Supporters of R&D tax credit proposal come out in force at Senate hearing
There's a good chance the state's research and development tax credit cap will be doubled, at least judging by the support it had before the Senate Ways and Means Committee and by the vote of the panel's members, who unanimously and quickly approved the proposal Tuesday after a public hearing at which all but one person testified in favored of it.
Senate Bill 1 – whose number represents the priority of the bill – is co-sponsored by all 24 senators and has been endorsed by Gov. Maggie Hassan. It would double the $1 million aggregate cap on the credit and make the new cap permanent. The bill passed both chambers last session, only to be sacrificed after it was attached to a non-germane bill about abortion.
SB 1 would not change the $50,000 per-business credit that is currently allowed against either the business profits or business enterprises tax, but it would effectively double the amount received by most businesses.
Last year, businesses applied for more than $4 million in credits, meaning they only received a quarter of the amount they applied for. Thus, businesses eligible for $50,000 only received about a $12,000 tax break. With a $2 million aggregate cap, that would mean that they would have received twice as much.
Most of the other 42 states with such a tax break don't have such a limit, which forces the Department of Revenue Administration to wait until all applications are received before divvying up who gets what.
Doubling the credit would help by "giving businesses more of what they ask for and what they were limited to," said John Lighthall, testifying for the DRA. "And that helps with revenue stability."
But that's the way of New Hampshire, said David Juvet, vice president of the New Hampshire Business and Industry association. While other states jump in, "we are up to our ankles. Now we know enough to take the next step, and maybe get up to our knee in the water."
The committee heard from business like Graphicast, a casting firm in Jaffrey, which has been using the business tax credit for five or six years.
The $7,500 tax break it receives is augmented by a $22,000 federal R&D tax break.
"For a small operation, $30,000 is not a small amount of money," said President Val Zanchuck, who parlayed the savings into hiring three graduate students "to help improve our process."
"It is the most effective piece of legislation you can do to foster industrial development," said Zanchuck.
Freudenberg-NOK also backed the bill, though the company's tax director, Maryellen Strabone, advocated for a bit more proportionality. The company spent about $10 million on R&D in New Hampshire, "and what we are getting back is so small compared to our commitment."
That gave committee members pause, but it was more of a comma. Several suggested looking into the suggestion, but worried about large companies grabbing most of the tax break from smaller companies.Only Rep Dan McGuire, R-Epsom, actually opposed the bill.
Casting himself as an angel investor, he argued that the tax credit never was a factor in the startup companies he was involved with. He then incorrectly stated that it only involved the BPT, which doesn't affect startup companies that don't make any profits for years. (It actually rolls over to the BET, Lighthall later clarified.)McGuire also said the increase in R&D spending should be compared to recent years, not to years dating back to 1983.When pressed, McGuire revealed that his major gripe was philosophical.
"If you want to lower business taxes, lower the BPT and the BET. This sort of targeting only leads to complications in the tax code. It's much better to remove the barriers, like forms and regulations, that's going to promote all business, not just this kind of business."
But others – while ignoring his suggestion to change the base tax year when calculating the credit – did defend the idea of targeting.
"Advance manufacturers and high-tech spending contribute four times more than the next industry. These are the payers of the business profit tax, so it is entirely appropriate to focus on that type of industry," said Juvet.
"All business are valued equally, but not all have an equal impact on our economy," added Chris Williams, President of the Greater Nashua Chamber of Commerce.
And Chris Way, interim director of the state Division of Economic Development, took issue with McGuire's contention that the R&D credit doesn't matter.
Some 24 businesses moved to or expanded in New Hampshire this year, said Way. "I've clearly heard them say the R&D credit matters. That speaks volumes. As an agency promoting business-friendliness, this sends a good message. Doubling it is the next big step to make it a true incentive."