Bill Details - SB244 (2019)

SB 244-FN - AS INTRODUCED

 

 

2019 SESSION

19-0971

10/05

 

SENATE BILL 244-FN

 

AN ACT relative to taxes applicable to certain real estate investment trusts.

 

SPONSORS: Sen. Chandley, Dist 11; Sen. Hennessey, Dist 5; Sen. Bradley, Dist 3; Rep. Williams, Hills. 4; Rep. Petrigno, Hills. 23; Rep. Danielson, Hills. 7

 

COMMITTEE: Ways and Means

 

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ANALYSIS

 

This bill provides for the exclusion or exemption for distributions or transfers from publicly offered real estate investment trusts from the interest and dividends tax, the business profits tax, the business enterprise tax, the real estate transfer tax, and certain trust laws.

 

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Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

19-0971

10/05

 

STATE OF NEW HAMPSHIRE

 

In the Year of Our Lord Two Thousand Nineteen

 

AN ACT relative to taxes applicable to certain real estate investment trusts.

 

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

 

1  Interest and Dividends Tax; Taxable Income; REITs Added.  Amend RSA 77:3, I(a) and (b) to read as follows:  

(a)  Individuals who are inhabitants or residents of this state for any part of the taxable year whose gross interest and dividend income from all sources, including income from a qualified investment company and any publicly offered REIT, as defined in RSA 77-A:1, XXXI, pursuant to RSA 77:4, V, exceeds $2,400 during that taxable period.

(b)  Partnerships, limited liability companies, and associations, the beneficial interest in which is not represented by transferable shares, whose gross interest and dividend income from all sources exceeds $2,400 during the taxable year, but not including a qualified investment company as defined in RSA 77-A:1, XXI, a publicly offered REIT as defined in RSA 77-A:1, XXXI, or a trust comprising a part of an employee benefit plan, as defined in the Employee Retirement Income Security Act of 1974, section 3.

2  Interest and Dividends Tax; Income.  Amend RSA 77:4, V to read as follows:

V.  Amounts reported and taxed federally as dividends or interest to a holder of an ownership interest in a qualified investment company as defined in RSA 77-A:1, XXI, a publicly offered REIT as defined in RSA 77-A:1, XXXI, a mutual fund, or a unit investment trust.

3  Special Rule for Publicly Offered REITs.  Amend RSA 77:4-d to read as follows:

77:4-d  Special Rule for Qualified Investment Companies, Publicly Offered REITs, Mutual Funds, and Unit Investment Trusts.  Notwithstanding any other provision of RSA 77:4, the following income items shall not be treated as dividends or interest income taxable under this chapter:

I.  Amounts accruing to the holder of an ownership interest in a qualified investment company, as defined in RSA 77-A:1, XXI, a publicly offered REIT as defined in RSA 77-A:1, XXXI, or a mutual fund or investment income earned or distributions received by the holder of an ownership interest in a unit investment trust, which qualified investment company, publicly offered REIT, mutual fund, or unit investment trust invests solely in New Hampshire tax-exempt tax anticipation notes, bond anticipation notes, and other instruments exempt under New Hampshire law.

II.  Amounts reported and taxed federally as capital gains to the holder of an ownership interest in a qualified investment company, as defined in RSA 77-A:1, XXI, a publicly offered REIT as defined in RSA 77-A:1, XXXI, a mutual fund, or a unit investment trust.

