In the special session of the legislature on June 9th, a package of budget fixes was passed to help balance the last fiscal year ending on June 30th. There was a provision in the legislation that established a Commission to Study Business Taxes.
The Commission is made up of seven legislators, including myself, and five members of the public. Each public member has expertise in taxes, small business, real estate and finance or represents business trade associations. The Commission has begun meeting with an initial report due on December 1st and a final report due on November 1, 2012.
Difficult economic times always highlight the impact that taxes have on job creation and retention. At last week’s commission meeting, David Juvet, Senior Vice President of the Business and Industry Association, noted a number of non tax impediments to job growth in New Hampshire. They include the high cost of energy, health care, workers’ compensation insurance and unemployment insurance as measured against other states.
Mr. Juvet then noted that a Forbes.com study on the best states for business ranked New Hampshire 19th out of 50 states, a little ahead of the middle of the states. He went on, "When you look at criteria that have a direct fiscal impact on businesses, New Hampshire does not fair so well, ranking 40th out of 50 states for business costs and 47th for regulatory environment."
Other studies were cited including one from Ernst and Young for the Council on State Taxation that puts New Hampshire "8th highest in terms of state and local taxes paid by business."
Where do you turn to start to look into New Hampshire state tax policy and its impact on job growth and economic development? You start with Kevin Clougherty, the Commissioner of Revenue Administration. From his presentation, I took away three key points.
First, no one knows how many business entities are operating in New Hampshire because we have no tax registration program like other states. Most of us assume that when businesses register with the Secretary of State that does the job for all state agencies. The trouble is that entities also file trade names or simply register their business even if it is not operating just to keep their name. The end result is that in 2008 the Secretary of State had 156,841 businesses registered but the Department of Revenue Administration had just 66,876 tax filers.
It is clear something must be done to have a uniform system between agencies to track business operations in the state. A unique registration number assigned to each business that would be used in all filings with the state seems a reasonable answer for this problem.
Several years ago, a study committee I chaired, found that it was very difficult to follow students who had possibly dropped out of school. Children would move from town to town and school district to school district and were often not counted accurately as to whether they were in school or not. The answer was a unique number for each student. It has been so successful for the state and local school administrators that now it will be used to follow students when they move on to college.
The second challenge for legislators has been the lack of information about tax collections … who pays, how much and the like? A $7 million data processing modernization effort is now underway and will be completed in 2013. Not only will the new system speed up the processing of filings, information on the filings will be available much more quickly, too. Not having complete and up-to-date information makes it difficult for legislators to make good tax policy.
And that is the third point I took away from the commissioner’s presentation. A few large national and international companies pay a huge part of the business profits and business enterprise taxes. Using tax year 2008, 32 companies each paid more than $1 million in taxes for a total of $76 million in business profits taxes. That equals 31.3 percent of $244 million in business profits taxes collected that year.
Add the next category of 330 companies, each of which paid $100,000 to $1 million in taxes. They paid a total of $91 million in profits taxes. In summary, 69 percent of business profits taxes were paid by less than 1 percent of the businesses filing. On the other side, 53.544 of the 66,876 businesses filing, or 80.1 percent of the filers, paid no business profits tax.
The business enterprise tax collections are spread out a bit more. But even there, 28,408 of the 66,876 filers did not meet the minimum revenue threshold and thus did not pay any business enterprise tax. That means the business enterprise tax did not impact 42.5 percent of filers.
The strength of our New Hampshire economy is tied to the diversity and entrepreneurship of our small businesses. They create most of our new jobs and provide much of the creative and inventive energy that builds economic activity.
But when it comes to taxes, it is the large businesses that provide the bulk of business tax revenue for the state. As we look toward possible changes in tax policy, we must make sure we do not discourage major businesses from coming to New Hampshire or expanding here. Business taxes are the state’s largest tax revenue stream. We need to respect those that pay them.
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