Legislative Update
The Chamber's legislative priorities affecting your business
Here is an update the legislative activities of the Government Affairs Committee and the Chamber’s lobbying firm, Sulloway & Hollis, on behalf of the greater Concord business community. If you have any questions, please do not hesitate to contact Tim Sink at (603) 224-2508.
APRIL 2010
What’s Going on With the LLC Tax?
To say that much activity has focused on the “LLC tax” would be the understatement of this legislative season. To recap last year, a new law was enacted that would tax distributions to the owners of Limited Liability Companies – LLCs – and partnerships. Several bills were introduced this year to undo or change what the legislature did last year, and the Governor announced his support for repeal or replacement. At this point, there are three bills still alive on this subject.
HB 1607 as passed by the House provides for a $50,000 “safe harbor” for reasonable compensation deductions. That would mean that a $50,000 deduction may be taken from otherwise taxable interest and dividends income, without the business having to maintain the records to justify the deduction. A business may seek a higher deduction, but would be required to maintain the paperwork justifying it in case of audit. This bill has garnered lots of attention and many entities have had their hands in the bill as it is currently written. The bill was the subject of two floor amendments in the House that barely failed. One would have created a $100,000 safe harbor, rather than $50,000. Eventually, the House passed HB 1607 with a vote of 183 in favor and 144 against. Now, the Senate Ways & Means Committee is beginning its deliberation. There are other “safe harbor” legislators are considering for reasonable compensation and HB 1607 may end up being the bill that they use.
SB 497 as passed by the Senate was intended to be comprehensive fix of both the LLC tax and reasonable compensation issues. It would create a reasonable compensation safe harbor and would repeal the provisions taxing distributions from LLCs and partnerships. The bill sailed through the Senate, gaining the votes of all 24 Senators. In the House, however, the Department of Revenue Administration has stated that the bill would cause the State to lose over $300 million in business tax revenue. This surprised the bill’s backers, who are working on various ways to address the Department’s estimates and allow the bill to move forward.
HB 450 is the bill being used by the legislature to consider the budgetary fixes recommended by the Governor. As relevant here, it would repeal the “LLC tax” provisions and require another study of the reasonable compensation issue.
Business groups all over the State are watching this process closely and are ready to work with interested legislators as they consider all of what they have to consider on the business tax issues.
Effect on Businesses of Governor’s Proposed Budget Adjustments
With a potential shortfall of $210 to $220 million, the name of the game for the latest proposal is to slash the budget all around. Just about all state agencies, as well as the Court system, have been asked to trim their budgets by 2% to 16% over the last 15 months of the two-year budge period that will end in July 2011, for a total of $80 million in reductions. Governor Lynch also proposes to refinance state debt and increase revenues. The proposal counts on an additional $44 million in federal funding through Medicaid and proposes a 20-cent increase in the tobacco tax that would generate an additional $12 million.
With respect to the cuts proposed to be made by agencies, the following rise to the top of the list as potentially affecting the business community. Generally, these cuts would decrease the responsiveness of the agencies, slowing down business. Cuts to the Department of Resources and Economic Development (DRED) may have a particular impact because of its role in promoting and cultivating NH businesses. Here are some the most significant proposed cuts, as provided by the Governor’s Office:
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Agency
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2010
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2011
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Summary
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Health & Human Services
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$13,784,000 (1.9%)
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$22,977,000 (3%)
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Various
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Environmental Services
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$520,000 (2.1%)
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$1,847,000 (8%)
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Delay payments in state aid grants; reduce funding for in-stream flow studies, site monitoring and regional planning commissions; savings in state aid wastewater grants; move May and June state aid payments to July 1, 2012
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Judicial
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0
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$4,000,000 (6%)
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None provided
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Resources and Economic Development
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$286,000 (2.1%)
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$808,900 (6%)
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Savings from 2010 personnel reductions; reduce UNH Cooperative Extension Grant; reduce funding to the Industrial Research Center by $100,000; no trade missions; reduce current expense, in-state travel, marketing, and promotion expense
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Work sessions on the Governor’s budget plans began on Tuesday, April 20th. More information is available at: http://www.governor.nh.gov/media/news/2010/040810-budget.htm
Legislative update provided by Martin L. Honigberg, Esq. of Sulloway & Hollis, PLLC, lobbying firm under contract by the Greater Concord Chamber of Commerce.
