The version of the FY 2016-2017 budget that both the House of Representatives and the Senate will consider on Wednesday includes significant reductions in the rates of New Hampshire’s twin business taxes: the business profits tax (BPT) and the business enterprise tax (BET). While policymakers should be concerned about the impact that such changes would have on New Hampshire’s ability to fund vital public services both now and in the future, questions should also be asked about which businesses would stand to gain from lower BPT and BET rates.
As data from the Department of Revenue Administration (DRA) make quite clear, at present, a relatively small number of businesses pay the lion’s share of the BPT and BET. Of the $462 million in combined BPT and BET paid in tax year 2012, 68 percent was paid by businesses with tax liabilities in excess of $50,000. Furthermore, DRA data indicate that just 1,097 businesses – or about 2 percent of businesses filing tax returns that year – fall in this range of liability. Not surprisingly, then, in an analysis issued earlier this month, DRA finds that 76 percent of the proposed BPT rate reduction would accrue to just 718 businesses, while just under 50 percent of the proposed BET rate reduction would accrue to just 440 businesses.
Moreover, given the nature of the modern economy, it seems likely that a sizable share of any business tax cut will not remain here in New Hampshire to spur its economy, but rather would flow out of state. Indeed, information compiled by the New Hampshire Business Review for its 2015 Book of Lists indicates that many of the state’s largest employers are owned by parent companies based out of state. For example, among the 50 largest manufacturing employers in the Granite State, 40 appear to be owned by parent companies situated in another state or another country. Consequently, multistate or multinational companies operating in New Hampshire – and benefitting from a business tax cut – will not be constrained in what they do with those dollars. Rather than invest here, they could use them to bolster operations in another part of the country or to increase dividend payments to shareholders worldwide.
In short, the revenue loss associated with lower BPT and BET rates will result in gains for a relatively select set of companies with little guarantee of a return to the New Hampshire economy.