HB 1538-FN-A - AS INTRODUCED
2016 SESSION
\t16-2251
\t09/01
HOUSE BILL\t1538-FN-A
AN ACT\trelative to revising the business enterprise tax as a business flat tax, reducing the rate of the interest and dividends tax, repealing certain taxes, and establishing a commission to recommend statutory changes for the implementation of this new tax structure.
SPONSORS:\tRep. Ingbretson, Graf. 15
COMMITTEE:\tWays and Means
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ANALYSIS
\tThis bill revises the business enterprise tax as a business flat tax at a rate of 2 percent and repeals the business profits tax and Medicaid enhancement tax. The bill reduces the rate of the interest and dividends tax to 2 percent. The bill also establishes a commission to recommend statutory changes for the implementation of this new tax structure.
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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\t\tMatter which is either (a) all new or (b) repealed and reenacted appears in regular type.
\t16-2251
\t09/01
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Sixteen
AN ACT\trelative to revising the business enterprise tax as a business flat tax, reducing the rate of the interest and dividends tax, repealing certain taxes, and establishing a commission to recommend statutory changes for the implementation of this new tax structure.
Be it Enacted by the Senate and House of Representatives in General Court convened:
\t1 Chapter Heading. Amend the chapter heading of RSA 77-E to read as follows:
CHAPTER 77-E
BUSINESS [ENTERPRISE] FLAT TAX
\t2 Business Flat Tax; Definition of Business Enterprise. Amend RSA 77-E:1, III to read as follows:
\t\tIII. “Business enterprise” means any state departments and political subdivisions of the state, profit or nonprofit enterprise or organization, whether corporation, partnership, limited liability company, proprietorship, association, trust, business trust, real estate trust or other form of organization engaged in or carrying on any business activity within this state[, except such enterprises as are expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code to the extent such enterprise does not engage in any business activity constituting unrelated business activity as defined by section 513 of the United States Internal Revenue Code]. Each business enterprise under this definition shall be subject to the tax imposed under RSA 77-E as a separate entity except that trusts treated as grantor trusts under section 671 of the United States Internal Revenue Code shall be included in the return of their owners, and such owners shall be subject to the tax thereon to the extent any such owners would be considered a business enterprise hereunder notwithstanding the existence of the trust. The use of consolidated returns as defined in the United States Internal Revenue Code or of combined reporting is not permitted. Notwithstanding any other provision of this paragraph, an enterprise shall not be characterized as a business enterprise and shall be excluded from taxation at the entity level if it is a qualified investment company as defined in RSA 77-E:1, XIV.
\t3 Business Enterprise Tax; Definition of Gross Business Receipts. Amend RSA 77-E:1, X to read as follows:
\t\tX. “Gross business receipts” means all income for federal income tax purposes from whatever source derived in the conduct of business activity, including but not limited to gross proceeds from sales, compensation for rendering services, gross proceeds realized from trading in stocks, bonds, or other evidences of indebtedness, gross proceeds realized from sale of assets used in trade or business, interest, discount, gross rents, royalties, fees, commissions, dividends, without any deduction on account of the cost of property sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense paid or accrued and without any deduction on account of losses. [In the case of non-profit enterprises not required to pay income taxes, the sum of all revenues derived in the conduct of business activity, including but not limited to the items included in the preceding sentence. Any receipts that would otherwise be considered “gross business receipts” received by an enterprise that constitutes a qualified trust under section 401, or is defined in section 501(c)(9), or section 584, of the United States Internal Revenue Code shall not be included in gross business receipts for purposes of this chapter.]
\t4 Business Flat Tax; Imposition of Tax. RSA 77-E:2 is repealed and reenacted to read as follows:
\t77-E:2 Imposition of Tax. A tax is imposed at the rate of 2 percent upon the taxable enterprise value tax base of every business enterprise.
\t5 Business Enterprise Tax Changed to Business Flat Tax. Amend the following RSA provisions by replacing the word “enterprise” with “flat” wherever it occurs:
77-E:3-b; 77-E:5, II; 77-E:11, II(b); 77-G:3; 77-G:5, I(i)(2); 198:39, I(b).
\t6 Interest and Dividends Tax; Rate Reduced. Amend RSA 77:1 to read as follows:
\t77:1 Rate. The annual tax upon incomes shall be levied at the rate of [5] 2 percent.
\t7 Repeal. The following are repealed:
\t\tI. RSA 77-A, relative to the business profits tax.
\t\tII. RSA 77-E:13, relative to application of credit for business enterprise tax against business profits tax.
\t\tIII. RSA 84-A, relative to the Medicaid enhancement tax.
\t8 Commission on Statutory Changes Established.
