Revision: April 5, 2016, midnight
\t \t\tSB 552-FN - AS AMENDED BY THE SENATE
02/18/2016 0466s
02/18/2016 0478s
03/24/2016 1155s
2016 SESSION
\t16-2982
\t10/09
SENATE BILL\t552-FN
AN ACT\trelative to application of the Internal Revenue Code to provisions of the business profits tax.
SPONSORS:\tSen. Sanborn, Dist 9; Sen. Avard, Dist 12; Sen. Cataldo, Dist 6; Sen. Reagan, Dist 17; Sen. Stiles, Dist 24; Sen. Prescott, Dist 23; Sen. Morse, Dist 22
COMMITTEE:\tWays and Means
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AMENDED ANALYSIS
\tThis bill updates the effective version of the United States Internal Revenue Code of 1986 applicable to the business profits tax, subject to certain adjustments. The bill also requires the commissioner of revenue administration to report biennially on changes to the Internal Revenue Code.
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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\t\tMatter which is either (a) all new or (b) repealed and reenacted appears in regular type.
02/18/2016 0466s\t16-2982
02/18/2016 0478s\t10/09
03/24/2016 1155s
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Sixteen
AN ACT\trelative to application of the Internal Revenue Code to provisions of the business profits tax..
Be it Enacted by the Senate and House of Representatives in General Court convened:
\t1 New Subparagraph; Business Profits Tax; Definition; United States Internal Revenue Code. Amend RSA 77-A:1, XX by inserting after subparagraph (l) the following new subparagraph:
\t\t\t(m) For all taxable periods beginning on or after January 1, 2016, the United States Internal Revenue Code of 1986, as amended, subject to RSA 77-A:3-a.
\t2 Business Profits Tax; Adjustments; Internal Revenue Code. RSA 77-A:3-a is repealed and reenacted to read as follows:
\t77-A:3-a Adjustments; Internal Revenue Code Provisions. In determining gross business profits for any period, before net operating loss and special deductions, a business organization shall apply the provisions of the United States Internal Revenue Code consistent with the provisions of this chapter, with the following adjustments:
\t\tI. The United States Internal Revenue Code shall be applied without section 168(k) of such code.
\t\tII. The United States Internal Revenue Code shall be applied without section 199 of such code.
\t\tIII. The United States Internal Revenue Code shall be applied so that the aggregate cost which may be taken into account under section 179(a) of such code for any taxable year shall not exceed $25,000.
\t\tI. Section 1 of this act shall take effect for taxable periods beginning on or after January 1, 2016.
\t\tII. Section 2 of this act shall take effect for property placed in service on or after January 1, 2016.
\t4 New Paragraph; Duties of the Commissioner of Revenue Administration; Report; Internal Revenue Code Changes. Amend RSA 21-J:3 by inserting after paragraph XXXII the following new paragraph:
\t\tXXXIII. File a report at least biennially with the finance committees of the senate and the house of representatives informing the committees of changes to the United States Internal Revenue Code, related Treasury Regulations, and administrative rulings which would impact New Hampshire.
\t5 Repeal. RSA 77-A:1, X(g), relative to a reference to the Internal Revenue Code, is repealed.
\t6 Repeal. RSA 77-A:3-a, III, relative to the application of Internal Revenue Code section 179(a), is repealed.
\t\tI. Section 6 of this act shall take effect January 1, 2017.
\t\tII. The remainder of this act shall take effect upon its passage.
\t\t\t\t\t\t\t\t\t\t\t16-2982
\t\t\t\t\t\t\t\t\t\t\tAmended 4/5/16
SB 552-FN--FN FISCAL NOTE
AN ACT\t(New Title) relative to application of the Internal Revenue Code to provisions of the business profits tax.
FISCAL IMPACT:
The Department of Revenue Administration states this bill, as amended by the Senate (Amendment #2016-1155s), will have an indeterminable impact on state general fund and education trust fund revenue 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 amends the business profits tax statute to require that for all taxable periods beginning on or after January 1, 2016, taxpayers will calculate their business profits tax liability using the Internal Revenue Code of 1986, as amended. This would effectuate automatic or "rolling" conformity with any federal amendments to the Internal Revenue Code (IRC) as they are made. The bill also repeals RSA 77-A:3-a and reenacts it to read that business organizations shall apply the IRC consistent with the statute except that IRC section 168(k) and IRC section 199 shall not apply and limits IRS section 179 deduction to $25,000 for the taxable periods on or after January 1, 2016. Effective January 1, 2017, RSA 77-A:3-a, III is repealed eliminating the $25,000 deduction limit for IRC section 179; thus allowing taxpayers to use the current IRC section 179 maximum deduction of $500,000. This will result in taxpayers being entitled to a larger section 179 deduction on their New Hampshire business tax return. The Department is not able to determine the potential future loss of revenue resulting from the removal of the $25,000 deduction limit for IRC section 179. However the Department is able to show the potential decrease in revenue by allowing the IRC section 179 maximum deduction of up to $500,000 for Tax Year 2013 if this bill had been effect. The amount of each taxpayer's federal IRC section 179 deduction was multiplied by the taxpayer's apportionment percentage and then multiplied by the tax rate of 8.5% to calculate a maximum decrease in state general fund and education trust fund revenue of $13,851,940. The impact provided for Tax Year 2013 does not consider the offset of deductions or credits taken by taxpayers. Additionally, any portion of the taxpayer's federal IRC section 179 deduction that is disallowed on the New Hampshire return may be deducted as regular depreciation over several years under the relevant IRC depreciation provision. The Department has no way to isolate the depreciated amount over the years compared to the initial add back of the IRC section 179 expense. The Department indicates that in theory the IRC section 179 expense add back is a timing issue because any deduction disallowed by New Hampshire in the year of acquisition would be deducted as depreciation in later years. However, because businesses move, go out of business, or their New Hampshire apportionment changes, it cannot be stated with any certainty that New Hampshire's limitation of the IRC section 179 deduction is simply a timing issue. The Department indicates the changes in this bill will have an indeterminable fiscal impact on state revenue as it cannot predict which federal tax provisions would apply to NH taxpayers for their current and future tax returns or how those changes might impact each taxpayer's overall tax liability. The Department states it could administer this bill within its budget.