Senate budget shoots for more business tax cuts, higher Section 179 deduction cap
This week’s vote also would increase infrastructure, school spending and shuffle state agencies
The budget the NH Senate is expected to pass this week will not only slightly accelerate already scheduled business tax cuts but greatly expand a tax break for businesses that buy qualifying equipment.
The budget, or rather the trailer bill that accompanied the budget, would increase the maximum upfront deduction allowed on a company’s business profits tax bill – known as the Section 179 deduction because of its place in the federal tax code – from $100,000 to $500,000. This change would bring it in line with the current federal code.
You’ll find this buried on page 97 of the 107-page bill amendment to House Bill 517, now the trailer bill. (The Senate had to attach the trailer bill to an obscure House bill after the House failed to pass its own budget and trailer bills, HB 1 and HB 2.)
Last session, lawmakers increased the Section 179 deduction from $25,000 to $100,000, and critics contend that the state should evaluate the effect of that change on the budget before increasing it.
The fiscal note on a similar bill passed and tabled back in March said that the state would have lost just under $10 million if it had expanded the deduction back in 2014.
But supporters of the bill suggested that the effect on state revenues would be negligible, since what’s deducted on the front end would be lost on depreciation on the back end. In addition, they said that equipment purchases would create more economic activity, which would theoretically result in more business profits to tax.
7.5% BPT by 2021
The business tax cuts, however, could potentially pack a bigger budget wallop, even though the rate cut is small, because it would affect a lot more companies.
This would be the second round of recent tax rate cuts.
Under the first, the business profits tax rate of 8.5 percent is scheduled to go down to 7.9 percent by 2019 and the business enterprise tax will drop from 0.75 to 0.675 percent.
Under the new proposal, the BPT rate would be cut to 7.7 percent by 2019 and 7.5 percent by 2021. The BET would decrease to 0.6 percent in 2019 and down to 0.5 percent in 2021.
The state Department of Revenue Administration estimates the cuts would result in a revenue loss of $106 million, but supporters noted that business tax revenues actually increased after the most recent cuts, though opponents of the cuts credit a rebounding economy for that.
Despite the cuts, some large businesses might end up paying more. That’s because the DRA is hiring two multi-state auditors for national, multinational and regional businesses, and another to chase after out-of-state debt. The three positions are expected to generate $3.5 million in revenue.
Agency changes
In addition to tax cuts, here some of the other items of interest to business contained in the Senate budget are:
• Construction industry: $36.8 million in municipal bridge aid and $14.6 million for public school revitalization.
• Workforce development: $10 million for the Governors Scholarship Program, with funding for the University System of New Hampshire flat and the Community College System getting a nearly 8 percent boost.
• Hospitality: The Division of Travel and Tourism Development fund will increase by $1.5 million over the government’s suggestion – a total of 17 percent more than over the last biennium. The division itself will be moved into the newly created Natural and Cultural Resources Department.
• The Department of Resources and Economic Development, in addition to shedding its tourism division, will now become the Department of Business and Economic Affairs. The Secretary of State’s Office will add four new positions in the Corporation Division, and the DRA will be adding a Taxpayer Services Division.
The Senate will take up its budget on Wednesday and Thursday. If it is approved, it then goes to the House. A final budget is due on June 30.
