HB 1533-FN - AS INTRODUCED
2024 SESSION
24-2541
05/10
HOUSE BILL 1533-FN
AN ACT relative to the safe harbor compensation amount under the business profits tax.
SPONSORS: Rep. Janigian, Rock. 25; Rep. Schamberg, Merr. 6; Rep. Plett, Hills. 29; Rep. Ulery, Hills. 13; Rep. Ammon, Hills. 42; Rep. Spilsbury, Sull. 3
COMMITTEE: Ways and Means
-----------------------------------------------------------------
ANALYSIS
This bill increases the amount of the safe harbor provision for compensation under the business profits tax and provides for a biennial increase in future years based on the percentage change in the Consumer Price Index.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
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Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
24-2541
05/10
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Twenty Four
AN ACT relative to the safe harbor compensation amount under the business profits tax.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Business Profits Tax; Safe Harbor Amount. Amend RSA 77-A:4, III(c) to read as follows:
(c) In lieu of substantiating the value of the personal services of proprietors, partners, or members, a business organization or group of related business organizations may elect, as a record-keeping safe harbor, to deduct up to [$75,000] $100,000 as total compensation for the tax year. For tax years beginning on and after January 1, 2025, the commissioner shall biennially adjust this threshold amount rounding to the nearest $1,000 based on the 2-year (24-month) percentage change in the Consumer Price Index for All Urban Consumers, Northeast Region as published by the Bureau of Labor Statistics, United States Department of Labor, using the amount published for the month of June in the year prior to the start of the tax year;
2 Applicability. This act shall apply to taxable periods ending on or after December 31, 2024.
3 Effective Date. This act shall take effect 60 days after its passage.
24-2541
11/27/23
HB 1533-FN- FISCAL NOTE
AS INTRODUCED
AN ACT relative to the safe harbor compensation amount under the business profits tax.
FISCAL IMPACT: [ X ] State [ ] County [ ] Local [ ] None
|
| |||||
Estimated State Impact - Increase / (Decrease) | ||||||
| FY 2024 | FY 2025 | FY 2026 | FY 2027 | ||
Revenue | $0 | Indeterminable Decrease | Indeterminable Decrease | Indeterminable Decrease | ||
Revenue Fund(s) | General Fund and Education Trust Fund
| |||||
Expenditures | $0 | $0 | $0 | $0 | ||
Funding Source(s) | None
| |||||
Appropriations | $0 | $0 | $0 | $0 | ||
Funding Source(s) | None
| |||||
• Does this bill provide sufficient funding to cover estimated expenditures? [X] See Below • Does this bill authorize new positions to implement this bill? [X] No | ||||||
| ||||||
METHODOLOGY:
This bill increases the amount of the safe harbor deduction amount under the business profits tax from $75,000 to $100,000 and provides for a biennial increase in future years based on the percentage change of the Consumer Price Index. The Department of Revenue Administration states this bill will decrease General Fund and Education Trust Fund revenue, however the fiscal impact is indeterminable as the Department is not able to determine if taxpayers will have additional compensation expenses to claim above the current limitation of $75,000.
Based on the following assumptions/information, the Department is able to estimate a possible fiscal impact:
- using Tax Year (TY) 2021 safe harbor deduction and recalculating it to current BPT tax rate of 7.5% results in an amount of $8.8 million.
- assuming the $8.8 million is based on the limitation of $75,000, it is adjusted for the new $100,000 limitation, which results in an estimated tax liability of $7.7 million for tax years ending on December 31,2024.
- based on a tax year revenue analysis of prior fiscal years, it was determined fiscal year tax revenue is comprised of 15 percent from the tax year 2 years ago, 63 percent is from the tax year 1 year ago and 22 percent from the current tax year (See table 1 below)
- any estimated decrease does not include the apportionment methodology that transitioned to single sales factor (SSF) apportionment after TY 2021 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).
- estimates apply to revenue attributable to TY 2025 and forward; assumes no change in taxpayer behavior; and does not include any adjustments based on the 2-year (24-month) percentage change in the Consumer Price Index for All Urban Consumers, Northeast Region as published by the Bureau of Labor Statistics.
- due to timing of when this proposed legislation may be passed, it is assumed the first two TY 2024 estimated tax payments would not reflect the increased deduction. Therefore, it is assumed there is no fiscal impact in FY 2024.
The first table below provides the tax year splits impact on fiscal year. The second table provides an estimated fiscal impact this changes will have on revenue.
Table 1. Tax Year Splits Impact on Fiscal Year
Fiscal Year | Tax Year | % Applicable to Tax Year | Current Law Safe Harbor Comp. Deduct. | Proposed Safe Harbor Comp. Deduct. |
Fiscal Year 2025 | Tax Year 2023 | 15% | $75,000 | $75,000 |
Tax Year 2024 | 63% | $75,000 | $100,000 | |
Tax Year 2025 | 22% | $75,000 | $100,000 | |
Fiscal Year 2026 and forward | Tax Year 2024 and forward | 100% | $75,000 | $100,000 |
Table 2. Estimated Fiscal Impact - Static Analysis
Fiscal Year | Current Law Revenue Using TY 2021 Net Taxable Income | Est Revenue Under Proposed Legislation | Estimated (Decrease)/Increase Fiscal Impact Per Year | Cumulative Fiscal Impact |
2025 | $7,500,000 | $6,500,000 | ($1,000,000) | ($1,000,000) |
2026 and forward | $8,800,000 | $7,700,000 | ($1,100,000) | ($2,100,000) |
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.
AGENCIES CONTACTED:
Department of Revenue Administration