FILE - New Hampshire State Capitol

The New Hampshire State Capitol in Concord, New Hampshire.  

New Hampshire is sometimes described as a state with no income tax and no sales tax, but it does collect a five percent tax on one form of income – interest and dividends.

But a bill passed out of the state Senate would do away with that collection and position New Hampshire to join the short list of states that truly do not tax income.

Senate Bill 404 would reduce the interest and dividends tax by a percentage point each year starting in 2020, until the tax was entirely eliminated in 2024.

The state’s Department of Revenue Administration, in calculating how much a repeal of the tax would reduce state revenue, reported that New Hampshire collected about $84 million from the tax in 2015, including $16 million in overpayments. The department estimated that by 2025, when the tax was completely phased out from the state’s budget, there would be a reduction of about $100 million in state income.

Backers of the bill say it is necessary to stem the tide of older New Hampshire residents fleeing to states where such income is not subject to taxation.

“I cannot remember the number of conversations that I have had with people saying that they're moving their residence to Florida because Florida does not have a tax on income,” Sen. Andy Sanborn, R-Bedford said Thursday from the Senate floor. “They’re exempt from that. We know that people with any level of means, especially in retirement, have that ability to move wherever they want, and they’re moving to places that do not have an income tax.”

Sen. Jay Kahn, D-Keene, raised concerns because the bill fails to address any decrease in expenditures to go along with the elimination of the tax.

“If we’re going to be cutting revenues, we ought to be showing the taxpayers how we’re cutting expenses so that we understand what the trade-offs are,” Kahn said. “I’ve got to say, there's something about our deliberations that really flabbergasts me, and it is that we're so willing to show a reduction in revenues without showing the taxpayers what the cost is.”

The delay until 2020 for the first reduction in the tax, combined with the staggered implementation of the repeal, gives the Legislature time to work out the affect of the elimination, said state Sen. Gary Daniels, R-Milford.

“This will provide widespread tax relief for a large segment of New Hampshire residents [and] it will not disrupt the current revenue picture as it at does not become effective until the next biennium,” he said.

The existing law allows for an exemption for the first $2,400 in interest and dividend income. State Sen. Dan Feltes, D-Concord, suggested raising the exemption instead of repealing the tax.

“There's this notion that this is going to help financially vulnerable senior citizens in the Granite State,” he said. “If that were the focus of this, then we would raise the exemption a little, but that's not this bill. This bill is meant to get rid of this tax. It's going to cost, in the next biennium, a significant amount of money – dependent on your revenue estimates upwards of $80 [million] to $100 million, and that's a hit that I don't think our budget can take.”

Sanborn questioned the numbers of the projected loss in revenue. The jump from about $68 million in net revenue in 2015 to a projected loss of more than $100 million in 2025 seemed unlikely, he said.

“[There’s a] glaring problem with our fiscal note process,” he said.

The bill passed on a 12-9 vote and advances to the Committee on Finance.

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no income tax.

Regional Editor

Dave Lemery is a veteran journalist with more than 20 years of experience. He was the editor of Suburban Life Media when its flagship newspaper was named best weekly in Illinois, and he has worked at papers in South Carolina, Indiana, Idaho and New York.