Revision: Jan. 5, 2012, midnight
HB 611-FN-A – AS INTRODUCED
2011 SESSION
09/10
HOUSE BILL 611-FN-A
AN ACT relative to determination of the reasonable compensation deduction under the business profits tax.
SPONSORS: Rep. Hess, Merr 9; Rep. Chandler, Carr 1; Rep. Bettencourt, Rock 4; Rep. Stepanek, Hills 6; Rep. Kurk, Hills 7; Sen. Bradley, Dist 3; Sen. Rausch, Dist 19; Sen. Sanborn, Dist 7
This bill establishes standards and burden of proof for determination of the reasonable compensation deduction under the business profits tax.
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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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
11-0221
09/10
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Eleven
AN ACT relative to determination of the reasonable compensation deduction under the business profits tax.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Determination of Reasonable Compensation Deduction. RSA 77-A:4, III is repealed and reenacted as follows:
III.(a) In the case of a proprietorship, partnership, or limited liability company filing a business profits tax return as a proprietorship or a partnership, a deduction equal to a fair and reasonable compensation for the personal services of a natural person who is a proprietor, partner, or member provided to the business organization, provided, however, that the amount of such deduction shall not exceed such business organization’s gross business profits. The purpose of this paragraph is to permit a deduction from gross business profits of such a proprietorship, partnership, or limited liability company of all amounts that are fairly attributable to the personal services of the proprietor, partner, or member. Such amounts shall generally include all amounts reported as earned income on federal tax returns, but shall also include amounts attributable to personal services provided in connection with the operation and rental of real property, the sale of property and services, and other amounts due to services rendered.
(b) A taxpayer claiming a deduction under this paragraph shall bear the burden of proving that at least one or more proprietors, partners, or members provided actual services to the business organization at any time during the taxable period. Once a taxpayer has satisfied this burden of proof, the amount claimed as a deduction shall be presumed to be reasonable, unless the commissioner proves by clear and convincing evidence that the deduction claimed by the taxpayer is grossly excessive.
2 Applicability. Section 1 of this act shall apply with respect to taxable periods ending on or after June 30, 2011.
3 Effective Date. This act shall take effect June 30, 2011.
LBAO
11-0221
01/21/11
HB 611-FN-A - FISCAL NOTE
AN ACT relative to determination of the reasonable compensation deduction under the business profits tax.
FISCAL IMPACT:
The Department of Revenue Administration states this bill will decrease state revenues by an indeterminable amount in FY 2012 and each year thereafter. There will be no fiscal impact on county and local revenues, or state, county, and local expenditures.
METHODOLOGY:
This bill establishes standards and burden of proof for determination of the reasonable compensation deduction under the business profits tax attributable to owners of partnerships, limited liability companies, and sole proprietorships. The Department of Revenue Administration states the proposed legislation places the burden of proving the compensation deduction claimed on tax returns is grossly excessive onto the Department as opposed to having the taxpayer prove the validity of the deduction. The Department states this will result in an indeterminable decrease in BPT revenue which is deposited into the general fund and the education trust fund. Although the Department is unable to anticipate to what extent the proposed legislation will reduce BPT revenues, the language of the proposed legislation would only require the taxpayer to prove that one proprietor, partner or member provided actual services to the business. The Department notes this could potentially provide a means for partnerships, limited liability companies, and sole proprietorships to reduce their BPT liability to zero barring the Department’s ability to prove that their deduction is grossly excessive. The Department notes that in tax year 2008, $49,430,000 of BPT revenue was attributable to partnerships and proprietorships.