4  Business Profits Tax; Definition of Business Organization.  Amend RSA 77-A:1, I to read as follows:

I.  "Business organization" means any enterprise, whether corporation, partnership, limited liability company, proprietorship, association, business trust, real estate trust or other form of organization; organized for gain or profit, carrying on any business activity within the state, except such enterprises as are expressly made exempt from income taxation under the United States Internal Revenue Code as defined in RSA 77-A:1, XX.  Each enterprise under this definition shall be subject to taxation under RSA 77-A:2 as a separate entity, unless specifically authorized by this chapter to be treated otherwise, such as, but not limited to, combined reporting.  Trusts or foundations 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 such owners would be considered a business organization hereunder notwithstanding the existence of the trust or foundation.  The use of consolidated returns as defined in the United States Internal Revenue Code as defined in RSA 77-A:1, XX is not permitted.  Notwithstanding any other provision of this paragraph, an enterprise shall not be characterized as a business organization and shall be excluded from taxation at the entity level if it elects to be treated as a qualified investment company as defined in RSA 77-A:1, XXI, a publicly offered REIT as defined in RSA 77-A:1, XXXI, or if it elects to be treated as a qualified regenerative manufacturing company as defined in RSA 77-A:1, XXX.  A partnership, limited liability company, estate, trust, or foundation except grantor trusts pursuant to section 671 of the United States Internal Revenue Code, "S" corporation, real estate investment trust, publicly offered REIT, or any other such entity, other than an organization electing to be treated as a qualified investment company as defined in RSA 77-A:1, XXI or a publicly offered REIT as defined in RSA 77-A:1, XXXI whose net income is reportable by the true owners either directly or indirectly, or an organization electing to be treated as a qualified regenerative manufacturing company as defined in RSA 77-A:1, XXX, shall be subject to tax at the entity level, and no part of such earnings or loss shall be included in the calculation of the gross business profits of the owners of such entity.

5  Business Profits Tax; Definition; Business Activity.  Amend RSA 77-A:1, XII to read as follows:

XII.  "Business activity" means a substantial economic presence evidenced by a purposeful direction of business toward the state examined in light of the frequency, quantity, and systematic nature of a business organization's economic contacts with the state.  "Business activity" includes, but is not limited to, a group of actions performed by a business organization for the purpose of earning income or profit from such actions and includes every operation which forms a part of, or a step in, the process of earning income or profit from such group of actions.  The actions ordinarily include, but are not limited to, the employment of business assets, the receipt of money, property, or other items of value and the incurring or payment of expenses.  Notwithstanding any other provision of this paragraph, a holder of an ownership interest in a qualified investment company as defined in RSA 77-A:1, XXI or a publicly offered REIT as defined in RSA 77-A:1, XXXI, shall not be deemed to be carrying on any business activity within this state due solely to its holding an ownership interest in such qualified investment company or publicly offered REIT.

6  New Paragraph; Business Profits Tax; Definition; Real Estate Investment Trust.  Amend RSA 77-A:1 by inserting after paragraph XXX the following new paragraph:

XXXI.(a) “Publicly offered REIT” means a real estate investment trust domiciled in the state, which is required to file annual and periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as defined in section 562(c)(2) of the United States Internal Revenue Code.

(1) Exchange-listed and public non-listed real estate investment trusts shall qualify as publicly offered REITs.

(2) Private real estate investment trusts shall not qualify as publicly offered REIT.

(b)  A publicly offered REIT shall limit its activities to investment or other activities consistent with its organizational purpose and those incidental to or in support of such activities as set forth in 26 U.S.C. section 856 of the United States Internal Revenue Code.

7  New Paragraph; Business Profits Tax; Deductions.  Amend RSA 77-A:4 by inserting after paragraph XVIII the following new paragraph:

XIX.  In the case of a business organization that is a publicly offered REIT as defined in RSA 77-A:1, XXXI, a deduction of such amount of gross business profit distribution as defined in 26 U.S.C. section 856 of the United States Internal Revenue Code, as amended, to holders owning a proportional ownership interest in the publicly offered REIT.  No portion of any actual distributions made to such holders by a publicly offered real estate investment trust that would otherwise be part of its taxable business profits shall be included in such holder's gross business profits.

8 New Section; Business Profits Tax; Publicly Offered REITs; Election.  Amend RSA 77-A by inserting after section 5-c the following new section:

77-A:5-d  Election and Reporting for Publicly Offered REITs.

I.  Business organizations shall file an election with the commissioner to be a publicly offered REIT with respect to any taxable period on a form prescribed by the commissioner at any time on or before the fifteenth day of the third month immediately following the end of such taxable period.  Such an election shall be effective for the taxable period of the publicly offered REIT for which it is made and or all succeeding taxable periods until such election is terminated as provided in this section.

II.  Every business organization electing treatment as a public non-listed real estate investment trust shall, with respect to each taxable period, file a report, in accordance with such rules or forms as the commissioner may prescribe, setting forth the following:

(a)  The names, addresses, and federal taxpayer identification numbers of the holders of any equity interests in such non-listed real estate investment trust.

(b)  The name, address, and federal taxpayer identification number of the manager of such non-listed real estate investment trust.

(c)  The amount of the income received and expenses incurred by the non-listed real estate investment trust for the tax period.

