FILE - New Hampshire State Capitol

The New Hampshire State Capitol in Concord, New Hampshire.  

At a recent public hearing to consider raising the exemptions for New Hampshire’s interest and dividends tax, no one spoke against the proposal to allow the state’s residents to keep more of the money they put into banks and investments.

It was the portion of the bill that would pay for those exemptions that generated disagreement. The legislation, House Bill 1554, has already passed in that chamber on a 182-143 vote and is now due for consideration by the Senate. The Senate’s Ways and Means Committee held its hearing this week to collect input from interested parties as it decides whether to recommend that the bill be adopted.

The primary intent of the bill is to boost the interest and dividends tax exemption from the first $2,400 in income to the first $3,500. It also increases an additional exemption for those who are blind, disabled or older than 65 years old from $1,200 to $1,750.

The state’s Department of Revenue Administration looked at the revenue from the interest and dividends tax for 2015 and estimated that raising the exemptions as the bill proposed would have cost the state about $4.2 million in that year.

The authors of the bill sought to offset this potential loss in revenue by reducing the state’s annual cap for the manufacturing research and development tax credit from $7 million to $2 million. With that provision, the bill would be expected to be revenue neutral. But that provision also drew opposition from representatives of business associations.

Dave Juvet, senior vice president of the Business and Industry Association of New Hampshire, told the committee that research and development jobs supported by the credit are some of the most impactful when it comes to the health of the state economy and, in turn, state revenues.

“Manufacturing in this state is the single most important contributor to the state’s economy,” Juvet said. “It draws in more wealth to New Hampshire than all the other sectors of the economy combined. ... If you look at the tax payments made by the manufacturing companies that we have in this state, they are paying 20 times more in taxes than the number they represent of all businesses.”

Sen. Dan Feltes, D-Concord, asked Juvet if his members would be more inclined to see an adjustment to the business profits tax instead of the R&D tax credit. But Juvet didn’t favor that option, either.

“I would not prefer to have to choose between either of those choices,” he said. “I think it’s somewhat of a false choice, I don’t think those are the only two options.”

Juvet suggested that given the robust state of New Hampshire’s tax collections in recent years, it would be reasonable to consider raising the interest and dividends exemption without an accompanying effort to offset those revenue losses.

In full support of the bill was Dan Maguire, a former state representative and board member of Granite State Taxpayers, an advocacy group. Maguire said that not only was he in favor of reducing the R&D tax credit, but that he would recommend eliminating it altogether to fund an even greater rise in the interest and dividends exemptions or a reduction in the state’s business profits tax or business enterprise tax.

“This tax credit is corporate welfare,” he said. “This goes to maybe 100, 200 companies who get subsidies of up to $50,000 dollars a year, and it comes from the hundreds of thousands of taxpayers in the state who pay all the other taxes.”

Maguire insisted that tax cuts and exemptions other than broad-based statewide measures opened the door for lobbying and create an unfair playing field.

“It sends the message ... that the way to prosper is to come to this committee and to plead your case, to come to this committee and say, ‘we need this, that and the other thing, we need a special carve-out, a special deal for us,’” he said.

The chairman of the committee, Sen. Andy Sanborn, R-Bedford, wondered if the R&D tax credit should be expanded beyond just the manufacturing sector. Carollynn Ward of the Department of Revenue explained that the term "manufacturing" wasn’t as limiting as it might seem because the state follows the federal definition of the word, which allows for activities like medical procedures and processes and software-based R&D, among others.

Liz Gray of the New Hampshire High Tech Council, fielding a similar question from Sanborn, suggested that deviating from the federal definition to open the credit up to more companies might create confusion, because businesses in New Hampshire rely on the fact that they can apply for both state and federal R&D credits using the same criteria.

She also echoed Juvet in noting that many other states offer R&D credits, and so if New Hampshire were to reduce its cap, companies that operate in other states would find it very easy to move those jobs elsewhere.

“The tech sector employs approximately 44,000 people and contributes nearly $3 billion to the state’s GDP in salaries alone due to the higher than average pay that those companies are providing,” she said.

The committee may now consider amending the bill, suggest to the Senate that it be passed as is or recommend that it be killed, along with a number of other more esoteric parliamentary options.

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.