Revision: Dec. 11, 2023, 9:58 a.m.
HB 1536-FN - AS INTRODUCED
2024 SESSION
24-2537
05/10
HOUSE BILL 1536-FN
AN ACT relative to increasing the amount of the expense deduction allowed against the business profits tax.
SPONSORS: Rep. Janigian, Rock. 25; Rep. Ulery, Hills. 13; Rep. Aures, Merr. 13; Rep. Ammon, Hills. 42; Rep. Plett, Hills. 29
COMMITTEE: Ways and Means
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ANALYSIS
This bill increases the amount of the section 179 expense deduction permitted against the business profits tax.
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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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
24-2537
05/10
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Twenty Four
AN ACT relative to increasing the amount of the expense deduction allowed against the business profits tax.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Business Profits Tax; Expense Deductions. Amend RSA 77-A:3-a to read as follows:
77-A:3-a Expense Deductions. In determining gross business profits before net operating loss and special deductions, a business organization shall calculate expense deductions as permitted under Section 179 of the Internal Revenue Code as provided in RSA 77-A:1, XX, except that for property placed in service on or after January 1, [2018] 2025, a business organization shall calculate expense deductions not to exceed [$500,000] $1,000,000.
2 Applicability. This act shall apply to all taxable periods ending on or after December 31, 2024.
3 Effective Date. This act shall take effect 60 days after its passage.
24-2537
11/1/23
HB 1536-FN- FISCAL NOTE
AS INTRODUCED
AN ACT relative to increasing the amount of the expense deduction allowed against the business profits tax.
FISCAL IMPACT: [ X ] State [ ] County [ ] Local [ ] None
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Estimated State Impact - Increase / (Decrease) | ||||||
| FY 2024 | FY 2025 | FY 2026 | FY 2027 | ||
Revenue | $0 | Indeterminable Decrease | Indeterminable Decrease | Indeterminable Decrease | ||
Revenue Fund(s) | General Fund and Education Trust Fund
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Expenditures | $0 | $0 | $0 | $0 | ||
Funding Source(s) | None
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Appropriations | $0 | $0 | $0 | $0 | ||
Funding Source(s) | None
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• Does this bill provide sufficient funding to cover estimated expenditures? [X] See Below • Does this bill authorize new positions to implement this bill? [X] N/A | ||||||
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METHODOLOGY:
This bill increases the amount of the IRC section 179 expense deduction from $500,000 to $1,000,000 against the business profits tax (BPT) for property placed in service on or after January 1, 2025. The Department of Revenue Administration states New Hampshire conforms to the IRC in effect on December 31, 2018. However, current statute limits the allowable IRC section 179 deduction to $500,000 for property placed in service on or after January 1, 2018 when determining gross business profits before net operating loss and special deductions.
The Department states this bill will decrease General Fund and Education Trust Fund revenue, however the fiscal impact is indeterminable. The Department captures the amount of IRC section 179 expense in excess of the currently allowed $500,000 as an add back to the calculation of the taxable business profits. Therefore the Department is able to provide an estimate of the impact using tax year (TY) 2021 data. Based on this information, the excess identified was then multiplied by the taxpayer’s original apportionment percentage and the tax rate of 7.5%, resulting in a maximum fiscal impact of $4,700,000.
However, the assets disallowed as a section 179 expense on the NH return will be allowed a regular depreciation claim. Therefore, the line item for taxpayers to claim the allowed regular depreciation includes a depreciation claim for other assets as well and may also include a depreciation claim that year for any expenses disallowed from prior taxable periods. The $4,700,000 represents the fiscal impact of increasing the allowable IRC section 179 deduction in isolation without taking into consideration the offset of deductions or credits taken by taxpayers in the year analyzed, including what may be deducted as regular depreciation over several years.
Additionally, the apportionment methodology transitioned to single sales factor (SSF) apportionment after TY 2021 for taxable periods ending on or after December 31, 2022 and the net operating loss deduction also moved to single apportionment (apportioned only in the year the loss was generated).
In theory, the fiscal impact of this proposed legislation is likely a timing issue because it enables the acceleration of the depreciation claim of qualifying assets as opposed to depreciating the asset over a longer stretch of time. The Department is unable to isolate the depreciation amount over the years compared to the immediate deduction under IRC section 179. The Department is not able to predict the future activities business organizations, therefore it is not certain the fiscal impact is simply a timing issue.
The Department would need to update all necessary tax return forms and electronic management systems to reflect the changes contained in this bill; however, it is not anticipated this will result in any additional administrative costs that could not be absorbed in the Department's operating budget.
AGENCIES CONTACTED:
Department of Revenue Administration