Gene Martin: [00:00:00] Welcome to New Hampshire Uncharted where we go beyond the charts and graphs to bring you the policy conversations that matter, backed by the data you trust. I’m Gene Martin, your host, and each month we’ll tackle a big policy question facing the Granite State, breaking it all down with experts and the latest research. 

New Hampshire Uncharted is a podcast from the New Hampshire Fiscal Policy Institute, produced in partnership with the Marlin Fitzwater Center for Communication at Franklin Pierce University and the Granite State News Collaborative. Let’s dive in.  

In today’s episode, we’re unpacking a topic that affects every New Hampshire community: state revenues, and we’re going to learn about why they’re falling. 

After years of surplus, New Hampshire is facing a revenue shortfall driven by declining business tax receipts, the repeal of the Interest and Dividends Tax, and a number of revenue sources that have been moving away from us. So what does that mean for the upcoming state budget and how did we get here? To help us understand what’s going on and what’s next, I’m joined by our research director, Phil Sletten, and our featured guest, [00:01:00] Commissioner Lindsay Stepp, who leads the New Hampshire Department of Revenue Administration. Welcome to the podcast.  

Phil Sletten: Thank you. 

Lindsey Stepp: Thank you.  

Gene Martin: Looking forward to this conversation. At NHFPI we all are policy nerds, and we love state revenue. I joke all the time that our office is the number one viewer of your annual report, and so we appreciate all the work that you put into that. It helps us do our work. But Commissioner, I’ll start off with you for the first question. What does the Department of Revenue Administration do? Which revenues do you administer, and what’s the relative importance of those revenues to the state?  

Lindsey Stepp: Sure. So DRA, the Department of Revenue Administration is the primary revenue collection agency for the state. We also are responsible for setting municipal and county tax rates, and we assist municipalities and school districts with their budgeting, finance, and appraisal of real estate. 

But today we’re going to focus on taxes and the revenue that we collect. So we administer 14 different tax types, and most of those are collected at the state level. But some are collected at the [00:02:00] municipal level, and we assist the municipalities with that collection and administration. For the taxes that are collected at the state level, the Department of Revenue is responsible for approximately 80% of the General and Education Trust Fund revenue for the state. And our major tax types – Gene, you alluded to a few of these in the introduction – the major tax types that we collect are the Business Profits Tax, the Business Enterprise Tax, Meals and Rentals Tax, Tobacco Tax, Real Estate Transfer Tax, and at least for a little bit while longer the Interest and Dividends tax.  

Gene Martin: Thank you so much. 

And so really when we think about 80% of the revenue and the taxes that folks likely think about when they pay, and as you mentioned also helping the communities administer their tax because it has to go over to you and gets approved in that process, so really helpful to, to understand. 

Phil, could you talk about some of the other revenues that the state has that are not under the Department of Revenue Administration.  

Phil Sletten: [00:03:00] Absolutely. And there are some significant revenue sources that are outside of what the DRA administers. So there are $3.8 billion in federal funds that come into the state, and that’s inside and outside of the state budget. So as Commissioner Stepp just noted the General and Education Trust Funds, which are part of the state budget. If we expand beyond that to look at all revenue, including revenue outside of the state budget, then we’re talking about a total of about $9.5 billion that are in governmental and enterprise funds. About $3.8 billion of that total is federal funds. So if you take that out, then DRA is about half of all of the other components collected.  

And the other half is really dominated by two big revenue sources: The Lottery Commission and the Liquor Commission. They’re separate agencies, not under the Department of Revenue Administration, and they raise their own revenues to pay for their own operations and costs. And then the profits go to other state operations, so Liquor Commission and Lottery Commission Profits go elsewhere. And note that neither of these are tax [00:04:00] revenue sources, although the Liquor Commission does administer the Beer Tax. There are turnpike tolls and taxes on motor fuels that support transportation projects and roads and bridge maintenance. Those are administered by the Department of Transportation and the Department of Safety, respectively. The Insurance Premium Tax is administered by the Insurance Department. New Hampshire Employment Security administers the Unemployment Compensation Program, which collects revenues from businesses to fund unemployment insurance payments. 

