Analysis of Tax Changes Proposed by the NH House.
by GST Secretary Dan McGuire
Following is an analysis of the tax changes in the proposed House budget.
The good news is that there are a lot of tax reductions.
The bad news is that most of them are delayed, so they have less effect over the next two years.
The key will be whether they are maintained in the NEXT (Senate) budget…
The House Finance Committee’s amendment includes various tax reductions, including:
• Decreases the State-Wide Education Property Tax by $100 million.
For many years, the state-wide property tax has been fixed at $373M per year. This change lops off $100M per year, but only starting in the second year of the biennium.
It is by far the most significant tax reduction that will be felt by taxpayers due to this budget.
• Reduces the Meals and Rooms Rate to 8.5%.
The meals & rooms tax, currently 9%, is the state’s most significant revenue source after business taxes and the statewide property tax. It is estimated to bring in over $680M for the biennium. This cuts that by $30M. The cuts go into effect in October of this year.
• Reduces the Business Enterprise Tax rate to 0.55% and increases the filling threshold.
• Reduces the Business Profits Tax rate to 7.6%.
Business taxes in New Hampshire are an accountant’s dream. Roughly, businesses have to calculate two different taxes each year, the business enterprise tax (BET) (mostly based on payroll) and the business profits tax (BPT), and then they pay whichever is higher. The BET tends to hit low-margin businesses like restaurants and retail, while the BPT mostly effects high-margin businesses like high-tech. These changes reduce the BET rate from 0.675% to 0.55%, and the BPT rate from to 7.7% to 7.6%. Note that current law would have reduced BPT to 7.5% conditionally based on actual revenue collections compared to estimates. These changes remove all conditional language. There is also a business tax increase due to changes in the way taxes are calculated, see HB 281.
All these changes will save business taxpayers about $21M over the biennium.
• Fully phases out the Interest and Dividends Tax over five years
While this is very laudable, the five year period in question only starts in the final six months of this proposed budget, which runs from July 2021 to June 2023, so this is a low cost proposal for the budget writers. The current 5% tax would be reduced to 4% in 2023, 3% in 2024, 2% in 2025, 1% in 2026 and eliminated in 2027. Although this is a $140M tax each year, the current budget proposal only shows this as less than a $7M reduction for the biennium. The key question will be whether budget writers two years from now continue with this reduction when it really starts to bite.
The budget also includes $18M of new slot-machine revenue
The budget include HB 626, which adds 1,000 slot machines to charitable gaming venues. These are estimated to generate $65M in annual profits, of which the state gets $12M. These wouldn’t be in place for the first six months of the budget, so the biennium only estimates $18M of revenue.
Granite State Taxpayers has long opposed casinos and slot-machines.
Posted by GST Secretary Dan McGuire.