Depending on what you measure and who is doing the measuring, NH either ranks high as a business friendly state or in the middle of the pack nationally.
New Hampshire ranked second for most business friendly state, and Manchester captured most business friendly city in the fourth annual Thumbtack.com Small Business Friendliness Survey released earlier this year. Thumbtack, an on-demand personal services marketplace, surveyed 18,000 small businesses nationwide to rate state and city governments across a range of policy factors.
The Granite State ranked seventh among the most business-friendly states in 2013 and seventh for most tax-friendly state in 2014 by the Tax Foundation.
However, in 2014, CNBC ranked NH 30th on its list of America’s Top States for Business and Chief Executive Magazine ranked NH 21st on its list of the Best and Worst States for Business in 2015.
It’s those latter rankings that have some leaders worried the state’s business climate isn’t friendly enough to be competitive nationally. Although there’s been a flurry of legislative activity, particularly during the past two years, to change that.
Whether such changes will make a difference in attracting companies to the state remains to be seen. “Measuring the impact of specific policies is difficult at best, in part because the results of many economic development programs may not be immediately apparent, and there could be other factors occurring which overwhelm the intended results of a particular program,” says Dennis Delay, economist for the NH Center for Public Policy Studies.
Tax Credit Hike
House and Senate leaders in both political parties, the Business and Industry Association, the NH High Tech Council, the NH Lodging and Restaurant Association, and Live Free and Start flagged a variety of initiatives as the most business-friendly legislation for 2015.
Chief among them with mass appeal is the expansion of the research and development tax credit to $7 million. With the BIA championing the legislation, the state implemented a research and development tax credit, capped at $1 million, in 2007 under Democratic leadership. That doubled to $2 million in 2013 under the Republicans and has received bipartisan support at almost every turn, including this past legislative session.
And with good reason. According to a review by the NH Center on Public Policy Studies, this type of tax credit—widely used in other states—can stimulate economic growth. Such tax credits, applied to business spending that supports the development of new products or processes, tend to pay for themselves in economic benefit, with every dollar credited producing at least that and often more in economic activity, says Delay.
While expanding the R&D tax credit to $7 million was a top priority of the BIA and the High Tech Council, the increase, due to a budget compromise, wont kick in until 2017.
This is just one example of an important political reality: Some changes approved in 2015 will require future legislatures to budget or implement. Similarly, certain business tax cuts will only fall into place if the state meets revenue targets down the road.
Business Tax Cuts
The approved cuts to the business profits tax (BPT) and the business enterprise tax (BET) may have been politically popular, but the reduction in 2016 will be small. The BPT will decline from 8.5 to 8.2 percent and the BET from .75 to .72. Further cuts—down to 7.9 for the BPT and .675 for the BET—will only happen if the general and education trust fund revenue reach $4.64 billion for the 2016-2017 biennium.
Though the initial impact is small, Jim Roche, president of the BIA, says it’s a welcome relief to NH businesses. “New Hampshire employers not only have to struggle with some of the highest business tax rates in the country, but they are also having to contend with sky-high electricity costs, high healthcare and workers’ compensation rates, and other business challenges …The triggers required for the second round of tax cuts are unfortunate, but we’re confident state revenues will meet the agreed-upon targets.”
This illustrates a perennial problem between the political and business arenas. Politicians need to tout results every two years. But businesses need policy stability to plan for a much longer time frame.
Senate Majority Leader Jeb Bradley (R-Wolfeboro) says businesses should take heart. Bradley says that with the exception of lowering business taxes and the budget, where there was significant partisanship, there has often been bipartisan agreement in the Senate.
Regulatory Updates
This legislative session also saw several updates and improvement to regulations.
Live Free and Start, a joint initiative between the Governor’s Office, Business Finance Authority and Department of Resources and Economic Development to encourage and support entrepreneurship in the Granite State, was the driving force behind the recently rehauled Securities Act in NH. The changes, which went into effect Jan. 1, are intended to make it easier for small- and medium-sized companies to raise capital, update and clarify securities compliance requirements, and preserve and enhance investor protections.
It also got support for a bill that makes it easier for new businesses to get approval for their business name when they file with the Secretary of State’s office, bringing NH rules in line with those of other states.
“It really brings the state more up to date,” says Mark Kaplan, CEO of Alpha Loft, which incubates and accelerates start-up and early-stage companies in NH. “It sends a better message.” Any policy that helps entrepreneurs raise money helps startups, he says.
Liz Gray of Live Free and Start is also encouraged by the new laws. “We are confident that the changes … will make it easier for NH businesses to start up and raise capital. By modernizing our statutes, New Hampshire is sending a strong message to current and future tech startups that we support them and are updating our laws to reflect the way they’re doing business today. The Live Free and Start Advisory Council and I will continue to look for ways to make New Hampshire an even better place for innovation-based businesses.”
New Hampshire also made changes to its banking and workers compensation laws that are expected to help businesses.