There are also fees, fines, and other revenues related to specific activities that other departments have in their purview. Now, that’s a long list, but there are only a handful of revenue sources outside of the Department of Revenue Administration’s responsibilities that get a lot of attention. That’s because the Department administers the revenue sources that do the most to support general state operations and core services and unlock some of those federal funds that come into the state, and they provide flexible resources to policymakers. 

There are a lot of dollars flowing elsewhere, but the Department of Revenue Administration’s revenue streams are usually at the center of state policy discussions. [00:05:00] 

Gene Martin: One of the things that I always do – when we we’re getting out and we’re talking to groups of folks – is explain why the general and education combined revenue sources are the ones that we often talk about because that’s the – to use the term flexible – but that’s what the state’s able to raise and have control over. Federal dollars are going to come in and out or other funds are a little bit outside that process. So it’s really important. Obviously your agency provides guidance to the legislature through the revenue estimation process, which is really important just for folks to see. 

And so you and others have a really important role in helping determine what the revenues are. And so I think that takes us to the next question. At the time this podcast is being recorded, we currently have lower than expected revenues this fiscal year, particularly from our business taxes. 

And something of course, you know very well is that business [00:06:00] tax revenues are one of the major drivers of the state budget. And that’s because of course we don’t have a broad-based sales or income tax. And so when you look, we’ve done some research that’s shown that corporate taxes are about 40% of our overall tax revenue that we raise. If you look at another state, like in New York, that’s the next highest at 19%. So we really have an over reliance on these taxes. And so when revenues start to come down, that really impacts our budget. 

And so I’m wondering, what are you seeing among this, all of the revenue sources, but particularly business taxes. Do we think this is a one-time drop or do we think this is part of a larger trend? What do you see going on in New Hampshire and maybe across the country as well with some of your other state counterparts? 

Lindsey Stepp: Sure. So as you mentioned, we’ve seen significant growth in the business taxes, especially since Covid, since [00:07:00] the pandemic and some of the years between 2020 and fiscal year 2025 that we’re in, we’ve seen double digit growth in the business taxes. That growth is significant. And what we’re seeing now is that businesses are likely resetting their payments to the state – at least to the State of New Hampshire at this point. 

And I think that’s for a couple of reasons. First, during the months and years following the pandemic, there was really an influx of money in the economy. There was a lot of pandemic relief and a lot of cash flowing through the economy and how that was going to impact businesses at any given time might not have been totally clear to them. And so what we believe we saw was a lot of businesses calculating their federal liability and then assuming [00:08:00] that that same change in their federal liability would happen at the state level as well. And so they would pay to the State of New Hampshire estimated payments that showed significant growth. 

What we’re seeing as the economy at the moment seems to be settling a bit and the profits of corporations are better known at this point, and taxpayers are right sizing their accounts. They may have had a lot of money on account with us in the form of what we call credit carryovers. And so they’re now just adjusting their payments and again, right sizing the amount of money that they’re paying to the state. 

I’ll note in the form of estimates, that’s the largest amount of revenue that we receive for business taxes. So the majority of business tax revenue comes in the form of estimated payments, and those happen four times a year for businesses. And so when businesses are unsure of their liability, they make estimated payments that may be in excess of what they actually owe at the end [00:09:00] of the day. 

And so that’s what we saw happening during Covid. Now we’re seeing businesses take a more calculated approach, I think, to their estimated payments, reducing those payments, and therefore reducing the amount of business tax revenue that we are receiving. I will say, I think that fiscal year 2025, although we’ll come in below fiscal year 2024, we will be close to $1.1 billion in revenue for business taxes. 

And if you look at where we were pre-pandemic, so fiscal year 2019, that’s still $200 million ahead. So really I think what we saw in these post-Covid years was a bit of an abnormal growth in the business taxes and that we’re now settling or resetting to where the general growth curve would ultimately be. 

Gene Martin: No, that makes sense. And just to explain for people, because I think we’ve obviously just had our April 15th. And so for [00:10:00] folks who pay taxes, most folks in their personal income taxes don’t pay the estimated payments. They’re paying through their federal income tax or that’s how they’re doing it. 

