In N.H., you can’t tax “the rich” or “big businesses” without taxing the little guy too

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It’s election season, and once again progressives are advocating higher taxes by claiming that legislators over the last decade have cut taxes for “big businesses,” “large, out-of-state corporations” and “millionaires and billionaires.” 

These claims are intentionally misleading. They rely on voter ignorance about New Hampshire’s tax system to create the impression that lawmakers in recent years cut taxes only for big businesses and the wealthy. That didn’t happen. In fact, in New Hampshire, that’s unconstitutional.

Unlike the federal government, New Hampshire does not have a progressive personal or corporate income tax system. New Hampshire’s income tax (on interest and dividends) and its corporate taxes are all flat taxes. That is, everyone who pays these taxes pays the same rate.

The New Hampshire Constitution in Section 2 Article 5 mandates “proportional” taxation. Basically, that means that everyone has to pay the same rate. 

Our business taxes and state income tax reflect this constitutional constraint.

Since 2015, legislators have reduced business tax rates. In January the Interest & Dividends Tax ends. All of these cuts were to the flat rates, meaning that they applied to every payer of those taxes, regardless of wealth, equally.

The Business Profits Tax (BPT) rate was reduced from 8.5% in 2015 to 7.5% today. Every business “carrying on business activity in the state” that has at least $103,000 in gross business revenue must pay 7.5% of its profits in taxes to the state. 

Department of Business Administration data show that in 2022, 73.2% of BPT filers paid no tax. Ninety-four percent of BPT filers in 2022 paid less than $100,000 in business profits taxes. To pay $100,000 in BPT would take about $1.33 million in annual profit.

Financial website bankrate.com notes that U.S. small businesses vary in size and revenue, having “a large range depending on the industry, with small businesses generating on average between $1 million (or less) and $41.5 million in annual revenue.”

Though most small businesses have no employees, financial website Motley Fool reports that the ‘average employer small business makes over $6 million a year.”

That might be surprising, but the U.S. Small Business Administration defines a “small business” as one with up to 500 employees.

You might hear that most business tax revenue in New Hampshire is paid by large corporations. But that doesn’t mean they pay a higher rate. They pay the same rate as all other businesses. They account for a large percentage of tax revenue because they’re just so large.

Of the $810.5 million in BPT revenue in 2022, $621.4 million came from companies that paid more than $100,000 in business profits taxes. All of that money was generated by only 1,152 companies. The remaining BPT revenue was paid by 19,146 businesses. And whether they paid $1 or $1 million, they all paid the same 7.5% rate. 

Because more revenue came from larger corporations, progressives claim that the BPT is “paid mostly by large, out-of-state corporations.” In truth, 93% of BPT payers are smaller businesses that pay less than $50,000 in business profits taxes, which means they had profits of less than about $670,000. And 92.9% of BPT tax filers were domestic New Hampshire businesses. Only 7.1 percent were companies based out of state in 2022. 

Those out-of-state companies paid $58.4% of all the business profits taxes collected that year. (How many times do you shop at Target or Walmart?) But they represented a small fraction of all BPT payers. 

The Business Enterprise Tax is a tax on “all compensation paid or accrued, interest paid or accrued, and dividends paid by the business enterprise” after certain deductions are met. It was cut from 0.75% in 2015 to 0.55% in 2024. 

This tax is paid on gross receipts or enterprise value of at least $281,000. Companies that qualify pay this tax even if they have no profits.

Fully 96% of BET payers paid less than $100,000 in 2022. Out-of-state corporations paid 49.7% of BET revenue in 2022, but made up only 7.1% of filers, again showing that the vast majority of companies that paid the tax are New Hampshire companies.

The Interest & Dividends Tax is not a business tax per se, but it is paid by business owners who take dividends from limited liability companies and partnerships. Progressives claim that this tax, which phases out at the end of 2024, is paid by “millionaires and billionaires.” But, again, it’s one rate for all payers. And 73.5% of those who made an I&D Tax filing in 2022 paid less than $1,000.  

The I&D Tax rate in 2022 was 5%. (It is 3% this year, before disappearing in 2025.) That 73.5% of filers includes 14,252 people or entities who owed no tax but had to file. Counting just those who paid the tax, 54% paid less than $1,000.

These figures indicate that this tax is paid primarily by people who aren’t necessarily millionaires. At a 5% rate, someone paying $1,000 in this tax would have a dividend or interest payment of $20,000. That’s what one would earn on $400,000 invested at a 5% rate of return. Surely some of those people are millionaires, but it would be inaccurate to say that the tax is a millionaire’s tax.

Taxing “the rich” means fundamentally changing NH’s tax code

If a politician says she wants to raise taxes only on big businesses or millionaires and billionaires, that can mean one of only three things. 

  1. She doesn’t understand the state’s tax system at all.
  2. She wants to replace New Hampshire’s flat taxes with a new, progressive tax system. 
  3. She wants to keep New Hampshire’s flat taxes but raise the thresholds so that only big corporations and millionaires pay any taxes.

We can probably rule out option three. Progressives who lament the recent tax cuts say the cuts reduced state revenue. They didn’t. State revenue has boomed since 2015, and the last fiscal year brought in record revenue. But eliminating all taxes for the vast majority of business taxpayers and I&D Tax payers certainly would cause a drop in revenues. 

Option one is always a possibility. 

Option three, however, is where reporters and voters should focus. If a candidate for state office says she wants to raise taxes only on the wealthy or large businesses, the obvious question is: how?

New Hampshire’s constitution prohibits taxing people at different rates. Anyone who proposes to raise revenue by taxing only the rich or big businesses must admit one of two possibilities:

  1. They want to raise taxes on all businesses or all qualifying investors;
  2. They want to amend the constitution and create an entirely new progressive tax system with higher rates for higher-income individuals and larger businesses.

Those are the only options, assuming the goal is to raise more revenue.

Reporters and voters really should call candidates and high-profile activists out on this. If they did, it could end, or at least reduce, a lot of the deliberately misleading tax talk that comes up every election season.