The legislative budget finalized on Wednesday and Thursday exposes most New Hampshire businesses to a retroactive tax increase, Department of Revenue Administration data show. 

The Committee of Conference budget raises the rates at which employers in New Hampshire have been taxed since January 1. Because it applies to taxes already paid, it would force thousands of New Hampshire businesses to adjust their tax filings. Businesses pay their taxes quarterly, not annually. 

 

Current business tax rates for 2019 are:

Business Profits Tax: 7.7%;

Business Enterprise Tax: 0.6%.

 

The committee of conference budget tax rates for 2019 are:

Business Profits Tax: 7.9 p%;

Business Enterprise Tax: 0.675%.

 

That is a tax increase. Any legislator who says the Committee of Conference budget only repeals tax cuts that are scheduled to take place in the future is incorrect.

Who is paying the 7.7 and 0.6 percent rates now?

Ninety percent of New Hampshire businesses are “calendar year filers,” which means that their fiscal year is the calendar year, Shaun Thomas, counsel for the Department of Revenue Administration, confirmed in an interview Thursday. 

All of those filers are being taxed right now at the 2019 rates, as are businesses with fiscal years that started between January 2nd and today.

So far this year, 15,500 businesses have already filed quarterly tax payments, according to the DRA. Those businesses are being taxed at the 7.7 percent BPT and 0.6 percent BET rates. (About half of the state’s businesses don’t earn enough money to owe taxes.) 

The only businesses not currently paying quarterly taxes at the 2019 rates are firms whose fiscal years haven’t started yet. But as soon as those fiscal years start, they will be paying at the 2019 rates. 

If the Committee of Conference budget becomes law, the 15,500 employers who have already filed estimated taxes would be subject to a rate increase on taxes they have already paid. For them, the state will have imposed a retroactive tax increase. They would have to increase their upcoming 2019 quarterly filings to make up the difference. 

For years, legislators have been on a relentless quest to raise electricity rates for Granite Staters. Because unlike the rest of us, they are geniuses. 

None of us knows exactly what New Hampshire’s energy mix should be. None of us could say precisely how much of the state’s energy should come from solar or biomass. 

But they know.  

In the continental United States, only three states (Connecticut, Massachusetts and Rhode Island) have higher electricity rates than New Hampshire. There are lots of reasons why our rates are so high. One is that we don’t have enough pipelines to deliver natural gas to the state. Another is that we have multiple state mandates that raise rates by requiring utilities to pay higher prices for the type of power legislators prefer — instead of the type of power consumers prefer. 

Because they know. 

This week they issued their latest genius decree. Senate Bill 168 would amend the state’s Renewable Portfolio Standards (RPS) to require that at least 5.4 percent of New Hampshire’s electricity is generated from solar sources by 2025.

The Renewable Portfolio Standards, imposed in 2007, force utilities to buy certain percentages of power from renewable sources such as thermal, new solar, biomass and small-scale hydro. Utilities must buy 25.2 percent of their power from renewable sources by 2025, with that 25.2 percent broken down into specific classes.

The current standards require that 0.6 percent of power comes from new (opened after 2005) solar generation. Bumping that to 5.4 percent in six years, as SB 168 does, is a huge increase. An ignoramus might ask: why 5.4 percent?

Why not 5 percent? Or between 5-10 percent? Why exactly 5.4 percent? 

That’s amazing precision. 

How do legislators know that 5.4 percent is precisely the right percentage of solar for New Hampshire to have? 

They must be super geniuses. Like Wile E. Coyote. 

That has to be it. 

We respect our legislators too much to believe that this whole RPS scheme is like kids dressing up for Career Day at school. “We get to play electric company executive today! Yay!”

Because legislators mandate specific rates for specific classes of renewable energy instead of, say, encouraging utilities to reach an overall target (with no penalties), they must know everything there is to know about energy. 

They must have knowledge that we little people cannot understand with our little minds and parochial concerns, like what will we spend less on this year so we can afford to pay the electric bill? 

Such knowledge is a gift.   

