Tax Law: NH Tax Incentives Aim to Boost Economy, Education
Merrill Barter, Managing Director, Tax Practice
The 2012 legislative session produced some taxpayer-friendly changes to New Hampshire tax law, adding to a list of longstanding, but sometimes overlooked, business tax incentives in the state.
The New Hampshire Education Tax Credit is the newest credit that can be used against the business profits tax and/or the business enterprise tax. The credit is available for tax years beginning on or after Jan. 1, 2013, and enables businesses contributing to organizations that award scholarships for education to claim a tax credit equal to 85 percent of the contribution amount. The credits are capped at $3.4 million for the first year and $5.1 million for the second.
Other tax law changes made during the 2012 legislative session include:
- The net operating loss carry-over that may be generated in a tax year will increase from $1 million to $10 million for tax years beginning on or after Jan. 1, 2013.
- The repeal date of the research and development tax credit (discussed below) was extended from July 1, 2013, to July 1, 2015.
- The business enterprise tax filing thresholds were increased. For tax years ending on or after Dec. 31, 2013, gross business receipts in excess of $200,000 or an enterprise value tax base greater than $100,000 will create the need to file. These are increased from $150,000 and $75,000, respectively.
- The estimated tax threshold for the business enterprise tax was increased to $260, effective for tax years ending on or after Dec. 31, 2013. If estimated tax exceeds that amount, a payment is required.
- The Section 179 deduction limit was increased to $25,000 (from $20,000) for eligible property placed in service on or after Jan. 1, 2012.
Additionally, for tax years ending on or after Dec. 31, 2013, trusts will no longer be subject to the Interest and Dividends Tax. Instead, the tax will be due by resident or inhabitant beneficiaries who report such income on their federal returns, or resident or inhabitant grantors. (See related story page 17.)
New Hampshire has a number of tax credits that are unique to the state and also have the potential to be overlooked, because they are not obtained solely by reporting amounts on an annual income tax return. Instead, taxpayers must apply in advance.
CDFA Tax Credit Program
The NH Community Development Finance Authority Tax Credit Program, also known as the Community Development Investment Program (CDIP), was created by legislation that went into effect July 1, 1999.
Under the CDIP, up to $5 million in tax credits are awarded annually to nonprofit community, housing, and economic development projects, based on a competitive application process. Successful applicants receive a credit certificate from the CDFA. Businesses receive a portion of the credit by making donations to selected projects in the form of cash, securities or property. The credit received is equal to 75 percent of the contribution amount and may be taken against the business profits tax, business enterprise tax, and insurance premiums tax. No one taxpayer can use a credit greater than $1 million, and unused credits may be carried forward for up to five years.
The contribution may be treated as a charitable deduction to the extent permitted by federal law. With the federal tax benefit, the cost to the donor may be as low as 15 percent of the actual amount contributed. For example, a contribution of $10,000 would result in a New Hampshire tax credit of $7,500 and federal and state deductions yielding tax savings of nearly $1,000. In this example, a donor could provide $10,000 to a beneficiary at a net cost of $1,500.
For more information and a complete list of current CDFA tax credit projects, visit the agency’s website, http://www.nhcdfa.org.
Economic Revitalization Zone Tax Credit
The Economic Revitalization Zone Tax Credit Program encourages businesses to add to the state’s infrastructure and create new jobs in areas of the state identified by the commissioner of the NH Department of Resources and Economic Development as Economic Revitalization Zones (ERZs). To qualify as an ERZ, a town or city 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 must submit an application to DRED for approval.
Calculation of ERZ credit 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 is capped at $200,000 per project. The maximum credit that may be used by a taxpayer in a single year is $40,000. The credit offsets the business profits tax or the business enterprise tax, up to the maximum of $40,000, with the remainder carried forward for up to two years.
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 Jan. 18, 2012, can be found at http://www.nheconomy.com.
Research and Development Tax Credit
The statute creating New Hampshire’s R&D Tax Credit was adopted during the 2007 legislative session and designated credits totaling $1 million for each of the five following fiscal years. This benefit was later extended to July 1, 2015.
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 that qualify and are reported by the business on its federal tax return as a component of the federal R&D credit calculation. To claim a share of the annual $1 million credit, businesses must apply to the NH Department of Revenue Administration by June 30 of the year following the qualifying expenditures. Applicants are notified of their credit amount by Sept. 30.
The credit cannot exceed $50,000 per taxpayer, per year. It must be used first to offset the current year’s business profits tax, and then the current year’s business enterprise tax. Any remaining credit can be carried forward for five years.
For more information, visit the NH Department of Revenue Administration website, and look under “Frequently Asked Questions.”
The legislative changes and state tax credits described above provide valuable incentives for businesses that support community and economic development, invest in infrastructure improvements in specified areas, create new employment opportunities and conduct research and development activities.
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