Revision: Feb. 2, 2011, midnight
SB 168-FN – AS INTRODUCED
2011 SESSION
09/04
SENATE BILL 168-FN
AN ACT conforming the interest and dividends tax to federal tax definitions.
SPONSORS: Sen. Luther, Dist 12; Sen. Bradley, Dist 3; Sen. White, Dist 9; Sen. Lambert, Dist 13; Sen. Odell, Dist 8
This bill revises the interest and dividends tax to apply to all interest and dividends reported to the federal government by all resident New Hampshire individuals in order to simplify and modernize the interest and dividends tax rules.
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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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
11-1051
09/04
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Eleven
AN ACT conforming the interest and dividends tax to federal tax definitions.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Purpose. The legislature finds that:
I. Good tax policy requires clear tax rules that reflect modern business and tax practices, provide taxpayers with simple and clear guidance, encourage compliance, and enhance the competitiveness of our economy.
II. The strength of New Hampshire’s economy is based on attracting and growing small businesses that create good jobs and growth, and the state’s tax system should provide clear rules that encourage and enhance the state’s reputation as a leading jurisdiction for the creation and growth of small businesses.
III. The interest and dividends tax law was originally enacted in 1923 and its provisions do not reflect modern economic and legal practices.
IV. This act will reform, simplify, and modernize important interest and dividends tax rules that apply to small businesses and their owners, will reduce tax audits, and restore New Hampshire’s ability to encourage small business growth and the good jobs these businesses create.
2 Taxation of Interest and Dividends; Imposition of Tax. RSA 77:1 is repealed and reenacted as follows:
77:1 Imposition of Tax. A tax is imposed at the rate of 5 percent upon the interest and dividend income of every taxable individual.
3 New Section; Taxation of Interest and Dividends; Definitions. Amend RSA 77 by inserting after 77:1-a the following new section:
77:1-b Definitions.
I. “Taxable individual” means any individual who is an inhabitant or resident of this state for any part of the taxable year.
II. “Dividend” means any item of federal gross income which is treated as a dividend under the provisions of the United States Internal Revenue Code.
III. “Interest” means all amounts treated as interest under the provisions of the United States Internal Revenue Code, except interest from notes or bonds of this state and notes and bonds of any political subdivision of this state.
4 Reference Change. Amend RSA 77:18, III to read as follows:
II. At the same time the return is filed, as required by paragraph I of this section, every [taxpayer as defined in RSA 77:3] taxable individual as defined in RSA 77:1-b, I shall, in addition, file a declaration of its estimated tax for its subsequent taxable period; provided, however, that if the estimated tax is less than $500, a declaration need not be filed; and provided further that a declaration shall be filed at the end of any quarter thereafter in which the annualized estimated tax exceeds $500.
5 Reference Change. Amend 77:4-b to read as follows:
77:4-b Interest and Dividend Income of Employee Benefit Plans and Tax Deferred Investments Not Taxable. [Notwithstanding any provisions of RSA 77:4 to the contrary,] Interest and dividend income received by an employee benefit plan as defined by the Employee Retirement Income Security Act of 1974, section 3, or any successor act enacted for the purpose of regulating employee benefit plans, or an individual retirement arrangement, Keogh plan or any other arrangement pursuant to which payment of federal tax on the income thereof and of the plan sponsors, participants and beneficiaries is deferred, shall at no time be considered taxable income under [RSA 77:4] this chapter, either to the plan or arrangement or to its sponsors, participants or beneficiaries, irrespective of when or whether all or any portion of such income is accumulated or expended for the benefit of, or distributed in any form or manner to, such sponsors, participants or beneficiaries.
6 Reference Change. Amend RSA 77:4-d to read as follows:
77:4-d Dividends Earned on Certain Mutual Funds and Distributions Received on Unit Investment Trusts Not Taxable. [Notwithstanding any provisions of RSA 77:4 to the contrary,] The dividends earned by an investor in a mutual fund or the income earned or distributions received by an investor in a unit investment trust which invests solely in New Hampshire tax-exempt tax anticipation notes, bond anticipation notes and other instruments exempt under New Hampshire law shall not be taxable under this chapter.