As we noted in April, University of Chicago researchers have found that RPS laws raise energy prices by 17 percent within 12 years after passage. 

We shared that study with legislators. They ignored it. The University of Chicago researchers must be imbeciles too. 

Business executives and ratepayer advocates have explained to legislators over the years that mandates such as these raise New Hampshire’s cost of living, discouraging business investment and making it harder for families and employers to make ends meet. 

But legislators keep passing more mandates. Their vision is beyond that of mere retirees and employers, with their petty concerns about grocery bills and survival in a competitive market.

As electric rates continue to rise, we common folk should resist the urge to get angry. 

Just consider the higher rates a genius tax. They’re the price we pay for living under the benevolent guidance of brilliant elites who know best how to spend the money we earn.   

The Senate this week joined the House passing tax increases on New Hampshire businesses. Some reports give the impression that the House and Senate budgets would not raise taxes, but would repeal future tax cuts. Here we explain why that is not correct and the budgets raise business taxes, including the rates that businesses will pay this year.

Under current law, the business profits tax rate is 7.7 percent and the business enterprise tax rate is 0.6 percent for “taxable periods” that end “on or after December 31, 2019.” 

Both the House and Senate budgets would repeal those rates and replace them with rates of 7.9 percent and 0.675 percent, respectively. 

The budgets also would repeal the existing state law that lowers those rates further, to 7.5 percent and 0.5 percent, for taxable periods that end on or after Dec. 31, 2021.

Understanding how businesses pay taxes

What does it mean when state law declares that a tax rate applies to a “taxable period ending on or after December 31, 2019?” 

It does not mean that the tax rate takes effect on January 1, 2020.

A “taxable period” is not a calendar year. State law (RSA 77-A:1, IV) defines “taxable period” as a business’ fiscal year for federal income tax purposes. 

So a taxable period “ending on or after December 31, 2019” is a business’ fiscal year that starts in 2019 and ends on or after Dec. 31, 2019. 

A business will start to pay those tax rates in 2020, then, right? 

No. 

Businesses’ fiscal years do not always correspond with the calendar year. They can begin or end on any day of the year. 

Plus, businesses are required to pay taxes quarterly, not annually. 

Under New Hampshire law, any business with an estimated tax liability of more than $200 is required to estimate what its next year’s tax bill will be, and then submit 25 percent of that payment each quarter. 

Here is how that works.

In 2019, employers begin paying quarterly taxes for fiscal years that end “on or after December 31, 2019.”

For example, a business with a fiscal year that ends April 30, 2019, will start a new fiscal year on May 1, 2019. That new fiscal year will end April. 30, 2020. 

So starting on May 1, 2019, that company will be taxed at the rate in effect for “taxable periods ending on or after December 31, 2019.” It will make payments at that rate every four months throughout its tax year.

Under current law, companies with fiscal years starting May 1, July 1, and Oct. 1, 2019, will be making business profits tax payments at the 7.7 percent rate and business enterprise tax payments at the 0.6 percent rate this year. 

That’s why the House and Senate budgets do not just affect future tax rates that employers are not yet paying. The budgets would raise those fiscal year 2019 tax rates to 7.9 percent and 0.675 percent. 

So the House and Senate budgets would not merely not repeal future tax cuts, as is being reported. They would raise taxes on businesses this year.   

A tax increase is a tax increase

Furthermore, it is worth noting that “repealing a future tax cut” also is a tax increase. Those tax cuts are set in existing law. They apply automatically. To replace them with a higher rate is to raise taxes.

 

Just as New Hampshire begins monitoring its Medicaid work requirements this month, legislators consider a bill to kill those requirements.

Often cited as a justification for eliminating the work requirements is Arkansas’ experience in 2018. That year, 18,164 Arkansas Medicaid enrollees lost coverage after the state enacted work requirements. But a closer look at the Arkansas experience suggests that poor program implementation and design were the most important factors in the enrollment drop. 

In this Barlett Brief, we look at the reasons for the Arkansas enrollment drop and show that they do not justify killing New Hampshire’s Medicaid Expansion work requirement before it has a chance to succeed.

