Taxes, workers’ comp at top of legislative agenda
The 2015 legislative session begins
Ask not what businesses can do to help New Hampshire, ask what New Hampshire can do to help businesses.
This question could be the mantra of every legislative session, particularly in a budget year and particularly in this budget year, when nearly half of the 800 or so bill requests already filed would affect business in one way or another.
But as to what exactly the state can do to help business, the methods vary considerably, depending on whom you are talking to.
New Hampshire businesses want better roads, better schools and affordable housing for their workers. Contractors want funding for roads and bridges. Hotels and restaurants don’t want to cut the tourism budget. Almost everybody wants lower energy costs and a better communication infrastructure.
But nothing comes without a price (read tax) or a regulation that might restrict one business group or another.
First let’s talk taxes, or should we say tax cuts?
There are several bills to reduce the business profits tax, to roll back the increases that have balanced the budget in the past.
Rep. Jim Spillane, R-Deerfield, would repeal them totally, dropping the rate from 8.5 to 7 percent. Others have proposed smaller cuts, but Spillane said he would rather “start with 7 and negotiate. We can’t attract new business if we are going to be third-highest in the nation in tax burden.”
It may be more likely that a scalpel will be used to shape taxes rather than an ax to cut them down.
Sen. Jeb Bradley, R-Wolfeboro, the Senate majority leader, has a more moderate bill in the wings that would lower the rate to 8.25 percent this year and 8 percent the next.
“We are looking at a $75 million budget hole that is difficult to fix, but I actually think we should make some progress addressing high business taxes. If we can get 3 percent growth, it would be revenue-neutral,” Bradley said.
Bradley is also sponsoring a measure that would increase the research and development tax credit against the BPT, a top priority of the Business and Industry Association of New Hampshire.
The tax break is more targeted than a general tax cut, but it would help keep “manufacturing and high tech” in the state, argued Bradley. The cap was doubled to $2 million, and his bill – co-sponsored by six other senators – would up it to the actual demand for the credit last year, which was about $7 million.
There are several bills taking aim at the business enterprise tax (BET) as well.
Rep. Neal Kurk, R-Weare, who will take up his old position as chair of the House Finance Committee, would rebate a business startup’s BET payments over a period of years (sidestepping the constitutional problem of unequal taxation, he argues). The first three years the business would receive a full rebate, the following year two-thirds, and finally a third would be rebated in the fifth year.
Sen. Nancy Stiles, R-Hampton, would give a job creation tax credit against the BET if a firm hires new employees, whether by starting up, moving here or expanding by 25 percent.
Rep. David Hess, R-Hooksett and a member of the House Ways and Means Committee, plans to bring back his attempt to tax nonprofit hospitals and universities under the BET, while lowering the overall rate for others.
The New Hampshire Hospital Association opposes this measure, having just reached a legal settlement over the Medicaid enhancement tax. Protecting that settlement will be its key legislative goal this year, said the association’s president, Steve Ahnen, but the BET vote was too close for comfort last year, and Ahnen said his organization would work in collaboration with other nonprofits to defeat it again this year.
There will also be some attempts to alter other major taxes as well.
Both Hess and Kurk will be introducing bills addressing the exemptions certain trusts have enjoyed under the interest and dividends tax – an exemption created as part of an effort to make the state a haven for large trusts, similar to the way Delaware has become one for corporations.
Kurk’s bill would end the tax break in order to increase the exemption for individuals.
“It will still be very good for trusts, just not quite as attractive,” said Kurk. “Sometimes you overreach and mommy slaps your fingers when they are in the cookie jar.”
When it comes to the real estate transfer tax, the biggest focus will be over the state Department of Revenue Administration’s recent move to broaden the kinds of commercial leases the tax would apply to.
Previously, those leases weren’t taxed unless the lease was for a century or more. But last summer, the DRA asked the Joint Legislative Committee on Administrative Rules to allow it to tax leases of more than 30 years – a length of time widely used in the real estate industry. After it became apparent that the committee wasn’t going to issue any such rule, the DRA said that it didn’t need one since it already has the authority and would start enforcing its interpretation through the audit process.