But just to highlight this, businesses are paying four times a year as you mention in estimated payments and then there’s a true up process to use a former state senator’s term there of what they’re actually paying and there was some legislation last year or a few years ago that looked at the credit carry forward and how do we start to remit that back to businesses over the percentages. So I’m assuming we’ve also seen that happening in the last few years is that the state was holding onto cash, but now we’re saying Hey, company X, we need you to take your money back. 

We have 200% or whatever the percentage is, over what it should be. Is that also happening at the same time?  

Lindsey Stepp: That’s a great point. So credit carryovers at this [00:11:00] point are capped at 500% of the current year’s liability. So if you’re a business and you get to the end of the year and you file your return and the amount of your credit carryover is more than 500% of that year’s liability, we’re going to refund you the difference. So you can’t essentially hold on account with the state more than 500% of your liability, and so that is causing the state to pay out some refunds and right size again the amount of money that that’s sitting on account.  

Gene Martin: That’s an important point. Phil, I know your recent analysis discussed the long-term impacts of the business tax rate reductions on state revenue. Can you discuss those impacts and maybe talk a little bit with us about the recent repeal of the Interest and Dividends Tax and what that means for state revenues and the budget moving forward? 

Phil Sletten: Yeah, so we at NHFPI wanted to understand what the impacts have been of those reductions in the state’s two primary business taxes, the Business Profits Tax and the Business Enterprise Tax. 

[00:12:00] The rates started going down in tax year 2016 and have been iteratively reduced through 2023. 2023 was the last rate reduction. So we actually, we did an analysis in 2023 with the available data and information we had at the time, and that included both a literature review and then crunching our own numbers based on New Hampshire-level data. The literature review of academic research that others have conducted found a mixture of evidence on the economic effects of corporate tax rate reductions. Some found temporary impacts in employment from changes in business tax rates, while others found impacts only during recessions or for certain types of corporations. 

Other research found no effects, and no research suggested that a state should expect to see more growth in corporate tax revenues from lowering the rates of those taxes, meaning that lower taxes wouldn’t lead to more revenue in those instances. We didn’t find any academic or peer reviewed research that said that that would be the case. 

In our 2023 analysis, we didn’t find a statistical relationship between the number of [00:13:00] jobs created in the state or job growth in the state and the Business Profits Tax rate. We also didn’t find a correlation between the growth in the size of the state’s economy and the Business Profits Tax rate relative to growth that was happening in the rest of New England or nationally at the same time. 

Now New Hampshire’s combined business tax revenues increased substantially during the same period from 2016 to 2024. And that was the time in which there were these rate reductions. However, if we look at corporate tax collections in all other states put together, that actually increased faster than in New Hampshire in percentage terms between fiscal 2015 and fiscal 2023. And actually faster in neighboring Maine and Vermont, if you look at those individually as well.  

So our revenue growth from business taxes, or from corporate taxes as they’re often referred to in other states, was not unique. Using all this research and our understanding of the economic effects, we built an estimate of the foregone revenue in our 2023 analysis, and last month we [00:14:00] used numbers that had just been released from the annual comprehensive financial report and recalculated those numbers with two more years of updated data and a little bit more certainty about the data from prior years. We now estimate that between about $800 million to nearly $1.2 billion in revenue was not collected because of the business tax rate reductions from 2016 to 2024. 

On a year over year basis, there are estimates, and it’s a range of estimates intentionally because of some of the economic uncertainties, those tax rate reductions likely led to between $160 million and $235 million less in state revenue in tax year 2024 based again on the estimates that we’ve been able to put together from what’s been collected so far and revenue projections. 

Now, if we pull in the Interest and Dividends Tax, as you asked Gene, which was repealed effective this year, that tax brought in $184.6 million last fiscal year. As it’s a tax on income derived from wealth and the stock market factors into [00:15:00] those revenues substantially, it probably wouldn’t have performed as well this year given the behavior we’ve seen in the stock market. 

But if business tax rates were at their 2015 levels and the Interest and Dividends Tax had not been repealed, then the state would likely have been able to plan on collecting about $350 million more in revenue next year from those combined factors. Now, those are my round number estimates. That’s not Commissioner Stepp’s estimates, just to be clear. 