(d)  Notwithstanding any other provision of this section, a public non-listed real estate investment trust shall be deemed to have satisfied the reporting requirements of this section if it files with the commissioner a copy of its federal income tax return, as filed with the Internal Revenue Service.

III.  Both exchange-listed and public non-listed real estate investment trusts shall provide the commissioner a report or copy of the federal income tax return on or before 30 days following the filing of the federal income tax return with the Internal Revenue Service.  Any publicly offered REIT which fails to timely file the report as required by this section shall pay a penalty equal to $100 for each day such report is not filed, unless an extension has been granted by the commissioner.  In no event shall the monetary fine imposed by this paragraph exceed $5,000.  A publicly offered REIT notified by the department that such report is overdue by more than 50 days shall have 30 days from the date of such notification to file the delinquent report.

IV.  A publicly offered REIT shall be subject to the provisions of RSA 77-A:11 and RSA 77-E:10.  The commissioner is authorized to audit and enforce such provisions with any of the powers granted under this chapter and RSA 77-E.

V.  The election provided for in paragraph I shall be filed with the department on or before the fifteenth day of the third month of the taxable period to be effective for such period.  An election filed after the fifteenth day of the third month of the taxable period shall be effective for the following tax period.  The revocation election provided for in paragraph I may be terminated as follows:

(a) By revoking said election by consent of the majority of the board of directors, direct participants, or shareholders of the exchange-listed real estate investment trust; or

(b) By determination of the manager or by consent of the majority of the members, partners, or shareholders of the public non-listed real estate investment trust; or

(c) Whenever a publicly offered REIT ceases to satisfy the requirements for qualification as provided in RSA 77-A:1, XXXI.

9  Business Enterprise Tax; Definition; Business Activity; Business Enterprise.  Amend RSA 77-E:1, II and III to read as follows:

II.  "Business activity" means a transfer of legal or equitable title to or rental of property, whether real, personal or mixed, tangible or intangible, or the performance of services, or a combination thereof, made or engaged in, or caused to be made or engaged in, whether in intrastate, interstate, or foreign commerce, with the object of gain, benefit, income, revenue or advantage, whether direct or indirect, to the business enterprise or to others, but shall not include the services rendered by an employee to an employer or services as a director of a corporation.  Although an activity of an enterprise may be incidental to another of its business activities, each activity shall be considered to be business engaged in or carried on within the meaning of this chapter.  Notwithstanding any other provision of this paragraph, a holder of an ownership interest in a qualified investment company as defined in RSA 77-E:1, XIV or a publicly offered REIT as defined in RSA 77-A:1, XXXI, shall not be deemed to be carrying on any business activity within this state due solely to its holding an ownership interest in such qualified investment company.

III.  "Business enterprise" means any profit or nonprofit enterprise or organization, whether corporation, partnership, limited liability company, proprietorship, association, trust, foundation, 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 and foundations 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 or foundation.  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, a publicly offered REIT as defined in RSA 77-A:1, XXXI, or if it is a qualified regenerative manufacturing company as defined in RSA 77-E:1, XIV-a.

10 New Paragraph; Business Profits Tax; Adjustment for Dividends.  Amend RSA 77-E:3 by inserting after paragraph III the following new paragraph:

IV.  In the case of a business enterprise that is a publicly offered REIT as defined in RSA 77-A:1, XXXI, an addition to enterprise value tax base of an amount equal to the holder's proportional share of profits of the publicly offered REIT, computed as if the publicly offered REIT were a business enterprise subject to tax under RSA 77-E.  No portion of any actual distributions made to such holder that would otherwise be part of gross business receipts shall be included in such holder's enterprise value tax base.

11  Real Estate Transfer Tax; Definition; Sale, Granting and Transfer.  Amend RSA 78-B:1-a, V and VI to read as follows:

V.  "Sale, granting and transfer" means every contractual transfer of real estate, or any interest in real estate from a person or entity to another person or entity, whether or not either person or entity is controlled directly or indirectly by the other person or entity in the transfer.  Transfers of interests in real estate holding companies holding real estate or holding interests in real estate, transfer of which would be taxable under this chapter if transferred directly, shall be taxable as transfers under this chapter to the extent of the fair market value of the real estate.  Transfers of interests in an entity that holds, either directly or indirectly, an interest in a real estate holding company shall be considered to be a transfer of an interest in the real estate holding company to the extent of the ownership interest of the entity in the real estate holding company.  Transfers of shares or direct participation ownership interests in publicly offered REITs, as defined in RSA 77-A:1, XXXI, shall not be subject to the tax under this chapter.

