HB 1308-FN-A – AS INTRODUCED
2008 SESSION
09/01
HOUSE BILL 1308-FN-A
AN ACT relative to the business profits tax deduction for reasonable compensation.
SPONSORS: Rep. Almy, Graf 11; Rep. Major, Rock 8; Rep. Mulholland, Graf 10; Rep. John Kelley, Hills 26
This bill changes the standards for the business profits tax deduction for reasonable compensation for owners of sole proprietorships, partnerships, and limited liability companies.
This bill was requested by the department of revenue administration.
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Explanation: Matter added to current law appears in bold italics.
Matter removed from current law appears [in brackets and struckthrough.]
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
08-2494
09/01
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Eight
AN ACT relative to the business profits tax deduction for reasonable compensation.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Business Profits Tax; Deductions; Reasonable Compensation Standards. RSA 77-A:4, III is repealed and reenacted to read as follows:
III. In the case of a proprietorship, partnership, or limited liability company filing as a partnership, a deduction equal to a fair and reasonable compensation for the personal services of the proprietor, partner, or member who is a natural person actually devoting time and effort in the operation of the business organization. The purpose of this paragraph is to permit deduction from gross business profits of a proprietorship, partnership, or limited liability company filing as a partnership, only of such amounts as are fairly attributable to the personal services of the proprietor, partner, or member and which such individual might reasonably earn if performing like services as an employee of a corporation. The burden shall be upon the business organization filing the return to demonstrate the reasonableness of the deduction claimed under this paragraph, by a preponderance of the evidence.
(a) In determining the reasonableness of the compensation deduction, the business organization and the commissioner may rely on Internal Revenue Code Section 162(a)(1), relevant Treasury regulations, federal court decisions, and rules adopted by the commissioner.
(1) In evaluating the reasonableness of the compensation claimed under this paragraph, the commissioner and the business organization shall compare the compensation claimed on the return to compensation paid to employees in positions of similar responsibility, devotion of time, education, and experience in other business organizations of similar size, volume, and complexity.
(2) Except as provided in subparagraph (b), every business organization deducting compensation under this paragraph shall maintain contemporaneous records sufficient to demonstrate the nature and extent of services performed by the individual proprietor, partner, or member.
(b) In lieu of maintaining contemporaneous records as required in subparagraph (a)(2), the business organization entitled to take a compensation deduction under this paragraph for the personal services of a proprietor, partners, or members may elect, in any tax year, to deduct, in total, an amount equal to gross business profits for that tax year or $50,000, whichever is less.
2 Applicability. This act shall apply for taxable periods beginning on and after January 1, 2008.
3 Effective Date. This act shall take effect 60 days after its passage.
LBAO
08-2494
10/26/07
HB 1308-FN-A - FISCAL NOTE
AN ACT relative to the business profits tax deduction for reasonable compensation.
FISCAL IMPACT:
The Department of Revenue Administration states this bill may increase state revenue by an indeterminable amount in FY 2008 and each year thereafter. There will be no fiscal impact on county and local revenue or state, county, and local expenditures.
METHODOLOGY:
The Department of Revenue Administration states this bill changes the standards for the business profits tax deduction for reasonable compensation for owners of sole proprietorships, partnerships, and limited liability companies. The Department states the linking of reasonable compensation for proprietorships, partnerships, and limited liability companies to federal standards used by corporations will increase compliance. The Department expects the increased compliance may increase revenue by a de minimus but indeterminable amount in FY 2008 and each year thereafter.