But based on the information we have and the analysis we’ve completed here at NHFPI with publicly available numbers, I believe those are reasonable figures in terms of what the revenue impact is on a year over year basis at this point, based on what we know.  

Gene Martin: Absolutely. And thanks for that Phil. 

And just to pick up one thing that I thought was really impactful about this is that there’s a lot of conversation that business tax revenue has increased and I think everyone agrees that yes, mathematically it has increased. I think the real – and that’s a simple piece, yes, you could say it’s doubled – but I think, you know and that’s [00:16:00] something that my 6-year-old daughter could tell us – but I think the next question is like, what’s happening in the larger economy in the other states? And as the report notes nationwide, we see the 192% increase from 2015 to 2023. And we look at New England without New Hampshire, it’s a 172% increase. And then with New Hampshire, it’s a 124% increase. And so we see that again, corporate taxes, that’s one thing I think folks maybe don’t understand when they think about, when they hear Business Profits Tax. Commissioner Stepp, I’m wondering if you hear this anecdotally when you’re out not in your day job, but people talk about business taxes. 

I think there’s this perception that our local mom and pop shops are paying the business taxes. But we know from the annual report that about 5% of filers pay about 80% of the Business Enterprise and Business Profits Tax, because obviously it’s combined and that’s the most recent numbers. And so I think that’s something to be [00:17:00] mindful of, that corporate profits, national corporate profits have a real impact on our state revenues in a real outsized way. 

And I don’t think folks have that sense of what that means. And just to note when we look at Phil, as your report noted, that actually Maine and Vermont saw larger growth in New Hampshire in corporate tax revenue, which I think would be surprising to folks, but the numbers are the numbers. And so I think that’s an important point so thanks for all the great work that you’re doing there.  

Commissioner Stepp, let’s start with you, but what should policymakers watch in state revenues as they prepare for this biennium, the next biennium, and what should policymakers be using to project revenues and are there things that we could be looking more closely at for data as folks craft the state budget? What are your thoughts on that?  

Lindsey Stepp: Sure. [00:18:00] I’ll say in general, I’ve been involved with revenue estimating at DRA since roughly 2010 in various roles. And I think that this is one of the hardest times that I’ve experienced in terms of estimating revenue for this upcoming biennium – maybe absent the period in those first few months of Covid where we really just didn’t know what was going to happen with revenues. 

But aside from that, in the period that we’re in right now, there’s just a tremendous amount of uncertainty in the economy. And as I mentioned, especially with business taxes, we’re seeing this right sizing of payments. And then we also have the other tax types that we collect are generally performing well for the most part, the Meals and Rentals Tax is performing well. The Real Estate Transfer Tax has some life coming back into it after years of little to no activity in some areas of the state. [00:19:00] The Tobacco Tax is an area that we’re watching that is not performing as well as it has historically. I think there’s just fewer people smoking traditional cigarettes. So we often focus quite a bit on business taxes, but the other revenue sources that we collect we’re always keeping an eye on those factors as well.  

In terms of things for policy makers to consider while estimating revenues or things or places to look at for data, I don’t mean to pass the buck on this one, but DRA doesn’t actually always have the best data. As I mentioned, the majority of our revenues for business taxes come in the form of estimated payments. And with that estimated payment is just a very simple form that basically identifies the taxpayer and tells us how much money they’re paying in an estimate. 

I like to joke, there’s no little love note on there that tells me why their estimate might be more or less than they paid last year. Where we [00:20:00] start to get more information is when businesses actually file their returns for the year. And that information can sometimes come in as late as 11 months after the close of the business’s tax year. 

And so that data is quite stale at that point. And we, we look at it, we analyze it, but we don’t always have the most up to date data relative to what’s happening in the economy. So I always like to encourage policymakers to read various sources of information. Try to get to what is actually happening out there in the economy at the current time, and there’s a lot of good sources of information. The Economic and Labor Market Information Bureau at New Hampshire Employment Security has quite a bit of data available, hearing from various trade organizations about what’s happening in their specific industries at any given time, and then obviously, [00:21:00] organizations like New Hampshire Fiscal Policy Institute that are crunching the numbers. That’s all information that I think should inform policymakers on what revenues are going to look like in the future. And again, I don’t mean to pass the responsibility onto someone else, but just acknowledging that the data that I have isn’t always a good reflection on what’s happening in the economy as it happens today. 