VI.  "Real estate holding company" means an organization which is engaged principally in owning, holding, selling, or leasing real estate and which owns real estate or an interest in real estate within the state, but which is not a publicly offered REIT as defined in RSA 77-A:1, XXXI.

12  New Paragraph; Real Estate Transfer Tax; Exceptions Added.  Amend RSA 78-B:2 by inserting after paragraph XXII the following new paragraph:

XXIII.  To a transfer of shares of ownership interests in a publicly offered REIT, as defined in RSA 77-A:1, XXXI, relative to a transfer of a specific real property after payment of the tax for

the acquisition of such real property.

13  Conveyances of Real Estate; Trusts.  Amend RSA 477:25 to read as follows:

477:25  Statute of Uses Not to Effect Trusts.  When a conveyance or devise of real estate is made to a grantee or devisee in trust or as trustee under a declaration of trust, except to a real estate investment trust as defined in section 856 of the United States Internal Revenue Code, such conveyance or devise shall vest in the grantee or devisee, as trustee, legal title with full power to convey the real estate in accordance with the trust.

14  Conveyances To or From Trusts Without Naming Trustees.  Amend RSA 477:25-a, IV to read as follows:

IV.  This section shall not apply to any trust that, as determined by the laws of its situs, is an entity capable of holding and conveying title in its own name.  This section shall not apply to a publicly offered REIT as defined in RSA 77-A:1, XXXI and section 856 of the United States Internal Revenue Code.

15  Treatment of New Hampshire Investment Trust; Definitions.  Amend RSA 293-B:2, VI to read as follows:

VI.  "Other investment entity" means an out-of-state investment entity which meets the definition of a "qualified investment company" as defined in RSA 77-A:1, XXI, or the definition of a "publicly offered REIT" as defined in RSA 77-A:1, XXXI, with the exception that such other investment entity need not submit certification to the commissioner.

16  New Paragraph; Treatment of New Hampshire Investment Trust; Definitions.  Amend RSA 293-B:2 by inserting after paragraph VIII the following new paragraph:

IX.  "Publicly offered REIT" means a real estate investment trust as defined in RSA 77-A:1, XXXI.

17  Effective Date.  This act shall take effect July 1, 2019.

 

LBAO

19-0971

1/22/19

 

SB 244-FN- FISCAL NOTE

AS INTRODUCED

 

AN ACT relative to taxes applicable to certain real estate investment trusts.

 

FISCAL IMPACT:      [ X ] State              [    ] County               [    ] Local              [    ] None

 

 

 

Estimated Increase / (Decrease)

STATE:

FY 2020

FY 2021

FY 2022

FY 2023

   Appropriation

$0

$0

$0

$0

   Revenue

Indeterminable Decrease

Indeterminable Decrease

Indeterminable Decrease

Indeterminable Decrease

   Expenditures

$0

$0

$0

$0

Funding Source:

  [ X ] General            [ X ] Education            [   ] Highway           [    ] Other

 

METHODOLOGY:

This bill provides that certain income, distributions and transfers of ownership of publicly offered Real Estate Investment Trusts are exempt from the Interest and Dividends Tax, the Real Estate Transfer Tax, the Business Enterprise Tax and Business Profits Taxes.  The Department of Revenue Administration (DRA) states it does not currently capture data on these entities but because the legislation contains additional exemptions and deductions from various taxes, it will likely decrease revenues by an indeterminable amount.

 

AGENCIES CONTACTED:

Department of Revenue Administration

 

Docket

Date Status
Jan. 3, 2019 Introduced 01/03/2019 and Referred to Ways and Means; SJ 4
Feb. 20, 2019 Hearing: 02/20/2019, Room 100, SH, 09:30 am; SC 11
March 7, 2019 Committee Report: Rereferred to Committee, 03/07/2019; SC 12
March 7, 2019 Rereferred to Committee, MA, VV; 03/07/2019; SJ 7

Action Dates

Date Body Type
Feb. 20, 2019 Senate Hearing

Bill Text Revisions

SB244 Revision: 5217 Date: Jan. 23, 2019, 4:52 p.m.