SB1: reducing the rate of the business profits tax.

SB 1-FN-A - AS INTRODUCED

2017 SESSION

17-0734

09/04

SENATE BILL 1-FN-A

AN ACT reducing the rate of the business profits tax.

SPONSORS: Sen. Bradley, Dist 3; Sen. Avard, Dist 12; Sen. Birdsell, Dist 19; Sen. Carson, Dist 14; Sen. Daniels, Dist 11; Sen. French, Dist 7; Sen. Giuda, Dist 2; Sen. Gray, Dist 6; Sen. Innis, Dist 24; Sen. Morse, Dist 22; Sen. Reagan, Dist 17; Sen. Ward, Dist 8; Sen. Gannon, Dist 23; Rep. Rouillard, Hills. 6; Rep. Abrami, Rock. 19; Rep. Hinch, Hills. 21; Rep. Chandler, Carr. 1; Rep. Vose, Rock. 9

COMMITTEE: Ways and Means

ANALYSIS

This bill reduces the rate of the business profits tax in 2019 and 2021.

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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

17-0734

09/04

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Seventeen

AN ACT reducing the rate of the business profits tax.

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

1 Business Profits Tax; Imposition of Tax; July 1, 2019 RSA 77-A:2 is repealed and reenacted to read as follows: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 7.7 percent upon the taxable business profits of every business organization.

2 Business Profits Tax; Imposition of Tax; July 1, 2021. Amend RSA 77-A:2 to read as follows:

77-A:2 Imposition of Tax. A tax is imposed at the rate of [7.7] 7.5 percent upon the taxable business profits of every business organization.

3 Applicability.

I. Section 1 of this act shall apply to taxable periods ending on or after June 30, 2018.

II. Section 2 of this act shall apply to taxable periods ending on or after June 30, 2021.

4 Effective Date.

I. Section 2 of this act shall take effect July 1, 2021.

II. The remainder of this act shall take effect July 1, 2018.

LBAO 17-0734

1/30/17

SB 1-FN-A- FISCAL NOTE

AS INTRODUCED

AN ACT reducing the rate of the business profits 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 7.7 percent for taxable periods ending on or after June 30, 2018 and from 7.7 percent to 7.5 percent for taxable periods ending on or after June 30, 2021.

The Department of Revenue Administration (DRA) considered the estimated revenue impact associated with the BPT 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 would result in a revenue loss of $2,908,271 in FY 2016 and $9,109,376 in FY 2017. The DRA estimated the revenue impact for the rate reduction of 8.2 percent to 7.9 percent for BPT would result in a revenue loss of $2,908,271 in FY 2018 and $9,109,376 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 $340,500,000 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 $370,432,927 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 $384,500,000 from the June, 2016 Department of Administrative Services Revenue Focus.

The impact of the rate reduction from 8.2% to 7.9% for BPT 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 $384,500,000 as the tax base for FY 2017.

For FY 2018, the revenue estimate was reduced from $384,500,000 to $380,209,543 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.

For FY 2019 and each year thereafter, the revenue estimate was reduced from $384,500,000 to $370,432,927 to realize the full implementation of the tax rate reduction from 8.2% to 7.9% for BPT 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 assumes no revenue impact in FY 2017 because the rate reduction from 8.2% to 7.9% has already been fully realized in the FY 2017 estimate payments and has depleted any additional revenue growth. 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 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 BPT Revenue

Assumed BPT Revenue

Difference

FY16

$384,500,000

$384,500,000

$0

FY17

$384,500,000

$384,500,000

$0

FY18

$377,349,238

$380,209,543

-$2,860,305

FY19

$361,054,878

$370,432,927

-$9,378,049

FY20

$361,054,878

$370,432,927

-$9,378,049

FY21

$358,194,573

$370,432,927

-$12,238,354

FY22

$351,676,829

$370,432,927

-$18,756,098

Original Rates and Assumed Revenue without Implementation of Proposed Legislation

Tax Year

Documents Due

Old BPT Rate

BPT Revenue

Fiscal Year

TY18

1st and 2nd Quarter Estimates

7.9%

$112,982,043

FY18

TY18

3rd and 4th Quarter Estimates and Return Payments

7.9%

$257,450,884

FY19

TY19

1st and 2nd Quarter Estimates

7.9%

$112,982,043

FY19

TY19

3rd and 4th Quarter Estimates and Return Payments

7.9%

$257,450,884

FY20

TY20

1st and 2nd Quarter Estimates

7.9%

$112,982,043

FY20

TY20

3rd and 4th Quarter Estimates and Return Payments

7.9%

$257,450,884

FY20

TY21

1st and 2nd Quarter Estimates

7.9%

$112,982,043

FY20

TY21

Full Year at Current Rate

7.9%

$370,432,927

FY22

New Rates and Revenue with Implementation of Proposed Legislation

Tax Year

Documents Due

New BPT Rate

BPT Revenue

Fiscal Year

TY18

1st and 2nd Quarter Estimates

7.7%

$110,121,738

FY18

TY19

Full Year at Current Rate

7.7%

$250,933,140

FY19

TY19

Full Year at Current Rate

7.7%

$110,121,738

FY19

TY19

3rd and 4th Quarter Estimates and Return Payments

7.7%

$250,933,140

FY20

TY20

1st and 2nd Quarter Estimates

7.7%

$110,121,738

FY20

TY20

3rd and 4th Quarter Estimates and Return Payments

7.7%

$250,933,140

FY21

TY21

1st and 2nd Quarter Estimates

7.5%

$107,261,433

FY21

TY21

Full Year at Current Rate

7.5%

$351,676,829

FY22

Difference from New Rates and Revenue to Original Rates and Assumed Revenue

Tax Year

Documents Due

Difference in BPT Rate

BPT Reduction in Revenue

Fiscal Year

TY18

1st and 2nd Quarter Estimates

-0.2%

-$2,860,305

FY18

TY18

3rd and 4th Quarter Estimates and Return Payments

-0.2%

-$6,517,744

FY19

TY19

1st and 2nd Quarter Estimates

-0.2%

-$2,860,305

FY19

TY19

3rd and 4th Quarter Estimates and Return Payments

-0.2%

-$6,517,744

FY20

TY20

1st and 2nd Quarter Estimates

-0.2%

-$2,860,305

FY20

TY20

3rd and 4th Quarter Estimates and Return Payments

-0.2%

-$6,517,744

FY21

TY21

1st and 2nd Quarter Estimates

-0.4%

-$5,720,610

FY21

TY21

Full Year at Current Rate

-0.4%

-$18,756,098

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