HB 1443-FN - AS INTRODUCED
2016 SESSION
\t16-2342
\t09/10
HOUSE BILL\t1443-FN
AN ACT\trelative to the reasonable compensation deduction from gross business profits under the business profits tax and requiring the department of revenue administration to prepare draft rules relative to auditing.
SPONSORS:\tRep. Almy, Graf. 13; Rep. R. Walsh, Hills. 11; Rep. Hatch, Coos 6; Sen. Feltes, Dist 15
COMMITTEE:\tWays and Means
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ANALYSIS
\tThis bill repeals certain provisions relative to burden of proof in determining the reasonable compensation deduction and advises the department of revenue administration to use certain averages of compensation when determining reasonableness.
\tThe bill also requires the department of revenue administration to prepare draft rules relative to auditing and present the draft rules to the house and senate ways and means committees for comment.
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Explanation:\tMatter added to current law appears in bold italics.
\t\tMatter removed from current law appears [in brackets and struckthrough.]
\t\tMatter which is either (a) all new or (b) repealed and reenacted appears in regular type.
\t16-2342
\t09/10
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Sixteen
AN ACT\trelative to the reasonable compensation deduction from gross business profits under the business profits tax and requiring the department of revenue administration to prepare draft rules relative to auditing.
Be it Enacted by the Senate and House of Representatives in General Court convened:
\t1 Reasonable Compensation Deduction. Amend RSA 77-A:4, III(b) to read as follows:
\t\t\t(b) Subject to the provisions of subparagraph (c) which establishes a record-keeping safe harbor, the method of determining the amount of the deduction available to the business organization allowed under this paragraph shall be by using the standards set forth in section 162(a)(1) of the United States Internal Revenue Code, as it may be amended from time to time, and the Treasury Regulations, administrative rulings, and judicial cases issued thereunder. When determining the reasonableness of a year of higher compensation, the department should consider the use of the average of the prior 3 years' compensation taken, and may use up to a 10-year average when circumstances indicate it is justified by the nature of the business. The business organization shall keep such records as may be necessary to determine that the deduction is reasonable under these standards.
\t2 Draft Rules. The department of revenue administration shall prepare draft rules to constrain the ability of a future attempt to expand auditing beyond established national auditing principles, or to trigger legislative oversight at the time of such expansion. The department shall present these draft rules to the house and senate ways and means committees in January of the 2017 legislative session for legislative comment and prior to adopting the rules pursuant to RSA 541-A.
\t3 Repeal. The following are repealed:
\t\tI. RSA 21-J:28-b, VIII, relative to burden of proof on a change to a compensation deduction.
\t\tII. RSA 77:4-g, relative to dividend.
\t\tIII. RSA 77-A:4, III(g), relative to burden of proof of reasonableness.
\t4 Effective Date. This act shall take effect 60 days after its passage.
\t\t\t\t\t\t\t\t\t\t\t16-2342
\t\t\t\t\t\t\t\t\t\t\t11/20/15
HB 1443-FN- FISCAL NOTE
AN ACT\trelative to the reasonable compensation deduction from gross business profits under the business profits tax and requiring the department of revenue administration to prepare draft rules relative to auditing.
FISCAL IMPACT:
The Department of Revenue Administration states this bill, as introduced, will increase state general fund and education trust fund revenue by an indeterminable amount in FY 2016 and each year thereafter. There is no fiscal impact on county and local revenue or state, county, and local expenditures.
METHODOLOGY:
The Department of Revenue Administration states this bill directs that the Department should consider the use of the average of the three prior years' compensation taken and may use up to a 10 year average when justified by the nature of the business when determining the reasonableness of a year of higher compensation. The bill repeals several statutes that reference compensation deduction and burden of proof. This bill also directs the Department to present draft rules, related to limiting the ability of a future attempt to audit beyond the established national auditing principles or to trigger legislative oversight at the time of expanding an audit, to the house and senate ways and means committee in the January 2017 legislative session. The collective impact of the repeals contained in this bill is that the burden of proof will shift from the Department to the taxpayer on the issue of the compensation deduction making the burden of proof with respect to compensation consistent with other disputed tax issues. The Department states the shifting of the burden of proof from the Department to the taxpayer with respect to the compensation deduction may impact how taxpayers report this deduction to New Hampshire, resulting in an immediate indeterminable increase in revenues. An audit of the compensation deduction would not occur on any tax returns filed previous to this bill taking effect and the earliest revenues may increase as the result of an audit would be in FY 2019. This bill will not impact the Department's expenditures.