Find the full brief in PDF format here: JBC-Medicaid-work-requirement-brief.

To protect minorities from hiring discrimination, state lawmakers just passed legislation shown in academic studies to reduce the odds that minority applicants are hired. Hello, law of unintended consequences.

It’s recently become a progressive article of faith that employer credit history checks must be discriminatory in their effect if not their intent because minorities tend to have lower credit scores. Bans on employer credit checks have swept across the country in the last dozen years, and Sen. Elizabeth Warren has tried repeatedly to pass a national ban.

As with so many feel-good political measures, the issue is fraught with myth and hyperbole.

In Senate debates on Thursday, advocates for House Bill 293 suggested that people wouldn’t know if employers checked their credit or decided not to hire them because of a credit issue.

In fact, the federal Fair Credit Reporting Act requires employers to get written permission before checking an applicant’s credit history, and it requires employers to notify applicants exactly what credit issue caused them not to be hired. This allows applicants to dispute the report.

It also prohibits the use of credit history information to discriminate based on “race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older).” That is, using particular credit issues to weed out black or female applicants while hiring white applicants with the same credit history is already illegal. So is checking the credit of only minority applicants.

Legislators expressed concern that employers could access an applicant’s credit score or that a person could be denied a job because of a poor score.

“This bill is about economic opportunity for people who are getting dinged on their credit,” Senate Majority Leader Dan Feltes said on Thursday.

But employers don’t have access to credit scores when checking credit reports. Being “dinged” on your score won’t affect your employment prospects.

Employers aren’t looking for credit-worthiness anyway. Employers look for big problems that could indicate an employee might not be trustworthy or might be a security risk.

HB 293 acknowledges that there is real value in employers having access to credit histories. It exempts any “bank holding company, financial holding company, bank, savings bank, savings and loan association, credit union, or trust company,” any “state or local government agency which requires use of the employee’s or applicant’s credit history or credit report” and anyone required by federal law to check an applicant’s credit.

It also exempts numerous executive and managerial jobs and any position that has an expense account or company card.

However, it doesn’t exempt front-line positions that handle cash, such as store clerks. The bill was drafted to eliminate credit history checks for lower-level hires, on the idea that this would reduce discrimination. But academic research shows that such restrictions actually harm minority job applicants.

A 2018 MIT study found that state restrictions on credit history checks “in fact have sizable, negative effects on labor market outcomes for blacks.”

The authors note that a minority applicant’s credit history provides a check against an employer who has biased assumptions about the trustworthiness of minority applicants. Seeing a black applicant with no major credit issues works against preexisting biases. Without access to credit reports, more employers appear to assume that black applicants have worse credit histories than they really do.

A 2017 Harvard/Federal Rserve Bank of Boston study found that “the changes induced by these bans generate relatively worse outcomes for those with mid-to-low risk scores, for those under 22 years of age, and for blacks—groups commonly thought to benefit from such legislation.”

“We find that the introduction of a ban is associated with a 1 percentage point increase in the likelihood of being unemployed for prime-age blacks compared with the contemporaneous change for whites. Thus, it appears that the prohibition of credit screening and the increased emphasis on other signals may actually, relatively, harm minority applicants.”

Legislators may have unwittingly made it harder for minorities in New Hampshire to find employment. They may have done so because they failed to check their own biases about how employers use credit checks.

Cue the Canadian clones singing wildly in a 1970s’ Lincoln Continental on a snow-covered road trip.

SUMMARY: To promote taxpayer funding of a quarter-billion dollar commuter rail project, supporters last week touted a single poll question, without context, that appeared to show strong public support for commuter rail. It’s a tactic rail enthusiasts have repeated for years. Journalists, lawmakers and the public should be skeptical of such PR campaigns. This brief run through the complex commuter rail issue shows how misleading such PR boosterism can be. 

Context

First, everyone should be wary of any poll that purports to show broad support for an expensive public policy without mentioning costs or alternatives. In some cases, it’s useful to know whether people favor or disfavor an abstract concept. But when a specific policy with known costs is being polled, it’s helpful to ask whether people are willing to pay for the nice idea in question.  