7 Reference Change. Amend RSA 77:4-e to read as follows:
77:4-e Interest and Dividends From Funds Invested in College Tuition Savings Plan Not Taxable. [Notwithstanding any provision of RSA 77:4,] Income and distributions from any qualified tuition program as defined in the Internal Revenue Code of 1986, as amended, shall not be taxable under this chapter to the plan or to its sponsors, participants, or beneficiaries to the extent that the same is exempt from federal income taxation under section 529 of the Internal Revenue Code of 1986, as amended, as that section was in effect on July 1, 2003.
8 Reference Change. Amend RSA 77:24-b to read as follows:
77:24-b Corrections. Each taxpayer shall report to the commissioner of revenue administration any change in the amount of the taxpayer’s income [as defined by RSA 77:4] as finally determined by the United States Internal Revenue Service with respect to any beneficial interest for which the taxpayer has made a return under this chapter. Such a report shall be made not later than 6 months after the taxpayer has received notice that such change has been finally determined.
Notwithstanding any other provision of law, a taxpayer reporting a correction pursuant to this section shall be given notice by the department of any adjustment to the tax due with respect to such correction within 6 months after the filing of the report.
9 Reference Change. Amend RSA 77-A:5-b, II(b) to read as follows:
(b) The names, addresses, and federal taxpayer identification numbers of the holders of such qualified investment company and the amount, if any, of their proportional share of the income required to be included in such holder’s New Hampshire tax return [under RSA 77:4, V and RSA 77-A:4, XV].
10 Reference Change. Amend RSA 391:3 to read as follows:
391:3 Taxability. A common trust fund shall not constitute a taxable entity within the meaning of RSA 77. Each estate having a participating interest in a common trust fund shall include in its return its proportionate share of any taxable income [of the classes described in RSA 77:4,] received by such common trust fund, whether or not such income is distributed by the common trust fund.
11 Repeal. The following are repealed:
I. RSA 77:3, relative to taxable persons.
II. RSA 77:3-a, relative to limited liability companies.
III. RSA 77:4, relative to taxable income.
IV. RSA 77:4-c, relative to transferable shares.
V. RSA 77:6, relative to income from pledged property.
VI. RSA 77:7, relative to capital distribution.
VII. RSA 77:8, relative to certain non-taxable income.
VIII. RSA 77:9, relative to decedents’ estates.
IX. RSA 77:10, relative to income from trusts.
X. RSA 77:11, relative to accumulations.
XI. RSA 77:12, relative to nonresident trustees.
XII. RSA 77:13, relative to guardians.
XIII. RSA 77:17-a, relative to small business corporation reports.
12 Applicability. Sections 2-11 of this act shall apply to taxable periods ending on or after December 31, 2011.
13 Effective Date. This act shall take effect upon its passage.
LBAO
11-1051 01/31/11
SB 168-FN - FISCAL NOTE
AN ACT conforming the interest and dividends tax to federal tax definitions.
FISCAL IMPACT:
The Department of Revenue Administration states this bill will decrease state revenue by an indeterminable amount in FY 2011 and each year thereafter. This bill will have no fiscal impact on state, county, and local expenditures, or county and local revenue.
METHODOLOGY:
The Department of Revenue Administration states this bill would revise the interest and dividends tax (I&D) to apply to all interest and dividends to the federal government by all resident New Hampshire individuals. The Department states as only federally defined interest and dividends would be taxable to resident individuals, the largest impact would be the loss of income from the taxation of “distributions” currently achieved under the I&D tax. This large component accounted for taxable income of approximately $525,772,862 for tax year 2008 returns filed so far, of which 5% would be $26,288,643 (high range of loss). If the Department applies a ratio of 48.65% nontaxable amounts to total gross revenue, the tax effect could be $13,498,859. If the Department excludes all distribution amounts attributable to entities not taxable under this bill, the loss would be approximately $13,232,160. The tax previously paid by corporations, partnerships, and trusts may no longer be received, which could amount to approximately $6,490,009. The Department states the combined loss could total $19,722,169 at the lower range. This law would take effect upon passage and apply to taxable periods ending on or after December 31, 2011. Estimate payments normally due in April and June 2011 (FY 2011) could be reduced if the bill is passed in the near future, as it would apply to all calendar year 2011 interest and dividends tax filers. The exact fiscal impact cannot be determined at this time, and the Department is unable to make a projection beyond FY 2012.