All signs indicate that 2025 will be a tough year for budget writers in NH. Gone are the federal stimulus funds earning interest in state accounts. Gone are the big business tax revenue surpluses. And as of next year, gone is the Interest and Dividends Tax. State legislators will face tough choices to either cut spending or raise new revenue. Here are some taxes likely to be debated in the New Year.
Interest & Dividends Tax
The Legislature recently passed a bill that phases out the tax on interest and dividends in NH, which applies to annual gross interest and dividends income over $2,400. Some Democratic lawmakers want to bring it back, perhaps with a higher filing threshold. They argue NH should not give a tax break to its wealthiest residents. Opponents of the tax counter that it unfairly impacts retirees who may be more likely to rely on interest and
dividends income.
There are some Democrats who want to add a somewhat similar tax on capital gains. Based on the 2024 Citizens Count candidate survey data, it doesn’t look like there is enough support to move this idea forward in the Legislature. However, a few candidates also had ideas about a limited capital gains tax, such as a tax on the sale of second homes.
Communications Tax
Republicans have proposed a repeal of NH’s communications tax, a 7% tax levied on phone bills. If you have a cell phone, you probably pay about $10 per month for this tax, and it generates about 1% of the state’s unrestricted revenue. That’s relatively small potatoes in the state budget. However, looked at from another perspective, the $30 million in annual revenue from this tax is roughly equal to how much the state gives its community colleges each year. Expect a debate in 2025.
Business Taxes
For several years, NH lowered the rate of the Business Profits Tax (BPT) and Business Enterprise Tax (BET). Meanwhile business tax revenue soared, with the biggest payments coming from multi-state and multi-national entities. Republicans argue this shows the tax cuts successfully spurred business growth, but others argue this was a national trend that had little to do with NH tax policy. Analysis from the NH Fiscal Policy Institute, for example, found no relationship between the BPT cuts and economic growth in the state.
The last few months of state revenue reports show business tax revenue is on the decline. Business tax revenue makes up the biggest chunk of unrestricted revenue for the state, so budget writers will have to make some tough choices around business tax rates.
Right now, NH has lower business taxes than Maine, Massachusetts, and Vermont, so some lawmakers may see a small business tax increase as a way to ease the budget crunch without driving businesses out of state. Republicans, on the other hand, may philosophically support another business tax cut, but will be hard-pressed to balance the state budget without maximizing current business tax revenue.
Marijuana Revenue?
Many lawmakers have touted revenue from marijuana taxes or fees as a potential savior for the state budget. There are two big challenges with that plan. First, it is hard to calculate what revenue the state may ultimately generate from legal cannabis; a lot depends on how the state structures and regulates sales. Second, those structures and regulations could take a few years to roll out, which means there is no instant cannabis cash for budget writers to play with. Still, with a tough budget year coming up, expect extra pressure from legislators to legalize and tax marijuana.
Other Taxes and Fees
New Hampshire may be famous for not having an income tax or a sales tax, but the Granite State has a lot of other miscellaneous taxes and fees that legislators could tweak in 2025. Registering a car, going fishing, and getting married all come with a fee. There are also taxes on tobacco and e-cigarettes, meals, rooms, and gasoline that could see changes. The state might even tweak the share of revenue it gets from charitable gaming.
Anna Brown is director of research and analysis for Citizens Count (CitizensCount.org), which provides information about the policy issues shaping NH.
Current Issue - January 2025