The New Hampshire Legislature votes on bills, not concepts. Casino gambling is a good example. Despite the concept frequently drawing broad support from the public and members of the House, no specific bill has been able to pass the Legislature once the details are laid out. Every issue involves tradeoffs, which abstract poll questions often miss.   

This particular commuter rail poll question did not inform respondents of the cost of the project. Nor did it tell them anything about rail’s impact on traffic, zoning regulations, population density, decreased funding for other public works projects, or other quality-of-life issues. Respondents also were not asked whether they would favor a state-run or private option. Without such details, we don’t really know whether the public supports the actual commuter rail projects under consideration.  

The St. Anselm College poll question asked, simply:

“Would you support or oppose commuter rail connecting Manchester or Nashua with Boston?”

Unsurprisingly, three-fourths of respondents (75.5 percent) were in favor. This is similar to 2015 poll that found 74 percent support for commuter rail in the abstract, with no cost mentioned. The 2015 poll was promoted by the New Hampshire Rail Transit Authority, the second by N.H. Business for Rail Expansion.  Advocacy groups are using abstract poll questions to promote a specific project, the taxpayer-funded, state-developed Capitol Corridor Rail Expansion Project. But the public is not being asked about any details of this project.

Before accepting these poll results at face value, journalists and lawmakers should consider whether they would publish a story or cast a vote after asking only a single, generic question. Commuter rail is a complex issue. Asking whether people would prefer commuter rail in the abstract is like asking if people would prefer to eat ice cream every day. Of course they would. But their answers will change if asked to weigh the tradeoffs. 

Regarding commuter rail, unless the topics listed in this briefing paper are covered, people have not been asked to make an informed choice between competing options. They have merely been asked whether they would like to see ice cream on the menu.  

Read the full paper in pdf form here: Skeptic’s Guide To Commuter Rail Brief.

In an extraordinary show of party discipline, Senate Majority Leader Dan Feltes and Finance Committee Chairman Lou D’Alessandro leapt into action Tuesday to quickly smother a political hand grenade tossed by freshman Sen. Jeanne Dietsch, D-Peterborough. They smothered it the old fashioned way — by throwing Sen. Dietsch on top of it. 

Sen. Dietsch committed a double offense against party electability. First, she introduced an amendment (to an unrelated bill) to impose a 6.2 percent payroll tax on income above the $132,900 Social Security tax cap. Social Security taxes are not collected on income above that level.

Sen. Dietsch portrayed the tax as a reasonable levy on a small number of rich Granite Staters. But its financial and political impact were obvious. The tax would hit about 42,000 people and raise about $300 million a year, the Department of Revenue Administration estimated. That’s no small levy.  

Her other mistake was to state the obvious. “This is an income tax,” she acknowledged. 

At that moment, a submarine dive alarm must have gone off in Sen. D’Alessandro’s head.

Dive! Dive! Dive!

Sen. D’Alessandro, a senior senator with slightly less leadership experience than Moses, was so eager to kill the proposal that he ignored or forgot proper procedure and moved the bill without acting on the amendment. He was later compelled to go back and call a vote. (The amendment failed 6-0, N.H. Business Review reported. 

What made the proposal so frightening that it rattled even “Lion” Lou D’Alessandro? There was no way to spin the tax away as anything other than what it was — an income tax. Everyone was admitting it. 

“This is an income tax, which I oppose,” Sen. Feltes said. 

Interestingly, Feltes has spent a good portion of this legislative session arguing that his own payroll tax (in Senate Bill 1, his paid family leave plan) is not an income tax. Republicans say it is. What’s the difference?

Feltes’ bill includes an 0.5 percent payroll tax. But he cleverly wrote the bill so that it labels the tax an “insurance premium payment.” 

In the bill’s language, the “insurance premium payments shall amount to 0.5 percent of wages per employee per week” and employers “have the option of paying some or all of the FMLI premium payments on behalf of employees, or may instead withhold or divert no greater than 0.5 percent of wages per week per employee to satisfy this paragraph.”

