HB615: reducing the rates of the business profits tax and the business enterprise tax

HB 615-FN-A - AS INTRODUCED

2017 SESSION

17-0207

09/10

HOUSE BILL 615-FN-A

AN ACT reducing the rates of the business profits tax and the business enterprise tax.

SPONSORS: Rep. Schleien, Hills. 37; Rep. Fisher, Belk. 9; Rep. Zaricki, Hills. 6; Rep. Fromuth, Hills. 7; Rep. Phinney, Straf. 24

COMMITTEE: Ways and Means

ANALYSIS

This bill reduces the rates of the business profits tax and the business enterprise tax over a 3-year period.

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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

17-0207

09/10

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Seventeen

AN ACT reducing the rates of the business profits tax and the business enterprise tax.

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

1 Business Profits Tax; Imposition of Tax; 2018. RSA 77-A:2 is repealed and reenacted to read as follows:

77-A:2 Imposition of Tax. A tax is imposed at the rate of 7.5 percent upon the taxable business profits of every business organization.

2 Business Profits Tax; Imposition of Tax; 2019. Amend RSA 77-A:2 to read as follows:

77-A:2 Imposition of Tax. A tax is imposed at the rate of [7.5] 7 percent upon the taxable business profits of every business organization.

3 Business Profits Tax; Imposition of Tax; 2020. Amend RSA 77-A:2 to read as follows:

77-A:2 Imposition of Tax. A tax is imposed at the rate of [7] 6 percent upon the taxable business profits of every business organization.

4 Business Enterprise Tax; Imposition of Tax; 2018. RSA 77-E:2 is repealed and reenacted to read as follows:

77-E:2 Imposition of Tax. A tax is imposed at the rate of .5 percent upon the taxable enterprise value tax base of every business enterprise.

5 Business Enterprise Tax; Imposition of Tax; 2019. Amend RSA 77-E:2 to read as follows:

77-E:2 Imposition of Tax. A tax is imposed at the rate of [.5] .45 percent upon the taxable enterprise value tax base of every business enterprise.

6 Business Enterprise Tax; Imposition of Tax; 2020. Amend RSA 77-E:2 to read as follows:

77-E:2 Imposition of Tax. A tax is imposed at the rate of [.45] .4 percent upon the taxable enterprise value tax base of every business enterprise.

7 Applicability.

I. Sections 1 and 4 of this act shall apply to taxable periods ending on or after December 31, 2018.

II. Sections 2 and 5 of this act shall apply to taxable periods ending on or after December 31, 2019.

III. Sections 3 and 6 of this act shall apply to taxable periods ending on or after December 31, 2020.

8 Effective Date. This act shall take effect July 1, 2018.

LBAO 17-0207

1/23/17

HB 615-FN-A- FISCAL NOTE

AS INTRODUCED

AN ACT reducing the rates of the business profits tax and business enterprise tax.

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

Estimated Increase / (Decrease)

STATE:

FY 2018

FY 2019

FY 2020

FY 2021

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 reduces the Business Profits Tax (BPT) rate from 8.2 percent to 7.5 percent for taxable periods ending on or after December 31, 2018; from 7.5 percent to 7.0 percent for taxable periods ending on or after December 31, 2019; and from 7.0 percent to 6.0 percent for taxable periods ending on or after December 31, 2020. The bill also reduces the Business Enterprise Tax (BET) rate from 0.72 percent to 0.50 percent for taxable periods ending on or after December 31, 2018; from 0.50 percent to 0.45 percent for taxable periods ending on or after December 31, 2019; and from 0.45 percent to 0.40 percent for taxable periods ending on or after December 31, 2020.

The Department of Revenue Administration (DRA) considered the estimated revenue impact associated with the BPT and BET rate reductions contained in Chapter 274, Laws of 2015 (SB 9) when deriving the estimated revenue loss associated with this bill. The DRA estimated the rate reduction of 8.5 percent to 8.2 percent for BPT and 0.75 percent to 0.72 percent for BET would result in a revenue loss of $5,112,407 in FY 2016 and $16,013,240 in FY 2017. The DRA estimated the revenue impact for the rate reduction of 8.2 percent to 7.9 percent for BPT and 0.72 percent to 0.675 percent for BET would result in a revenue loss of $6,214,475 in FY 2018 and $19,465,172 in FY 2019. The DRA notes the analysis for the rate reductions contained in Chapter 274, Laws of 2015 used the 2015 revenue plan amount of $568,000,000 as the starting point. For this analysis, the DRA used the FY 2016 cash basis revenue as the starting point for analyzing the proposed rate reductions in this bill resulting in the use of $610,901,677 in FY 2019 and each year thereafter as the revenue base based on the following assumptions:

FY 2017 revenue would be equal to FY 2016 cash basis revenue of $641,000,000 from the June, 2016 Department of Administrative Services Revenue Focus.

The impact of the rate reduction from 8.2% to 7.9% for BPT and .72% to .675% for BET has already been fully realized in the FY 2017 estimate payments and has eliminated any additional revenue growth. Thus, the Department has not adjusted FY 2016 cash basis revenue for FY 2017 and thus has used $641,000,000 as the tax base for FY 2017.

For FY 2018, the revenue estimate was reduced from $641,000,000 to $631,820,011 to account for the 1st and 2nd quarter estimate payments for Tax Year 2018, where the tax rate is expected to be reduced from 8.2% to 7.9% for BPT and 0.72% to 0.675% for BET.

For FY 2019 and each year thereafter, the revenue estimate was reduced from $641,000,000 to $610,901,677 to realize the full implementation of the tax rate reduction from 8.2% to 7.9% for BPT and 0.72% to 0.675% for BET as taxpayers file their returns.