“This came out of the blue, and as soon as it came out we went to work to stop it,” said Bob Quinn, a lobbyist for the New Hampshire Association of Realtors. “We shouldn’t be doing tax policy through rule changes and audit.”
Sen. David Boutin, R-Hooksett, chair of the Senate Ways and Means Committee, used nearly the exact same words in explaining his bill, which would explicitly exempt leases of 99 years or fewer. In addition, taxing leases, he said, “is almost the worst thing you can do to discourage economic development.”
Then there is the gas tax, which was increased by 4 cents last year and was tied to inflation in order to raise money to fix up the state’s infrastructure, which usually gets poor marks nationally.
Spillane’s bill would repeal it. His main objection? Automatic increases going into effect without a legislative vote, or “taxation without representation,” he said.
As for the 4 cents, “it is a drop in the bucket” and “you could easily make up for it by changing the way you spend the 18 cents a gallon” previously levied by insuring that no highway funds are diverted for other purposes.
Still, groups that depend on such projects as the expansion of Interstate 93 are unlikely to support any gas tax cut unless there is an alternative method of raising money.
There are some bills in the works related to motor vehicle registrations, but previous increases were recently repealed. Spillane’s bill – which would cut the requirement for registration to every other year – is revenue-neutral, since it would double the state’s inspection fee, but that has already attracted the opposition of the New Hampshire Auto Dealers Association, not because it would cut into dealers’ profits, but for safety reasons.
“Every year, 85,000 inspections fail drivers for bad brakes,” said the organization’s president, Peter McNamara. “Imagine extending it to two years, and there are 160,000 drivers behind you with less than a penny’s thickness in their brake pads.”
For its part, the New Hampshire Grocers Association will oppose a bill to increase the cigarette tax, another perennial method of balancing the budget (though the title on that bill would direct the funds to smoking cessation programs).
And while there doesn’t seem to be a bill, at least at this point, that would raise or lower the rooms and meals tax, one measure would eliminate the 3 percent fee paid to restaurants and hotels for collecting it. Another, sponsored by Senator Stiles, would change its revenue-sharing formula – currently 60 percent to the state and 40 percent to the communities – to give more to the tourist towns that generate the tax, like Hampton, whose population bloats to 10 times its size during the summer, she said. That influx drives up municipal costs, according to Stiles, and the 58 towns “that pay the majority of the rooms and meals tax deserve a small percentage back, because the local taxpayer is footing a bill.”
In the past, the Lodging and Restaurant Association has opposed such measures, but Stiles is hoping that a more modest adjustment would be more acceptable: 1 percent of the 40 percent that goes to communities would be distributed to those 58 donor towns under her latest bill.
Finally, the tourist industry will be on the lookout for any attempt to alter the formula for determining the tourism promotion budget, which recently was tied to the rooms and meals tax – especially if the economy improves and the tax brings in more funds and makes that budget a more inviting target.
The usual debates on perennial bills from the Democrats (minimum wage) and Republicans (right to work) will be more muted this year, mainly because of the focus on workers’ compensation, which all sides agree will be the hottest issue concerning labor in the next legislative session.
On the Friday before Christmas, the Governor’s Commission to Recommend Reforms to Reduce Workers’ Compensation Medical Costs issued its final report, with a recommendation to further study the issue. The vote for the recommendation was 10-5, and it resulted in essentially nothing but recriminations, which will be echoed in the halls of the State House this legislative session.
At issue, says the minority, is rising medical costs, which are taking up an increasing share – 71 percent by last count – of the compensation system.
The reason behind the increases, the members of the minority argue (pointing to a study put together by a trade group for workers’ comp insurance carriers), is the higher rates charged by doctors for the same procedures via workers’ comp as compared to health insurance carriers minority.
On average, surgeons charge more than double (156 percent) for procedures, radiologist charges are 107 percent higher and physical therapy charges are 110 percent more.
