HB 1551-FN - AS INTRODUCED
2024 SESSION
24-2531
05/10
HOUSE BILL 1551-FN
SPONSORS: Rep. Summers, Rock. 20; Rep. Ulery, Hills. 13; Rep. Spillane, Rock. 2; Rep. Bernardy, Rock. 36; Rep. McWilliams, Merr. 30
COMMITTEE: Ways and Means
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ANALYSIS
This bill directs the state to distinguish between C corporations and S corporations for purposes of calculating the business profits tax and to exclude flow through items on the Schedule K for S corporations from corporate income for purposes of calculating the tax.
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Explanation: Matter added to current law appears in bold italics.
Matter removed from current law appears [in brackets and struckthrough.]
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
24-2531
05/10
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Twenty Four
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Business Profits Tax; Treatment of S Corporation Election. Amend RSA 77-A:1, III to read as follows:
III. "Gross business profits" means:
(a) In the case of a corporation[, except "S" corporations,] or any other business organization required to make and file a United States corporation income tax return, or in the case of a corporation which does not make and file a separate United States corporation income tax return for itself because it is a member of an affiliated group pursuant to the provisions of chapter 6 of the United States Internal Revenue Code as defined in RSA 77-A:1, XX, the amount of taxable income as would be determinable under the provisions of the United States Internal Revenue Code as defined in RSA 77-A:1, XX before the application of any net operating loss deduction, special deductions shown on line 29 of the federal corporate income tax return, or any other special deductions allowable only to a certain class of corporate taxpayer.
(b) In the case of "S" corporations or any other business organizations required to make and file an "S" corporation return, the net profit from all business activity determined in accordance with rules adopted by the department of revenue administration under RSA 541-A; provided that an S corporation election at the federal level shall be recognized under this chapter and the flow-through items on the Schedule K shall not be incorporated into corporate income when determining taxable business profits.
2 Effective Date. This act shall take effect July 1, 2025.
24-2531
11/9/23
HB 1551-FN- FISCAL NOTE
AS INTRODUCED
FISCAL IMPACT: [ X ] State [ ] County [ ] Local [ ] None
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Estimated State Impact - Increase / (Decrease) | ||||||
| FY 2024 | FY 2025 | FY 2026 | FY 2027 | ||
Revenue | $0 | $0 | Indeterminable Decrease | Indeterminable Decrease | ||
Revenue Fund(s) | General Fund and Education Trust Fund
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Expenditures | $0 | $0 | $0 | $0 | ||
Funding Source(s) | None
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Appropriations | $0 | $0 | $0 | $0 | ||
Funding Source(s) | None
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• Does this bill provide sufficient funding to cover estimated expenditures? [X] See Below • Does this bill authorize new positions to implement this bill? [X] N/A | ||||||
METHODOLOGY:
This bill amends RSA 77-A to distinguish between "S" and "C" corporations and excludes flow-through items on the Schedule K for "S" corporations when calculating the taxable business profits for the Business Profits Tax (BPT). Current BPT law does not distinguish between "S" and "C" corporations, as the "S" corporation is taxed at the entity level similar to the "C" corporation.
The Department of Revenue Administration states this bill will decrease General Fund and Education Trust Fund revenue by an indeterminable amount beginning in FY 2026. However, based on the following assumptions/information, the Department is able to estimate a possible fiscal impact:
- It is assumed this bill applies to taxable periods ending on or after December 31, 2025.
- Using the Form DP-120 filed (filed by "S" corporation to report its flow-through income for BPT returns) for Tax Year 2021, the Department was able to estimate a maximum fiscal impact of $229.6 million. The $229.6 million was derived using the $85.2 million in reported gross business profit, then applying each taxpayers apportionment factor and finally multiplying that result by the BPT rate of 7.5 percent.
- The determination of the maximum fiscal impact does not include the change in the apportionment methodology that transitioned to single sales factor (SSF) apportionment after TY2021 for taxable periods ending on or after December 31, 2022, and the net operating loss deduction moving to single apportionment (apportioned only in the year the loss was generated).
- The estimated reductions per tax year resulting from this bill were then applied according to the timing of revenue in the chart below to calculate an estimated fiscal year impact. Historically, the split breaks down to 15% attributable to two prior years, 63% attributable to the prior year, and 22% attributable to the current year. This proposed legislation would apply to revenue attributable to TY 2025 and forward and assumes no change in taxpayer behavior. (See table 1)
- Because of the timing of when this proposed legislation may be passed and the assumption that the legislation is applicable for taxable periods ending on or after December 31, 2025, the Department does not expect that the first two TY 2025 estimated tax payments would reflect the exclusion of the flow-through items. Therefore, this bill is not expected to have a fiscal impact in FY 2025.
The first table below provides the percentage of a tax year in a fiscal year. The second table provides an estimated fiscal impact this change will have on revenue.
Table 1. Proposed Legislation Rates and Splits
Fiscal Year | Tax Year | % Applicable to Tax Year |
Fiscal Year 2026 | Tax Year 2024 | 15% |
Tax Year 2025 | 63% | |
Tax Year 2026 | 22% | |
Fiscal Year 2027 and forward | Tax Year 2025 and forward | 100% |
Table 2. Estimated Fiscal Impact - Static Analysis
Fiscal Year | Est Revenue Under Proposed Legislation | Cumulative Fiscal Impact |
2026 | ($195,200,000) | ($195,200,000) |
2027 and forward | ($229,600,000) | ($424,800,000) |
The fiscal impact as depicted in the above table may be overstated or understated for future years depending on whether actual revenue is more or less than the TY 2021 net taxable income used for the analysis of this bill.
The Department would need to update all necessary tax return forms and electronic management systems to reflect the changes contained in this bill; however, it is not anticipated this will result in any additional administrative costs that could not be absorbed in the Department's operating budget.
It should be noted the Department recommends this bill be reviewed by a constitutional lawyer or the Department of Justice as the language in the bill may result in an impermissible classification of taxpayers.
AGENCIES CONTACTED:
Department of Revenue Administration