attempt to quiet budget jitters, agreed to set it at $6.3 million, a little above the level used last year.
Last year, companies only received 31.62 percent of the credit that they would have been entitled to if there had been no cap, which is a maximum of $50,000 or 10 percent of the R&D investment.
That’s better than 2012, when the overall cap was $1 million, and businesses only received 24 percent of what they would have been entitled to. But the limit on the tax break isn’t the only problem, said BIA Vice President Dave Juvet. “There is this built-in delay. You have to wait for a year before you know what kind of credit you’ll get.”
A total elimination of the cap would allow employers to take the credit while filing, but SB 6 is a “step in the right direction,” said Juvet.
Supporters of the measure argue that the state gets paid back in the high-tech manufacturing jobs created by companies using the credit. Some 87 percent of manufacturers who used the credit said it resulted in increased jobs, testified Carmen Lorentz, director of the New Hampshire Division of Economic Development.
Graphicast, a Jaffrey foundry with 29 employees, was one of them. According to its president, Val Zanchuk, the company received about $208,000 worth of federal and state tax credits since 2008, with $45,000 from New Hampshire.
“It was critical to help us grow,” he said. “For a very small company, it means keeping employment in the tough times and expanding it in the good times.”
And every three manufacturing jobs leads to four other jobs, he said.
While there was no outright opposition to the bill, Sen. Dan Feltes, D-Concord, did raise some questions, asking whether or not businesses would invest in R&D even if there were no credit.
Yes, answered one and all, but perhaps not as much.
The committee voted to pass he bill, with the intention of tabling it, and later decided to incorporate it in the budget because, combined with proposed cuts in the business profits tax and business enterprise tax, the three bills would mean a $20 million annual reduction in revenues, said Senate President Chuck Morse, R-Salem, who chairs the Senate Finance Committee.
Help for startups
With that in mind, the committee took a more critical eye to the next three tax break proposals that came their way.
SB 215 – which Sen. Lou D’Allesandro, D-Manchester presented as a companion bill – would allow businesses to take their R&D tax break up front, in a cash rebate, if they were willing to give up 35 percent of it.
“It gives small business an option,” he said.
Many advocates of small businesses backed the measure, which was praised not just for encouraging innovation but also as a way to extend credit to startups.
“It’s having the cash up front rather than a credit they may not be able to use until they are profitable,” said Elizabeth Gray, director of entrepreneurship at the New Hampshire Business Finance Authority.
“The difference between success and failure is the $50,000 you have in your pocket today,” added Marc Sedam, executive director of the New Hampshire Innovation Research Center.
And a recent survey by the New Hampshire High Tech Council revealed that the single biggest area of concern – cited by 48 percent of businesses surveyed, compared to 23 percent in national surveys – was access of capital, said Michelline Dufort, director of business relations at the council.
But there was some concern that the proposal might attract too many takers, diluting the tax. Morse was concerned businesses would be giving up so much just to get the money sooner. And the money they forgo wouldn’t go back into the program, but revert to the state’s coffers, testified John Lighthall, who runs the program for the state Department of Revenue Administration.
“That’s one hell of an interest rate,” Morse asked. “It’s like putting a gun to people’s head.”
“It’s a business decision,” said Lighthall.
SB 201, introduced by Sen. Molly Kelly, D-Keene, would take a different tack, increasing the cap on the investment tax credit from $5 million to $8 million.
This is a program, overseen by the Community Development Finance Authority, that gives a 75 percent state business tax credit against a corporate donation made to any approved project.
Like the other tax breaks, Kelly claimed this would pay for itself. For instance, she said, there was the redevelopment of railway property in Keene that doubled its assessment and resulted in 300 jobs, or the $330,000 tax credit to the Hannah Grimes Center, a business incubator, that increased revenues from $127,000 in 2010 to $1.86 million in 2013.
“It makes your dollar go further,” said Amanda Grappone Osmer, owner of Grappone Automotive Group, which donated $1.34 million to various projects in the Concord region because of the tax credit.
But by the time SB 201 had its hearing, Morse was starting to get concerned.
“We are trying to set priorities here,” he said. “Are people going to invest in their businesses and their communities because of a specific tax break or because they have more their pocket?”
Morse asked Sen. Nancy Stiles, R-Hampton, a similar question when she presented SB 217, a new job creation tax credit against the BET.
“We can do both,” said Stiles.
Stiles’ bill would allow businesses to defer BET taxes on the wages from any new jobs created by a startup or a company that moves to New Hampshire, or by an existing company expanding 25 percent.
While everyone was supportive of the concept, several were concerned about the 25 percent figure, whether such a break would be fair to existing New Hampshire companies.
Stiles said she was open to changing the 25 percent figure. Rep. Ken Weyler, R-Kingston, a member of the House Finance Committee, raised another question: Would someone be eligible for both the R&D credit and the job credit, or would there have to be a choice made?
“We’ll have to look at this more holistically,” agreed Sen. Andy Sanborn, R-Bedford.