Report raises questions on value of further business profits tax rate cut
Study points to disparity in benefits, with larger companies reaping most of the gains
It didn’t take very long before the NH Senate Ways and Means Committee hearing on a proposal to cut the rate of the business profits tax from 7.6 percent to 7.5 percent turned into a partisan debate. “Our business taxes have reduced year after year after year,” said Sen. Lou D’Allesandro, D-Manchester. “How far down do you think business taxes have to go to be competitive? Would no tax be appropriate?” “Well to me, the lower the taxes are, the better it is for the economy,” said Rep. Notter R-Merrimack, prime sponsor of House Bill 1221. “The lower the taxes are, the lower the revenue there is to manage state government,” shot back D’Allesandro.
“I would like to make a comment,” chimed in committee chair Sen. Bob Giuda. R-Warren. “Business taxes are $28 million, and year to date revenue is $239 million head of plan. There is more than enough to take a one-twentieth of 1 percent cut in the tax. As we can tell from history, when the Legislature lowers taxes our revenues continue to increase. So I don’t have a concern.”
“Wouldn’t it be more helpful to raise the filing threshold so fewer small businesses would have be subjected to it?” Sen. Cindy Rosenwald, D-Nashua.
“Out-of-state corporations make up only 10.6 percent of BPT taxpayers,” responded Giuda.
Giuda is correct. But that small minority pays the bulk of the BPT. Water’s-edge filers – large multinationals with an overseas operation – only account for 5.7 percent of BPT filers, but paid 60.2 percent of all revenue collected, according to a new report from the NH Fiscal Policy Institute, whose release apparently coincided with the hearing.
To break it down another way, 80 of the state’s 77,000 BPT filers accounted for nearly 44 percent of BPT revenues, or $36.7 million. Those filers would get an average tax break of $36,677, which is only $10,000 less than what an average full-time worker makes in the state, as the NHFPI report’s author, Phil Sletten, wrote.
According to the report, the majority of the businesses that pay taxes – which amount to about 7,850 companies – paid between $1,000 and $10,000 on their BPT taxes, and they would receive less than $50 a year with the proposed reduction.
But the vast majority of BPT filers – nearly 60,000 businesses 0— pay nothing at all, presumably because they don’t meet the threshold or because they pay the business enterprise tax, which can be used as a credit against any BPT liability.
The NHFPI report also counters countered assertions that previous business tax cuts were responsible for the state’s revenue increases, noting that the infusion of federal spending and an increase in business profits over the last few years were the reasons.
The report cites an Urban Institute study that showed a 36.5 percent increase in national corporate tax revenue from the third quarter of 2020 to the same quarter in 2021, although New Hampshire corporate revenue rose 26.4 percent.
Some of these figures were repeated at the hearing by Rep. Richard Ames, D-Jaffrey, who argued that a cut in the BPT rate won’t really benefit the economy but mostly benefit big businesses.
But big businesses and out-of-state corporations “are very important to the economy,” testified David Juvet, senior policy director at the Business and Industry Association. “They are taxpayers in this state because they have business operations, meaning they have employees who work here and provide tens of thousands of jobs.”
Why not a BET cut?
Interestingly, the BET was left out of this tax cut, even though it has been included in every proposed business tax cut since 2016, when the BPT rate was 8.5 percent of profits and the BET was 0.75 percent of wages and interest and dividends. This year, if approved, the BPT would meet the target set in 2017 to reduce the rate to 7.5 percent.”
Notter did include a cut in the BET rate to 0.5 percent in her original bill, but the House and Ways and Means Committee eliminated it after looking at the fiscal note, which said a BET cut would cost $27.5 million a year while the BPT cut would cost $8.5 million a year.
“We were being prudent,” explained Rep. John Janigian, R-Salem.
It also might be that, while the BPT was overperforming by 33.5 percent, the BET has been underperforming by about 12.3 percent, testified Department of Revenue Administration officials, though that could be because of the labor shortage, since the BET is basically a payroll tax.
The bill – which passed the House on March 17, 177-141, should have a good chance in the Republican-controlled Senate. The governor, after praising previous business tax cuts in his State of the State address, urged lawmakers to “do it again.”
The main question is whether to include BET cuts in the final result.
Currently, the 0.55 percent rate is tantalizingly close to the 0.5 percent target.
Bruce Berke, state director of the National Federation of Independent Business, told NH Business Review that while he supports the bill he was concerned it didn’t include a BET cut because that would help smaller companies.
“These small businesses also need that promise, that direction that was given to them seven or eight years ago,” he testified before the committee.
There is some indication there might be some give in Senate. At the end of the hearing, Giuda asked for estimates on how much it would cost to cut the BET in intervals, from 0.55 to 0.5 percent.