A bill requiring NH to legally challenge another state’s attempt to collect income taxes from residents working in NH was approved by the House Ways and Means Committee Wednesday.
The bill addresses Massachusetts’ attempt to collect income taxes on NH residents who worked in Massachusetts, but, due to the pandemic, worked remotely from NH.
The committee also passed a bill to cut the rate of the business profits tax, down a party line vote, costing the state an estimated $8 million in revenue if approved by the legislature.
Further, the committee recommended not cutting the rate of the business enterprise tax.
Income Tax
House Bill 1097 as introduced would have prevented Massachusetts from collecting income taxes from NH residents working at home, who until the pandemic, worked in Massachusetts.
NH sued Massachusetts over its action, but the US Supreme Court, which has jurisdiction over conflicts between states, refused to take the case. Massachusetts stopped the practice after ending its state of emergency.
A revised version of the bill focused on the state’s sovereignty and its need to protect the income of residents within its borders.
Proponents of the provision said it would give the state a better foundation to bring the issue before the US Supreme Court if the situation arises again.
Rep. Walter Spilsbury, R-Charlestown, said the original bill had to be changed because one state cannot define the powers of another state.
“This reframes the idea that if the attorney general has to litigate, we want to give him all the armor he needs to cite the direct position of the state and lay a strong foundation for a claim of standing,” Spilsbury said.
He noted NH cannot control Massachusetts but it can defend its sovereignty to protect its economy and the welfare of its citizens.
The bill is intended to put other states on notice as well.
Other provisions of the bill seek to clarify the difference between personal earned income and business income so as not to put the state’s business taxes in jeopardy, he noted.
But Rep. Dick Ames, D-Jaffrey, said it is a very complicated issue and he believes more time is needed to better craft language much like the state did after the US Supreme Court’s Wayfair decision. The decision allows states with a sales tax to force companies in other states to collect the tax for items sold within the taxing state’s boundaries.
Several members noted that the bill has stopped large income tax states from going after small businesses in other states.
Ames said Massachusetts has stopped the practice of taxing income of NH citizens working at home for Bay State businesses so there is no need to do something immediately.
“To go to the Supreme Court costs a lot of money,” Ames said. “Litigation is not something to do lightly. You want to go forward with litigation with a strong hand.”
Several other committee members were concerned that replacing the word “shall” with “may” made the bill too soft to have any impact.
“It makes it moot,” said Rep. Jordan Ulery, R-Hudson, noting there is a permissive element to it as opposed to saying you shall not tax.
But he said states tell residents of other states what to do all the time, such as wearing seat belts.
Rep. Susan Almy, D-Lebanon, said the bill deals with an important issue as more and more people will be working remotely, and others indicated rising energy prices could also mean more people working from home.
That will create more problems than the narrow law Massachusetts had, she said, and they need something that would make the US Supreme Court take up the issues.
“We need allies,” Almy said, “we need more than just ourselves, a state with a very odd tax system asking to have this resolved.”
She and others noted New York has long had the same policy Massachusetts used and they pursue it aggressively.
Several other members of the committee said although they are not fully behind the proposal, they would be more comfortable putting something forward, even if it has to be changed in the Senate.
Several members who worked with the attorney general’s office on the proposal said his position was something is better than nothing.
The changed bill was recommended for approval on a 17-6 vote.
Business Tax Reduction
House Bill 1221 would reduce the business profits tax rate from 7.6 to 7.5 percent and the business enterprise tax from .55 percent to .5 percent. But Republicans on the committee backed an amendment that would only lower the business profits tax rate and not the business enterprise tax rate.
Nearly all companies in NH have to pay the business enterprise tax, but the business profits tax is largely collected from large national or multinational companies.
Republicans said lowering the business profits tax to 7.5 percent has been a long standing goal of the caucus, noting when rate reductions began six years ago, the rate was 8.5 percent and now it is below surrounding states.
Almy noted while there is a large revenue surplus now, there is great uncertainty going forward as next year the state will move to the single sales factor for the business profits tax and some of the largest payers now may not pay any business profits tax.
There are other changes that also may have major impact on state revenues as well, she said.
“You are giving a break to the multinationals and not to small businesses and those are the ones who went through hell the last two years,” Almy said, noting allowing small businesses to retain more of their earnings will retain the money in NH.
Committee vice chair Rep. Patrick Abrami, R-Stratham, said the majority caucus has been restrained this year, noting there were bills to do away with car rentals under the rooms and meals tax, and to do away with the communications tax, but did not approve those bills.
“Our goal from years ago — it is symbolically important — is to get (the business profits tax) to 7.5 percent, and it only costs about $8 million,” Abrami said.
Ames noted the majority caucus has been restrained, but that $8 million is a significant amount of money when you add in all the other tax rate reductions over the last 10 years.
The cut in business taxes has to be seen in context of what is happening with property taxes, he said, noting many business owners are more concerned about their property tax bills than their business tax liability.
“When we talk about cutting taxes, I think about state aid to school districts, and the towns that really need it,” Ames said. “This goes in the wrong direction.”
Abrami noted the current budget sends more money to communities through revenue sharing and $100 million was used to reduce the statewide education property tax from $361 million to $261 million.
“We have a ways to go to find ways to continue to do that,” Abrami said, “but we made sure the money went back to property taxpayers.”
But Almy said the municipalities that benefited the most were the property rich communities, while the property poor communities received the least benefit from reducing the statewide property tax.
The bill, now lowering the business profits tax by .1 percent, was approved by the committee on a party line vote of 12-11.
The two bills now go before the full House.
Other Action
The committee sent a bill changing the distribution formula for the opioid settlement money to interim study, saying they need to pause as they decide how best to distribute the money that keeps increasing.
Along another party line vote, the committee voted down House Bill 1524 which would have used $750,000 in American Rescue Plan Act money to establish a fund to help attract and retain workers.
The matching grant program would target individuals who are in service programs like AmeriCorps who go to work for institutions or businesses enrolled in a federal volunteer program.
Republicans argued there were too many loose ends, but Democrats said with the state last in the region to return its workforce to pre-pandemic levels, the bill would help improve the situation.
The vote was 12-11.
Garry Rayno may be reached at garry.rayno@yahoo.com.
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