\t\tI. There is established a commission to study statutory changes made necessary by the provisions of sections 1-7 of this act.
\t\tII.(a) The members of the commission shall be as follows:
\t\t\t\t(1) Three members of the house of representatives, appointed by the speaker of the house of representatives.
\t\t\t\t(2) Three members of the senate, appointed by the president of the senate.
\t\t\t\t(3) The commissioner of revenue administration, or designee.
\t\t\t\t(4) The commissioner of resources and economic development, or designee.
\t\t\t\t(5) An attorney with expertise in state tax law, appointed by the New Hampshire Bar Association.
\t\t\t\t(6) Two public members, appointed by the governor.
\t\t\t(b) Legislative members of the commission shall receive mileage at the legislative rate when attending to the duties of the commission.
\t\tIII. The commission shall study statutory changes made necessary by the revision of the business enterprise tax and repeal of taxes under sections 1-7 of this act. The commission shall make detailed recommendations for legislation to accomplish these repeals and statutory changes.
\t\tIV. The members of the commission shall elect a chairperson from among the members. The first meeting of the commission shall be called by the first-named house member. The first meeting of the commission shall be held within 45 days of the effective date of this section. Six members of the commission shall constitute a quorum.
\t\tV. The commission shall report its findings and recommendations for proposed legislation to the speaker of the house of representatives, the president of the senate, the house clerk, the senate clerk, the governor, and the state library on or before November 1, 2016.
\t\tI. Section 8 of this act shall take effect upon its passage.
\t\tII. The remainder of this act shall take effect January 1, 2018.
\t\t\t\t\t\t\t\t\t\t\t16-2251
\t\t\t\t\t\t\t\t\t\t\t11/23/15
HB 1538-FN-A- FISCAL NOTE
AN ACT\trelative to revising the business enterprise tax as a business flat tax, reducing the rate of the interest and dividends tax, repealing certain taxes, and establishing a commission to recommend statutory changes for the implementation of this new tax structure.
FISCAL IMPACT:
The Department of Revenue Administration states this bill, as introduced, will have an indeterminable impact on state revenue and may increase state expenditures in FY 2017 and each year thereafter and may increase county and local expenditures in FY 2018 and each year thereafter. There is no impact on county and local revenue.
METHODOLOGY:
The Department of Revenue Administration states this bill amends the business enterprise tax (RSA 77-E) to be a business flat tax and increases the rate from 0.75% to 2%; reduces the interest and dividends tax rate from 5% to 2%; and repeals the business profits tax and the medicaid enhancement tax. Additionally, this bill would subject state departments and political subdivisions to the business flat tax.
The creation of the business flat tax and the repeal of business profits tax will have no impact in FY 2016. Without the addition of an applicability date, there could be a large loss of the estimated business profits tax and extension payments in FY 2017. The Department would lose the ability to pursue delinquent or incorrect tax returns due for taxable periods prior to the proposed repeal of the tax. There will be a mix of revenue losses and gains in FY 2018 as the tax law changes would be effective January of 2018, therefore the impact is indeterminable. Beginning in FY 2019 and each year thereafter, all business profits tax revenue, approximately $340,100,000, will be lost. Based on the assumed business enterprise tax revenue of $226,400,000 in FY 2016 and dividing the tax by 0.75% results in a taxable base of $30,186,666,667 ($226,400,000/0.75%). Using this tax base multiplied by the new tax rate of 2%, the business flat tax would produce $603,733,333, an increase of $377,333,333 over the business enterprise tax that would have been collected under current law. With the creation of the business flat tax and the repeal of the business profits tax, the net impact on revenue in FY 2019 and each year thereafter is an approximate increase of $37,233,333 ($377,333,333 of business flat tax revenue increase - $340,100,000 of lost business profits tax revenue). The Department does not have the information necessary to determine an estimated revenue impact of including political subdivisions and non-profit organizations as business flat tax payers. If counties or local governments meet the threshold to file and pay the tax, the state will see increased revenues and the counties and local governments would have increased expenses. Any impact of the business flat tax on state departments would result in no change in net revenue for the state as any increase in revenue received under the tax would be equal to the increased expenditure associated with any added tax expense to the State.
Reducing the interest and dividends tax rate from 5% to 2% will decrease revenue by approximately $58,860,000 in FY 2019 and each year thereafter. This is based on an estimated tax base of $1,862,000,000 ($93,100,000 FY 2016 estimated tax revenue/tax rate of 5%) multiplied by the new tax rate of 2% and subtracting it from the FY 2016 estimated revenue.
Based on the amount of medicaid enhancement tax revenue received in FY 2015, the repeal of the medicaid enhancement tax would result in medicaid enhancement tax revenue decreasing by approximately $198,500,000 in FY 2018 and each year thereafter.