No revenue growth from FY 2019 and has thus retained the FY 2019 tax base for purposes of analyzing the revenue impact of the proposed rate reductions.

The DRA notes there is a potential fiscal impact of $29,025,911 in FY 2018, if taxpayers reduce their first and second estimated payments to reflect the reduced Tax Year 2018 BPT and BET rates. As part of the analysis, the DRA allocated each fiscal year’s revenue based on the proportionate amount of revenue anticipated to be received. For example: the 1st and 2nd quarter estimate payments average about 30.5% of the total BPT/BET revenue received in each tax year. Therefore, when calculating the fiscal impact of a tax year rate change on a state FY basis, this percentage was applied to allocate the fiscal impact proportionally based on the fiscal year when the revenue will actually be received. After revenue was allocated proportionally based on when it is received, this new reduced revenue was subtracted from the assumed revenue to determine the incremental revenue impact of the proposed rate reductions for each fiscal year.

It should be noted the fiscal impact of the proposed rate reductions may vary for future fiscal years depending on whether actual revenue under or over performs compared to the DRA’s assumed revenue figures. The tables below summarize DRA's analysis:

Fiscal Impact of Rate Reductions by Fiscal Year

Fiscal Year

New Revenue

Estimated Base Under Current Law

Difference

FY16

$641,000,000

$641,000,000

$0

FY17

$641,000,000

$641,000,000

$0

FY18

$602,794,100

$631,820,011

-$29,025,911

FY19

$507,441,640

$610,901,677

-$103,460,037

FY20

$468,809,871

$610,901,677

-$142,091,806

FY21

$423,841,463

$610,901,677

-$187,060,214

FY22

$423,841,463

$610,901,677

-$187,060,214

Original Rates and Assumed Revenue without Implementation of Proposed Legislation

Tax Year

Documents Due

Old BPT Rate

Old BET Rate

BPT Revenue

BET Revenue

Total BS Revenue

Fiscal Year

TY18

1st and 2nd Quarter Estimates

7.9%

0.675%

$112,982,043

$73,342,969

$186,325,012

FY18

TY18

3rd and 4th Quarter Estimates and Return Payments

7.9%

0.675%

$257,450,884

$167,125,781

$424,576,665

FY19

TY19

1st and 2nd Quarter Estimates

7.9%

0.675%

$112,982,043

$73,342,969

$186,325,012

FY19

TY19

3rd and 4th Quarter Estimates and Return Payments

7.9%

0.675%

$257,450,884

$167,125,781

$424,576,665

FY20

TY20

1st and 2nd Quarter Estimates

7.9%

0.675%

$112,982,043

$73,342,969

$186,325,012

FY20

TY20

Full Year at Current Rate

7.9%

0.675%

$370,432,927

$240,468,750

$610,901,677

FY21

TY21

Full Year at Current Rate

7.9%

0.675%

$370,432,927

$240,468,750

$610,901,677

FY22

New Rates and Revenue with Implementation of Proposed Legislation

Tax Year

Documents Due

New BPT Rate

New BET Rate

BPT Revenue

BET Revenue

Total BS Revenue

Fiscal Year

TY18

1st and 2nd Quarter Estimates

7.2%

0.500%

$102,970,976

$54,328,125

$157,299,101

FY18

TY18

3rd and 4th Quarter Estimates and Return Payments

7.2%

0.500%

$234,638,781

$123,796,875

$358,435,656

FY19

TY19

1st and 2nd Quarter Estimates

7.0%

0.450%

$100,110,671

$48,895,313

$149,005,984

FY19

TY19

3rd and 4th Quarter Estimates and Return Payments

7.0%

0.450%

$228,121,037

$111,417,188

$339,538,225

FY20

TY20

1st and 2nd Quarter Estimates

6.0%

0.400%

$85,809,146

$43,462,500

$129,271,646

FY20

TY20

Full Year at Current Rate

6.0%

0.400%

$281,341,463

$142,500,000

$423,841,463

FY21

TY21

Full Year at Current Rate

6.0%

0.400%

$281,341,463

$142,500,000

$423,841,463

FY22

Difference from New Rates and Revenue to Original Rates and Assumed

Tax Year

Documents Due

Diff. in BPT Rate

Diff. in BET Rate

BPT Reduction in Revenue

BET Reduction in Revenue

Total Reduction in BS Revenue

Fiscal Year

TY18

1st and 2nd Quarter Estimates

-0.7%

-0.175%

-$10,011,067

-$19,014,844

-$29,025,911

FY18

TY18

3rd and 4th Quarter Estimates and Return Payments

-0.7%

-0.175%

-$22,812,103

-$43,328,906

-$66,141,009

FY19

TY19

1st and 2nd Quarter Estimates

-0.9%

-0.225%

-$12,871,372

-$24,447,656

-$37,319,028

FY19

TY19

3rd and 4th Quarter Estimates and Return Payments

-0.9%

-0.225%

-$29,329,847

-$55,708,593

-$85,038,440

FY20

TY20

1st and 2nd Quarter Estimates

-1.9%

-0.275%

-$27,172,897

-$29,880,469

-$57,053,366

FY20

TY20

Full Year at Current Rate

-1.9%

-0.275%

-$89,091,464

-$97,968,750

-$187,060,214

FY21

TY21

Full Year at Current Rate

-1.9%

-0.275%

-$89,091,464

-$97,968,750

-$187,060,214

FY22

The DRA states this bill will result in additional costs for programming, scanning and form and instruction changes; however these additional costs can be absorbed into the Department’s budget.

AGENCIES CONTACTED:

Department of Revenue Administration