Feltes’ payroll tax is a tax on wages. It gives employers the option to pay the tax before allocating it to employees or after. In either case, it comes out of employee compensation.

In cases where employers choose to credit the tax to money already paid to employees, the only difference between Sen. Feltes’ and Sen. Dietsch’s taxes is the amount collected. They are both income taxes. 

By giving employers the option to pay the entire costs themselves, Feltes seeks to put the burden on businesses, not employees, and avoid the income tax label. But the tax is tied to employee compensation and would come from those funds. At the very least, as long as everyone is acknowledging that a direct payroll tax is an income tax, then SB 1 authorizes an income tax.

If you’re curious who voted for and against SB 1, the roll call votes are here. 

After the U.S. Supreme Court ruled last June in South Dakota v. Wayfair that states could collect sales taxes from out-of-state remote sellers, New Hampshire lawmakers chose not to act. Other states did not make the same mistake. 

Eleven months after the Wayfair decision, the number of states with laws requiring out-of-state businesses to collect and remit sales taxes has more than doubled to 33, a Bloomberg Tax survey shows. 

The number of laws New Hampshire has passed to protect its businesses from these collections remains the same as last year — zero. 

Understanding the need for urgency, Gov. Chris Sununu called a special legislative session last July so lawmakers could quickly put some blocking legislation on the books. A majority of legislators opted to wait. A commonly heard reassurance was that we had plenty of time to act because states would respond gradually to the Wayfair decision. 

In fact, several states had passed laws authorizing cross-border tax collections before Wayfair, anticipating the ruling. Others wasted no time capitalizing on it, as the Josiah Bartlett Center warned. Why would a state wait a moment longer than necessary to expand its taxing power over people who cannot vote for any of its elected officials?  

Now, less than a year after the ruling, two-thirds of the states require businesses to collect and remit sales taxes if they do a specified amount of business in the state. 

And that isn’t the only Wayfair-related bad news. 

The Suffolk Superior Court in Massachusetts this week dismissed a lawsuit filed by six online retailers challenging that state’s effort to collect taxes on online sales retroactively. 

The day before that, the U.S. Supreme Court ruled in Franchise Tax Board of California v. Hyatt that states “retain their sovereign immunity from private suits brought in courts of other States.”

The ruling shields states from suit by private parties in other states. So a New Hampshire seller cannot sue another state in New Hampshire courts to protect itself against a cross-border sales tax collection. 

The Hyatt case was brought by a Nevada resident who had fled California’s hight taxes and was pursued by his former state’s tax collector. The Multistate Tax Commission, which promotes and facilitates cross-border tax collections, filed an amicus brief on behalf of the Franchise Tax Board of California. It had previously filed a brief supporting South Dakota’s pursuit of Wayfair. This week’s ruling is generally considered favorable to states that hope to reach into other sovereign states to collect taxes. 

As The Wall Street Journal wrote in January, a win for California’s Franchise Tax Board would mean that “governments could bully, extort and defraud residents of other states with legal impunity and no political accountability.”

This is now the law of the land, meaning New Hampshire retailers are increasingly at the mercy of foreign tax collectors. 

What has the New Hampshire Legislature done to protect Granite State businesses?

The House Ways and Means Committee retained three bills written to protect business from foreign sales tax collections, refusing to pass them. The Senate did pass Sen. Jeb Bradley’s Senate Bill 242, which is very similar to the bill killed in special session last year. It remains in the House Ways and Means Committee, where it has sat since February 25.     

The Senate votes Wednesday on two bills to regulate the distribution of plastic straws and bags. Before making outlaws of restaurateurs and grocers, senators ought to consider that there are other, less heavy-handed ways to address the issue of plastics pollution — and they have been shown to work better than bans.

Up for a vote are House Bill 558 and House Bill 560. HB 558 would prohibit restaurants from serving plastic straws unless a customer specifically requests one. HB 560 would prohibit stores and food service businesses from providing single-use plastic carry-out bags. It also would force those businesses to offer reusable bags at a price of “no less than 10 cents” per bag. 

