SB479 (2016) Detail

Establishing a credit against business taxes for implementing employee profit sharing.


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SB 479-FN - AS INTRODUCED

 

2016 SESSION

\t16-2806

\t10/09

 

SENATE BILL\t479-FN

 

AN ACT\testablishing a credit against business taxes for implementing employee profit sharing.

 

SPONSORS:\tSen. Pierce, Dist 5; Sen. Soucy, Dist 18; Sen. Woodburn, Dist 1; Sen. Fuller Clark, Dist 21; Sen. Kelly, Dist 10; Sen. Lasky, Dist 13; Sen. Watters, Dist 4

 

COMMITTEE:\tWays and Means

 

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ANALYSIS

 

\tThis bill establishes a credit against business enterprise taxes and business profits taxes due for  implementing a qualified profit sharing plan.  

 

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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\t\tMatter which is either (a) all new or (b) repealed and reenacted appears in regular type.

\t16-2806

\t10/09

 

STATE OF NEW HAMPSHIRE

 

In the Year of Our Lord Two Thousand Sixteen

 

AN ACT\testablishing a credit against business taxes for implementing employee profit sharing.

 

Be it Enacted by the Senate and House of Representatives in General Court convened:

 

\t1  New Paragraph; Business Profits Tax; Profit Sharing Tax Credit.  Amend RSA 77-A:5 by inserting after paragraph XV the following new paragraph:

\t\tXVI.  The unused portion of any ?profit sharing? tax credit awarded by the commissioner under RSA 77-E:3-e shall be available to apply to the business profits tax.

\t2  New Section; Business Enterprise Tax; Profit Sharing Tax Credit.  Amend RSA 77-E by inserting after section 3-d the following new section:

\t77-E:3-e  Profit Sharing Tax Credit.

\t\tI.  There shall be a tax credit ??for each qualified tax credit employee ??in the amount of up to 15 percent of the compensation which is paid as profits in which employees share, as certified by the commissioner of resources and economic development under RSA 162-R:2.  

\t\t?II.  Shared profits eligible for the credit shall be capped at 10 percent of the employee's current wages.

\t\tIII.  Taxpayers shall only be eligible for the tax credit for 2 years.

\t\tIV????.  Unused portions of this credit granted shall be carried forward up to 5 years.  Unused, carried forward credit under this section shall be applied before any other available carry-forward credit.

\t\tV?.  For the purpose of the credit allowed under this section, the profit sharing tax credit shall be considered taxes paid under RSA 77-E.

\t3  New Chapter; Profit Sharing Tax Credit.  Amend RSA by inserting after chapter 162-Q the following new chapter:

CHAPTER 162-R

?PROFIT SHARING TAX CREDIT

\t162-R:1  Definitions.  In this chapter:

\t\tI.  “Profit sharing” means ?an incentive plan that distributes a portion of an organization's profits to its employees.  The ?organization contributes a portion of its pre-tax profits to a pool that will be distributed among eligible employees.

\t\tII.  ?"Qualified tax credit employee" means a non-management level employee who receives ? profit-sharing ?compensation.

\t162-R:2  Approval and Certification.  The commissioner of the department of resources and economic development, in consultation with the commissioner of the department of revenue administration, shall develop application forms with which taxpayers may apply for the ?profit sharing ?tax credit.  The forms shall be submitted by taxpayers to the commissioner of the department of resources and economic development, and the commissioner shall approve or deny such application and certify to the commissioner of the department of revenue administration the total credit awarded to each business organization that establishes a qualified profit sharing plan.

\t162-R:3  Reports.  The commissioner of the department of resources and economic development shall file a report detailing the implementation of the tax credit program under RSA 77-E:3-e and the results achieved.  This report shall be filed with the president of the senate, the speaker of the house of representatives, and the governor on or before July 31 of each year, beginning with July 31, 2017.  The report shall include the following:

\t\tI.  Methods and activities used to implement the ?profit sharing tax credit program.

\t\tII.  The number and type of ?employees ?who participate in a ?profit sharing plan?.

\t\tIII.  The total amount of ?profit sharing? tax credits awarded.

\t\tIV.  Other information as deemed relevant.

\t4  Applicability.  Sections 1-3 of this act shall apply for tax periods ending after July 1, 2016.

\t5  Effective Date.  This act shall take effect July 1, 2016.

 

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SB 479-FN- FISCAL NOTE

 

AN ACT\testablishing a credit against business taxes for implementing employee profit sharing.

 

 

FISCAL IMPACT:

The Department of Revenue Administration and Department of Resources and Economic Development state this bill, as introduced, will decrease state general fund and education trust fund revenue and increase state expenditures by an indeterminable amount in FY 2017 and each year thereafter.  There is no fiscal impact on county and local revenue or expenditures.

 

METHODOLOGY:

The Department of Revenue Administration states this bill establishes RSA 162-R, the profit sharing tax credit, and amends RSA 77-A:5, allowing any unused portion of the profit sharing tax credit to be applied to the business profits tax.  It also amends RSA 77-E and adds a new section allowing any unused portion of the profit sharing tax credit to be applied against the business enterprise tax.  The Department makes the following assumptions:

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  • this credit is not just for newly established profit sharing programs but is applied to any established profit sharing program that has a New Hampshire liability;
  • the qualified tax credit employees do not need to reside in the State;
  • the profit sharing tax credit for each qualified tax credit employee shall equal up to 15% of the compensation paid as profits that employee shares;
  • shared profits eligible for the credit shall be capped at 10% of the employee's wages;
  • the tax credit is only available for two years, with unused portions of the credit being carried forward for up to five years and being used before any other available carry forward credits;
  • the tax system will need to isolate the business enterprise tax credit associated with the profit sharing tax credit to drop that portion of the credit after five years and allow the remaining business enterprise tax credit not associated with the profit sharing tax credit to carry forward for an additional five years; and
  • the law shall be applicable to any tax periods ending after July 1, 2016, with the first returns to be filed claiming the profit sharing tax credit would be September 15, 2016.
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The Department indicates it will be unable to administer the law as written partially due to the fact the profit sharing tax credit is to be applied before any other available carry forward credits, the same requirement applicable to the Coos County Job Creation tax credit.  The Department states employers do not report to New Hampshire the amount of profit sharing that occurs within a company.  Without this information the Department has no way to determine the amount of profit sharing tax credit available for taxpayers to use against their business tax liability.  

 

The Department states the changes needed to the tax system to isolate the business enterprise tax credit could be administratively burdensome.  Additionally, the expectation of the first returns being filed in September of 2016 does not provide for enough time to change forms, instructions, and systems or allow for the Department and the Department of Resources and Economic Development to work together to develop an application form.  

 

The Department states the profit sharing tax credit will be considered taxes paid under the business enterprise tax and can be used to offset taxes due for business profits taxes with any unused portions being used to offset taxes due for business enterprise taxes.  This will result in an indeterminable decrease in business tax revenue, decreasing general fund and education trust fund revenue.

 

The Department of Resources and Economic Development indicates to implement the profit sharing tax credit program it will need to develop a program for promotion, including an application process, and develop processes for distribution, reporting and evaluation.  The Department will need to train individuals to market the program, develop promotional materials and promulgate administrative rules for the program.  The Department also anticipates it will need at least one additional staff person; however the Department is unable to determine the volume of potential applicants for the tax credit or the extent and methodology of evaluating qualified applicants to determine the appropriate level of staffing and required resources for the program.