Revision: June 2, 2016, midnight
\t \t\tSB 342-FN - VERSION ADOPTED BY BOTH BODIES
03/24/2016 1021s
11May2016... 1308h
06/01/2016 2075CofC
2016 SESSION
\t16-2710
\t09/10
SENATE BILL\t342-FN
AN ACT\trelative to the sale or exchange of an interest in a business organization under the business profits tax.
SPONSORS:\tSen. Bradley, Dist 3; Sen. Boutin, Dist 16; Sen. Sanborn, Dist 9; Sen. Morse, Dist 22; Sen. Forrester, Dist 2; Sen. Little, Dist 8; Sen. Cataldo, Dist 6; Sen. Avard, Dist 12; Sen. Carson, Dist 14; Sen. Birdsell, Dist 19; Sen. Stiles, Dist 24; Sen. D'Allesandro, Dist 20; Rep. Major, Rock. 14; Rep. Hinch, Hills. 21; Rep. Packard, Rock. 5
COMMITTEE:\tWays and Means
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AMENDED ANALYSIS
This bill limits the inclusion in the business profits tax of the net increase due to certain sales or exchanges of an interest or beneficial interest in a business organization.
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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\t\tMatter which is either (a) all new or (b) repealed and reenacted appears in regular type.
03/24/2016 1021s
11May2016... 1308h
06/01/2016 2075CofC\t16-2710
\t09/10
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Sixteen
AN ACT\trelative to the sale or exchange of an interest in a business organization under the business profits tax.
Be it Enacted by the Senate and House of Representatives in General Court convened:
\t1 Sale or Exchange of an Interest in a Business Organization. RSA 77-A:4, XIV is repealed and reenacted to read as follows:
\t\tXIV.(a) In the case of a business organization where an ownership interest in the business organization is sold or exchanged and the transaction, for federal income tax purposes results in an increase in the basis of the assets for one or more of the parties to the transaction, the business organization shall:
\t\t\t\t(1) Add to the gross business profits of the business organization, for each taxable period, an amount equal to the annual depreciation or amortization attributable to the increase in the basis of the assets recognized by the parties to the transaction for federal income tax purposes; and
\t\t\t\t(2) Calculate the gain or loss on the sale or other disposition of an asset without regard to the basis increase recognized by any party to the transaction for federal income tax purposes, from the sale or exchange of the ownership interest in the business organization.
\t\t\t(b) A business organization may, for a particular sale or exchange, make an irrevocable election on a timely filed return including any extension period, to recognize the basis increase of the assets for one or more of the parties to the transaction for federal income tax purposes. Such business organization for the purposes of the business profits tax shall:
\t\t\t\t(1) Be required to make an addition to gross business profits of the business organization equal to the net increase in the basis of all assets transferred or sold in the tax period in which the sale or exchange of the ownership interest occurs;
\t\t\t\t(2) Be allowed a deduction against its gross business profits for annual depreciation or amortization attributable to the increase in the basis of the assets recognized by the parties to the transaction for federal income tax purposes; and
\t\t\t\t(3) Calculate the gain or loss on the sale or other disposition of an asset with regard to the basis increase recognized by any party to the transaction for federal income tax purposes, from the sale or exchange of the ownership interest in the business organization.
\t2 Applicability. This act shall take effect for sales or exchanges of interests in business organizations that occur on and after January 1, 2016.
\t3 Effective Date. This act shall take effect upon its passage.
\t\t\t\t\t\t\t\t\t\t\t16-2710
\t\t\t\t\t\t\t\t\t\t\tAmended 5/24/16
SB 342-FN- FISCAL NOTE
AN ACT\trelative to the sale or exchange of an interest in a business organization under the business profits tax.
FISCAL IMPACT:
The Department of Revenue Administration states this bill, as amended by the House (Amendment #2016-1308h), will decrease state general fund and education trust fund revenue by an indeterminable amount in FY 2017 and each year thereafter. There is no impact on county and local revenue or state, county and local expenditures.
METHODOLOGY:
The Department of Revenue Administration states this bill repeals RSA 77-A:4, XIV and reenacts it to define how a business organization shall treat sales or exchanges of an ownership interest which results in an increase in basis of assets federally. Any portion of the annual depreciation or amortization attributable to the increase in basis from the sale of an ownership interest shall be added back to the gross business profits of the business organization. The gain or loss on the sale or disposition of the asset shall be calculated without regard to the basis increase recognized federally. Business organizations may make an irrevocable election to recognize the basis increase for a particular sale or exchange. If the irrevocable election is made the business organization must make an addition to gross business profits in an amount equal to the net increase in the basis of its assets in the tax period when the sale or exchange of the ownership interest occurs. The business may deduct against gross business profits any annual depreciation or amortization attributable to the increased benefit. If this election is made, the gain or loss on the sale or disposition of an asset shall be calculated taking into consideration the basis increase. The Department states this bill is effective upon passage and will be applicable to any sales or exchanges of interest in a business organization that occur on and after January 1, 2016. The Department states if this legislation had been in effect over the previous five tax years, the fiscal impact would have resulted in the following decreases in state revenue:
Tax Year 2010 | ($1.9 million) |
Tax Year 2011 | ($0.9 million) |
Tax Year 2012 | ($13.3 million) |
Tax Year 2013 | ($6.6 million) |
Tax Year 2014 (incomplete tax year) | ($3.8 million) |
The Department states the above numbers are based upon reported sale transactions that resulted in increased basis adjustments and the subsequent tax thereon. The Department is not able to predict how many interest holders will engage in the sale or exchange of their interest at some time in the future to predict an exact impact.