Zanchuk: Don’t eliminate New Hampshire’s R&D tax credit
It would be like killing the goose laying golden eggs
There’s an unsettling move afoot in Concord. A bill to roll back one of New Hampshire’s most successful economic development programs has been submitted for action in the nascent 2021 legislative session. If passed, it could retard innovation and set manufacturing back at the very time our economy is struggling from the impacts of Covid-19.
I’m referring to an effort to gut New Hampshire’s R&D tax credit, a program designed to promote research and development of new products and processes, as well as early-stage manufacturing, right here in the Granite State.
Use of this economic development tool, which began in 2008 through the efforts of the Business and Industry Association, has grown every year of its existence. (I’m past chair of BIA’s board and continue to serve on its executive board.)
New Hampshire’s Department of Revenue Administration, charged with overseeing the tax credit program, describes the purpose of the R&D tax credit in their annual tax expenditure report this way: “To encourage manufacturing research and development activities in New Hampshire, and specifically the payment of wages attributable to manufacturing research and development.” The federal government has long provided a research and development tax credit on federal taxes owed and New Hampshire is one of 33 states to provide a state R&D tax credit.
According to the DRA, in 2008, the first year the tax credit was available, 71 companies reporting more than $112 million of qualified research and development-related wages, applied for the credit. By 2020, that number had increased to 230 companies reporting over a half billion dollars in qualified research and development wages. In fact, DRA reports that R&D activity has increased in New Hampshire every year the tax credit has existed, including the darkest days of the Great Recession.
It’s important to rememberthe critical importance manufacturing plays in New Hampshire’s economy. According to the National Association of Manufacturers, manufacturing in New Hampshire accounts for 11.6% of total state output, or $9.85 billion in 2018 (the latest year figures were available). Manufacturing companies in New Hampshire employ 10% of our workforce, with 70,000 jobs in 2019.
According to New Hampshire’s Economic and Labor Market Information Bureau, the 2019 average annual salary for a manufacturing job in New Hampshire was $73,006, 24% higher than the $58,656 average for all sectors. Unlike most other sectors of the state’s economy, manufacturing generates wealth through product exports. This in turn brings new money into the state which is circulated throughout the economy. Exports of manufactured goods in 2019 were $5.6 billion. Interestingly, small businesses comprise 87% of all exporters in New Hampshire. I’m one of those small businesses.
I own Graphicast, a small manufacturing company with 23 employees in the Monadnock region. As a contract manufacturer, every new part order we secure becomes an R&D project, from process design to machining optimization. Once a starting point is established for a part, ongoing improvements begin. It’s a never-ending effort to squeeze time and cost out of the manufacturing process. New Hampshire’s tax credit program helps support that work, allowing us to remain competitive in a global marketplace.
Investing in our state’s manufacturing sector through the R&D tax credit provides a very good return for the state. The credit helps companies like mine develop new products and create new jobs. It also helps companies improve their productivity and efficiency, helping them become more competitive and protect existing jobs. Keep in mind, other states (and countries) with R&D tax credits boast lower-cost energy, more favorable environmental and labor regulations, lower business taxes, and other attractive features. They’re not shy about letting New Hampshire manufacturers know there are “greener pastures” out there.
Some legislators are opposed to targeted tax credits. I disagree. Promoting manufacturing by investing in the state R&D tax credit program encourages new products and innovations, job growth (and job protection), and helps boost New Hampshire’s economy in ways no other sector can match. Every 100 jobs created in manufacturing results in the creation of an additional 138 jobs throughout our economy — eclipsing other sectors like health care or hospitality. Eliminating or paring back New Hampshire’s R&D tax credit is akin to cutting our nose to spite our economic face. It will put New Hampshire manufacturers at a competitive disadvantage compared to manufacturers in other states and countries.
New Hampshire’s Legislature and Governor Sununu should kill this misguided effort to cripple one of the state’s most successful economic development programs. Let’s not kill the goose laying those golden eggs.
Val Zanchuk is president of Graphicast and a member of the Business and Industry Association’s executive board.