Recently Enacted and Proposed New Hampshire Business Tax Changes
James Usseglio, Tax Principal
They say it is important to remember where you have been to know where you are going. So as we journey into another tax season, this article briefly discusses the significant state business tax legislation, specifically with respect to New Hampshire’s Business Profits Tax (“BPT”) and Business Enterprise Tax (“BET”), that has been enacted over the last several years, as well as proposed legislation that may impact business taxes in the future.
[Note: Many of the provisions below were the recommendations of the Commission to Study Business Taxes established in 2010 (“Commission”), on which I had the privilege to serve. For those interested, copies of the Commission’s reports may be found on the New Hampshire General Court’s website.]
Recently Enacted Changes
Reductions to BPT & BET Rates
For tax years ending on or after December 31, 2016, the BPT rate is decreased to 8.2% from 8.5% and the BET rate is decreased to .72% from .75%. If the amount of combined unrestricted general and education trust fund revenue collected for the biennium ending June 30, 2017 exceeds a certain amount the BPT rate is further decreased to 7.9% and the BET rate is further decreased to .675% for tax years ending on or after December 31, 2018.
Changes to Personal Compensation Deduction Include Record-Keeping Safe Harbor Amount, Establishing Internal Revenue Code (“IRC”) Section 162(a)(1) Standards, and Modifications to Burden of Proof Standards
The “record-keeping safe harbor” deduction amount increased from $50,000 to $75,000; whether a deduction is “reasonable” is specifically tied to standards set forth in IRC Section 162(a)(1); and the burden of proving the reasonableness of the compensation deduction shifts to the Department once the business organization proves that all proprietors, partners, or members for whom a deduction is being claimed provided actual personal services.
Increase in Amount of Net Operating Loss Carryforward
The amount of net operating loss generated in a tax year that can be carried forward increased from $1,000,000 to $10,000,000 beginning on or after January 1, 2013.
New Employee Leasing Company BET Election
For tax years beginning on or after January 1, 2016, client companies of employee leasing companies may elect to include the wages paid to leased employees in the client company’s compensation portion of its BET base and therefore become responsible for paying the BET tax. If an election is not made, the employee leasing company remains responsible for paying the BET on the leased employee wages.
Changes to Definition of “Compensation” for BET Purposes Excludes “Gratuitous Tips”
For tax years beginning on or after January 1, 2013, the definition of “compensation” under the BET was amended to include all wages, fees, commissions and other payments paid directly or accrued by the business enterprise and explicitly exclude any tips required to be reported by the employee to the employer under IRC Section 6053(a) (“gratuitous tips”).
Increase in BET Filing Thresholds
For tax years ending on or after December 31, 2015, the biennially adjusted BET filing threshold amounts will be gross business receipts in excess of $207,000 or an enterprise value tax base greater than $103,000.
Increase in BET Credit Carryforward Period
The carryforward period for the unused portion of the BET credit from tax years ending on or after December 31, 2014 increased from 5 years to 10 years.
Increase in Research & Development Tax Credit; Made Permanent
The R&D tax credit was changed to remain in effect indefinitely. Additionally, the total aggregate amount available each year for the Research and Development Tax Credit increases from $2,000,000 to $7,000,000, effective July 1, 2017.
New Education Tax Credit Program
Beginning January 1, 2013, businesses may make a monetary donation to an approved scholarship organization and receive a tax credit against their BPT and/or BET for 85% of their donation.
Update IRC Conformity
For BPT purposes, New Hampshire incorporates the IRC in effect on December 31, 2000. A bill has been introduced that would update the IRC conformity date to a more recent year, subject to certain exceptions.
Changes to “Step-up” Provision
Two bills have been filed with respect to New Hampshire’s so-called “step-up” tax provision upon certain sales or exchanges of an interest in a business organization. One bill allows for an election not to recognize the basis increase and therefore not make an addition to gross business profits, while the other bill would not allow a basis increase and therefore no addition to gross business profits unless the business organization is required to recognize taxable income for federal income tax purposes as a result of the sale or exchange.
Apportionment of Gross Business Profits
A bill has been filed to establish a commission to study the apportionment of gross business profits under the business profits tax.
Reasonable Compensation Deduction – Burden of Proof
A bill has been introduced that would repeal certain provisions relative to burden of proof (effectively shifting the burden of proof from the Department to the taxpayer) in determining the reasonable compensation deduction from gross business profits.
If you would like to discuss further, please contact Jim Usseglio or your BNN tax advisor at 1.800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.