Some Unique New Hampshire Tax Incentives Should Not Be Overlooked
Merrill Barter, Managing Director, Tax Practice
The following article provides an overview of three New Hampshire tax incentives - the Community Development Finance Authority (CDFA) Tax Credit Program, the Economic Revitalization Zone Tax Credit (ERZ), and the Research and Development Tax Credit. These credits are unique, and potentially could easily be missed, because they are obtained in a manner much different from other credits. Although they are reported on a taxpayer’s annual tax return, to obtain any of these credits, taxpayers must apply in advance. Additionally, two of these credits are administered by agencies other than the Department of Revenue Administration. The discussion below addresses the benefits in more detail.
CDFA Tax Credit Program
The CDFA was established in 1983 to address the issues of affordable housing and economic opportunity for low and moderate income New Hampshire residents. The Tax Credit Program, also known as the Community Development Investment Program (CDIP) was created by legislation effective July 1, 1999.
Under the CDIP, tax credits are awarded annually to nonprofit community, housing, and economic development projects based on a competitive application process. New Hampshire businesses can then receive a tax credit for donations made to these organizations of cash, securities or property. The credit is equal to 75% of the contribution amount, and may be taken against the Business Profits Tax (BPT), Business Enterprise Tax (BET), and Insurance Premiums Tax. The maximum credits available per fiscal year (June 30) are $3.75 million, meaning that eligible contributions cannot exceed $5 million in a State fiscal year. The maximum credit that can be taken by a single taxpayer in one year is $1 million, and any unused credit can be carried forward for up to 5 years. After a donation is made to an eligible nonprofit entity, the CDFA issues a credit certificate to the donor.
The CDIP enables businesses to support nonprofit organizations and help fund economic and community development projects, receive positive recognition for their support, and receive a tax credit. The contribution may be treated as a charitable deduction to the extent permitted by federal law. Net of the federal tax benefit, the cost to the donor may be as low as approximately 15% of the actual amount contributed. For example, a contribution of $10,000 would result in a New Hampshire tax credit of $7,500, and net of the federal tax benefit (after including the impact of reduced state tax deductions on the federal return) it may cost the donor less than $1,500 to provide $10,000 to the beneficiary.
Some of the projects that have tax credit allocations for the 2012 and 2013 fiscal years are:
- Meredith – Kidswork Learning Center, Inc.
- Manchester – Laurel Keys Veteran Supportive Housing
- Statewide – Living Well Program
A complete list of programs with current tax credit allocations can be found here.
Economic Revitalization Zone Tax Credit
The ERZ tax credit program was established to encourage businesses to add to the infrastructure and create new jobs in areas of the State identified by the Commissioner of the Department of Resources and Economic Development (DRED) as ERZs. To qualify as an ERZ, the location must meet certain demographic criteria and the municipality must apply for the designation. A business that plans to use this credit by making capital investments and creating jobs within an ERZ needs to submit an application to the DRED which must be approved by the Commissioner.
Calculation of the ERZ credit is somewhat complex, and is based on the capital investment made by the business, the number of new jobs created, and the salary level of the jobs created. The credit must be approved by the DRED, and may not exceed $200,000 in total for a project. The maximum credit that may be used by a taxpayer in a single year is $40,000, and the unused credit may be carried forward for up to 5 years. The credit may be used to offset the BPT or the BET (it is typically used to offset the BPT first, then the BET – up to the maximum of $40,000 – with the remainder carried forward).
Wages included in the calculation of the Research and Development tax credit (discussed below) cannot be used in calculating the ERZ tax credit, and the aggregate amount of all ERZ tax credit agreements approved by the Commissioner in any fiscal year cannot exceed $825,000.
A complete list of the current Economic Revitalization Zones as of January 18, 2012 can be found here.
Research and Development Tax Credit
New Hampshire’s Research and Development Tax Credit was enacted during the 2007 legislative session, and designated $1 million to be available in each of the 5 following fiscal years. The tax credit is repealed effective July 1, 2013, although legislation has been submitted that would extend the credit and increase the amount available to $2 million (Senate Bill SB 295-FN-A).
The credit is available to businesses that have “qualified manufacturing research and development” expenditures. This consists of wages paid for services rendered in New Hampshire which qualify and are reported by the business on its federal tax return as a component of the federal R&D credit calculation. As noted above, credits totaling $1 million are available each fiscal year. To claim a share of the credit, businesses must submit an application to the New Hampshire Department of Revenue Administration (DRA) by June 30 of the year following the year in which the research and development occurred. As credit applications historically have exceeded $1 million, DRA allocates the credit based on the applications received. Applicants are notified by September 30 of their credit amount.
The credit cannot exceed $50,000 per taxpayer, per year. It must be used first to offset the current year’s BPT, and then the current year’s BET. Any remaining credit can be carried forward to the succeeding 5 years.
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