Gene Martin: I think that’s a fair point. When I think about the Real Estate Transfer Tax, and I don’t think a lot of people think about that, but the reality is it’s the home price and are you selling homes, right? Like that is how you’re getting to this. And so again, things that are out of our control. And that’s what I think a lot of folks sometimes miss in this revenue conversation. There’s so many things, right, that are out of our control, and that’s one of them is State of New Hampshire, the legislature doesn’t set mortgage rates right. My guess is if all of a [00:22:00] sudden those rates came down, I would imagine, you would see more people selling, buying their homes, and you would see more revenue like we saw, again, part of it was home prices increasing post-pandemic. But that’s a key revenue source that I think folks, again there’s things that happen that we have to, as you mentioned, talking to a trade association and seeing what’s happening with the real estate, what’s going on and what does that mean is it pockets just on the Seacoast or is it something that’s happening across the state. 

So, great point there. Phil, same question to you.  

Phil Sletten: I’m glad we are talking about Real Estate Transfer Tax revenues, because they did increase – they were one of the fastest growing sources of revenue in the first few years, particularly the first few years of the impacts of the pandemic. 

They then dropped substantially, bottomed out, and appear to be coming back up again. So what does growth look like there is one of my key questions. What happens with Tobacco Tax revenues? They’ve been sliding. How much more [00:23:00] quickly do they slide? How much faster do they drop? 

And then of course, those business tax revenues. There, I’m thinking about all the policy changes that have happened recently. There’s the rate reductions, but when we’re looking at the last year, year and a half of data there may be some effect from the 2023 rate reduction, which was the most recent one, but most of what we’re seeing is something else.  

Some of that is policy changes – the credit carry forward cap is part of that. The apportionment may be a part of it. The changes in how the formula divides profits between states could be a part of that as well. One of the things that I’m looking forward in terms of the crystal ball piece and these are Department of Revenue Administration data, is around the April returns and the April estimates, what is the difference between what we see in the returns which are inherently backward looking in terms of revenue versus what’s in that first quarter estimate? Because corporate profits could go in a lot of different directions over this next year or [00:24:00] two, and that first quarter estimate is, at least ideally, what businesses might be telling us they think those profits are going to be. As Commissioner Stepp noted, there are a lot of caveats to that, and there are a lot of different ways that businesses could be transmitting information or not transmitting very much information with what they file in that first estimate, but I know I’ll be looking there to try to parse through and see what are some of the things we might be able to learn. 

Gene Martin: Absolutely. And you know, thinking about that is such a great point. Even as we sit here recording this episode, folks will listen to it in May, but we’re still towards the end of April and Commissioner, I was joking with Phil. I said you know, on the last day of the month you could have hopefully maybe $160 million and make up the 15% gap we have for business taxes right now. I don’t know if that will happen. Let’s hope that that does, I think it would be make the Senate phase a little bit easier for them. But there is so much uncertainty [00:25:00] that happens there. So I appreciate that.  

Thanks so much for this conversation Commissioner and Phil. I think it’s important for us to understand state revenues and what’s happening in the atmosphere, knowing that again, that there’s so many things that are outside of the control of policymakers here. There are some things, of course, that they do control, but for when it comes to Business Profits taxes and what’s happening in the corporate space, it’s something that’s somewhat beyond the scope here. So just really thoughtful conversation and something that we’ll be watching and looking for the rest of the session.  

Thank you so much Commissioner and Phil for joining us.  

Phil Sletten: Thank you for having us. 

Lindsey Stepp: Thank you. 

Gene Martin: That’s it for this episode of New Hampshire Uncharted. If you found today’s conversation helpful, be sure to subscribe and join us again next time for another thoughtful policy conversation. This podcast is produced by the New Hampshire Fiscal [00:26:00] Policy Institute in partnership with the Marlin Fitzwater Center for Communication at Franklin Pierce University and the Granite State News Collaborative. A big thank you to our partners, without whom this would not be possible. Thanks for listening, and we’ll see you next time on New Hampshire Uncharted.