“These are very shocking numbers,” said McNamara, of the Auto Dealers Association, who wrote the minority report. “When you break your arm at home or break it at work it’s still the same. It’s not like they are bringing their game to workers’ comp.”
“A stitch is just a stitch, be it at home or work,” echoed Rep. Will Infantine, R-Manchester, chair of the House Labor Committee.
Infantine said he supports the minority recommendation for a fee schedule, introduced as a bill by Rep. Jack Flanagan, R-Brookline, which would tie workers’ compensation payments to about 150 percent of Medicare. Kurk’s bill would prohibit doctors from charging more for workers’ comp cases than their usual rates.
These measures will be opposed strongly by labor and doctors, both of whom support the committee’s recommendation for further study.
They both argue that the insurance industry’s numbers don’t include self-insured plans, which account for a third of New Hampshire’s premiums. They also say workers’ comp costs tend to be higher because doctors have to look at an injury’s long-term consequences related to a worker’s ability to return to the job. There are also additional reporting requirements, and they might have to testify on the workers behalf.
“They aren’t just doctors – they are advocates. You have to have a doc who will stand there and defend their decision,” said Mark MacKenzie, president of the New Hampshire AFL-CIO, who was also on the commission.
Labor also blames lax enforcement of independent contractor rules for rising medical costs, particularly in the construction trades. Nobody pays into the system for these contractors, but when they get injured, they suddenly claim they were workers and demand compensation.
Finally, the portion going to medical costs is not necessarily a bad thing, points out Scott Colby, executive vice president of the New Hampshire Medical Society. That means less money is going to indemnity, paying injured workers not to work. “It means they are getting back to work, that the system is working as it should be,” he said.
Indeed, they argue, while premiums are high, they have actually fallen in relation to other states.
New Hampshire’s workers’ comp premiums are now the 12th highest in the nation, compared to ninth in 2012, and they are lower than Vermont’s and just slightly higher than Maine’s, though they are much higher than Massachusetts’.
Finally: Fee schedule opponents invoke the deal made in 2013 between labor and business. While New Hampshire has fewer medical controls then other states, workers receive less compensation – 60 percent of their average wage, as opposed to the previous 66 percent. Thus they have more of an incentive to go back to work, keeping indemnity costs down.
So if the fee schedule is going to be pushed by business groups, “we are going to want our pound of flesh,” said MacKenzie, by pushing for a return to 66 percent compensation as well as more independent contractor enforcement.
But the law on contractors could go in two directions.
Business has been pushing for the holy grail – a single definition of “independent contractor” that applies to worker’s compensation and unemployment and other taxes.
State agencies have been working on it, and Rep. Keith Murphy, R-Bedford, has put in another bill in an effort to make that happen. Businesses argue that less confusion is not only good for small businesses, but will help the agencies enforce the law as well. Labor fears just the opposite.
Representative Infantine’s only bill of the year will try to solve a small piece of the puzzle: defining when a person working on his or her computer at home is an employee or a contractor. One company pulled out of the state, he said, when the state defined its contractors as employees. Whatever they were, he added, they were no longer getting paid, so under his bill they would be contractors again.
Because there are many other bills Infantine and similarly minded legislators will have to worry about in the 2015 session: paid sick leave; mandatory tip pooling (if the workers vote for it); and discrimination bills protecting victims of domestic violence and those with poor credit history and those with a criminal record.
That’s why Infantine said he’s not keen on “wasting time” debating right to work. But there are several bills that would prevent unions from collecting dues from those who don’t want to join, a bill pushed by Rep. Bill O’Brien, R-Mont Vernon, when he was speaker in 2011-12 and introduced by him in the coming session as well.
“We know we don’t have the vote to override the governor’s veto,” Infantine said. “So it doesn’t make sense spending 10 or 15 hours on that when we could talking about more important things.”
As for the minimum wage, Infantine said he might be amenable to a modest increase. Last year he backed a compromise of two 25-cent increases over two years, but it didn’t go anywhere.
“I was told by some businesses that they wouldn’t have a problem with that,” he said.
Bob Sanders can be reached at email@example.com.