The bills are intended to reduce the prevalence of these plastic items in nature. The targeted businesses, however, do not improperly discard plastic bags and straws themselves. They provide the items as conveniences to their customers. Many individuals later discard the products irresponsibly. 

Littering — which is already illegal — is the major problem to be addressed. But rather than provide people with incentives to stop littering, legislators are seeking to pass laws that would burden New Hampshire retailers and food service providers. 

Recent research suggests that persuasive measures such as education campaigns and strategically placed waste receptacles are more effective at reducing pollution than are plastics bans. 

  • An Australian study published last October in the journal Marine Policy found that education campaigns and additional waste facilities (trash and recycling bins) were far more effective at reducing coastal litter than were coercive policies such as plastic bag bans. “The best model included the total number of outreach programs and waste facilities,” the study found. 
  • That study is consistent with psychological studies that have found a positive impact from campaigns that portray littering as abnormal behavior looked down upon by the majority.  Fewer people litter when they believe that most people like them don’t litter. Campaigns that focus on normalizing positive behavior have been shown effective at reducing littering.
  • Placing more trash and recycling receptacles in state recreation areas where litter is a problem, such as Hampton Beach, is likely to produce sizable reductions in litter. Other studies have shown that more and better-placed waste receptacles can reduce littering.

To reduce plastics pollution, persuasion and incentives can be highly effective. They can reinforce positive social norms, creating a culture of good behavior in which more people voluntarily do the right thing. And they can do this without the negative economic costs that come from trying to achieve the same result through coercive business regulations. 

On Thursday, Gov. Chris Sununu vetoed a Democratic bill to impose a $168 million wage tax on New Hampshire employees for the purpose of limiting their benefit choices and forcing them to accept a state-run paid family leave program. Here are five reasons why a veto was the only responsible action for the governor to take. 

  • The tax to fund a mandatory, state-run paid family and medical leave program was entirely unnecessary. The governor had proposed an alternative program that would allow businesses to opt in. With a voluntary option on the table, there was zero need to create a state-run program funded by a $168 million annual tax on workers’ wages, and which cost $6 million a year to run.  
  • The mandatory program in Senate Bill 1 limited employee and employer choices. By forcing employers to offer this one particular benefit, SB 1 would have prevented many employers from affording other benefits that their employees might prefer. As we have reported before, national polls show that employees tend to prefer many other benefits, such as more flexible schedules and more robust health care benefits, to paid family leave. The bill also forbade businesses from offering a smaller paid leave benefit in combination with other benefits employees might prefer.
  • Because SB 1 potentially overpromised benefits, it allowed a commissioner to raise taxes. Were the bill to become law, employees would expect 12 weeks of paid leave at 60 percent of their pay. But the bill acknowledges that these benefits might exceed program revenues. It authorizes the Employment Security commissioner to reduce benefits or raise the wage tax. It also authorizes the commissioner to reduce the tax or increase benefits if the program generates a huge surplus. A huge surplus would indicate that the tax rate is set too high. The bill in that case should authorize only a tax cut, not a benefit increase.   
  • SB 1 imposed a political preference on businesses and employees that in the long run could make New Hampshire less economically competitive. Paid leave is politically trendy, but trends change. Future employees may demand a different benefit. Passing a law compelling employers to offer this benefit freezes resources that could be used to respond to changing market conditions. This makes employers less nimble and less competitive. 
  • Even if Granite Staters overwhelmingly preferred paid family leave over other compensation options, SB 1’s approach would be economically foolish. But there remains no evidence that Granite Staters demand this benefit over others. Supporters of the bill have cited several University of New Hampshire surveys to claim that Granite Staters support paid family leave. But none of the surveys, including one released on the day of the House vote last week, gives respondents the option of choosing other benefits or higher pay. Nor do they inform respondents that a paid family leave program could mean lower pay raises or reduced benefit options in the future. It’s disappointing that these surveys continue to leave out important information that is regularly included in national surveys of employees’ benefit preferences.