The Education Battle
An educated workforce ranks among the top priorities for many businesses, but funding NH’s colleges and universities proves to be a challenge every budget cycle. Both Democrats and Republicans point to additional funds approved for the university system in the latest budget, though NH continues to lag behind other states in support for higher education.
What Will the Future Hold?
An approach to economic development that builds the skills of the current and future workforce, improves the physical infrastructure of regions, and makes communities more attractive to families and businesses represents the most effective use of a state’s resources, Delay says.
That said, many conservatives in Concord argue that clearing the way for businesses to grow will ultimately allow the state to make those investments as the economy creates more wealth to be shared.
Kaplan of Alpha Loft recommends the state use some of the state retirement fund to invest in startups through a good venture capital fund. He says the main challenge for startups is capital, and because NH doesn’t have an income tax, it can’t provide a tax credit to angel investors like other states.
2015 Recap
These bills are in effect or go into effect in 2016 unless otherwise indicated.
BPT/BET tax cuts (in budget): Reduces the business profits tax from 8.5 to 8.2 percent and the business enterprise tax from .75 to .72 in 2016. Further reductions hinge on meeting future revenue targets under the agreement reached to pass a two-year budget.
R&D tax credit cap (in budget): Would increase total funds available from $2 million to $7 million for businesses seeking credit off the BET/BPT for qualifying research and development expenses. Currently businesses only receive a percentage of what they’re entitled to (up to $50,000 per business) under the credit because qualifying expenses exceed the total cap. The $7 million is expected to come closer to the actual need.
Uniform Securities Act (SB266): Modernizes the law, with the goal of making it easier for small- and medium-sized companies to raise capital. It also clarifies securities compliance requirements and enhances investor protections. The changes bring NH law in line with a model statute, RUSA, adopted by other states.
Business name availability (SB223): Eliminates some of the current subjectivity involved in determining whether a business name gets approval by the Secretary of State, again, bringing NH law more in line with that of other states and making the approval process more straightforward. “It is not uncommon for a new business to submit several names before one gets approved, wasting time and valuable resources,” says Gray. She adds the change “will provide new business filers with additional clarity, consistency and reliability when they file their business name.”
Workers compensation changes (SB133): Requires employers to pay the reasonable value of medical services, but where there’s a challenge over a medical bill, it puts the burden on the medical provider to demonstrate that the cost was reasonable. The goal is to contain workers compensation costs in NH.
Tourism promotion spending (in budget): There was only a minor increase in tourism promotion spending in the final budget, but supporters succeeded in beating back a major cut proposed by the House.
Voluntary tax amnesty (in the budget): Allows businesses with unpaid tax obligations to come forward and pay what they owe without incurring penalties. According to the BIA, “These programs have been offered in the past in New Hampshire and with good results.” This program will allow a taxpayer to pay only the tax and half of the interest normally charged.
Balsams Bill (SB30): Allows business in unincorporated areas of the state access to BFA loan guarantees, an effort to boost business growth in the North Country and specifically, the redevelopment of the Balsams Resort in Dixville Notch. For the Balsams, it’s about $28 million of the $143 million developer Les Otten says he needs to renovate the resort. It requires approval by the governor and the
Executive Council.
Money for business incubators (in the budget): Provides $107,000 for the state’s five business incubators to support programs helping startups with education, mentorship and financing advice among other things.
Banking law changes (SB188): Modernizes and streamlines state banking, credit union and trust laws to make doing business easier while maintaining consumer protections. It recodifies, reorganizes and simplifies the numerous statutes that oversee NH banking practices.
Rate reduction bonds (SB 221): Allows the NH Public Utilities Commission to authorize bonds for cost recovery connected to the divestiture of Eversource power plants. In essence it makes it easier to complete the divestiture and is intended to provide long-term benefits to ratepayers.
Exemption for long-term ground leases (SB 232): Clarifies that NH will not collect real estate transfer taxes on long-term ground leases, such as leases where tenants are allowed to develop the property during the lease period but the resulting improvements go to the landowner when the lease ends.
Defining phased development (SB143): Clarifies rules around municipal zoning to make it easier for housing developers to get projects approved at the local level. The goal is to grow NH’s workforce housing options. It limits how local planning boards can treat phased developments, and in this case, how they cannot slow growth and prevent these developments by citing growth management ordinances. Several issues are headed to study committees.
High-speed rail: SB 88 does not go as far as rail supporters would have liked by allocating state funds for the project, but it does set up a study committee to look at alternative funding sources that might advance passenger rail in the southern part of the state.
Short-term rentals: HB 531 sets up a committee to study short-term rentals by homeowners with a view to clarifying the rules around homeowners who rent out their properties, for example on Airbnb, without paying rooms or meals taxes on the transactions. This is a priority of the NH Lodging and Restaurant Association as more homeowners are renting their properties through Airbnb and not complying with meals and rooms tax rules.
Uber study committee: SB 254 creates a committee to study Uber-style businesses and what, if any, rules might be needed around these new kinds of transportation companies.
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