By GARRY RAYNO, InDepthNH.org
CONCORD – The House Ways and Means Committee wants to study what the exemption of federal subsidies from corporate tax liability for state revenues will mean.
On Tuesday, the committee held a hearing on Senate Bill 3, which would exempt New Hampshire Business Paycheck Protection Program loans that are canceled as part of the federal aid program.
The Department of Revenue Administration estimates the bill could reduce state tax revenue by $ 91.7 million and possibly a little more if additional loans are approved before the program ends on May 31. .
Under federal guidelines from the Internal Revenue Service, businesses that receive grants do not have to include the money in their gross income for tax obligations, but do so in New Hampshire. The federal government and New Hampshire allow businesses to deduct qualifying expenses such as payroll or rent or utilities to offset gross income.
“The program has been successful in keeping the economy afloat during the pandemic, as the state and nation faced great uncertainty,” the bill’s main sponsor, Senate Majority Leader, said. Jeb Bradley, R-Wolfeboro. “It’s vitally important to protect businesses that have weathered the ravages of the pandemic, but also to send the (right) message to businesses that are considering moving to New Hampshire or staying in New Hampshire.”
He said the program was helping not only businesses but workers as well, noting that the unemployment rate had risen above 15 percent and had now fallen to around 3 percent.
The program aimed to help small businesses with fewer than 500 employees weather the economic devastation caused by the pandemic under the federal CARES law.
Under the program, loans can be canceled and become grants if companies have used the money for their intended purpose to maintain payrolls and pay for essential expenses like rent or mortgages and utilities.
According to DRA estimates, SOEs have received around $ 2.4 billion in PPP loans to date.
Committee members had two main concerns: Do the subsidies inflate current corporate tax returns, and does the bill give companies a double advantage at the expense of state revenues?
Business taxes have produced more revenue than budget writers estimated for the current fiscal year. In the first three quarters of the fiscal year, business taxes were $ 100 million ahead of estimate and for April they are about $ 71 million higher than expected with two days remaining in the month .
Committee chair Representative Norman Majors R-Plaistow said he spoke with an accountant who said many companies have included PPP money in their New Hampshire tax liability and will ask refunds if the bill becomes law.
Another complicating factor is when the loan forgiveness is approved by the US Small Business Administration. Some were approved in FY2020 and others in FY2021 and some may not be approved for the grant until FY2022.
Lindsey Stepp, DRA commissioner, said when companies report federal money depends on how they file.
They could assume this goes against 2020’s liability, she said, or wait for the loan to be canceled. And she said some might include it in their estimates and some might pay their taxes according to state law and then claim a refund.
Rep. Walter Spilsbury, R-Charlestown, suggested – as did Rep. Tom Schamberg, D-Wilmot – that forgiving the grant may provide a double benefit to some companies.
Spilsbury said if a business used all of the grant money for qualifying expenses it would offset the grant for gross revenue, so there would be no tax liability, but if the business was successful enough to make a profit that would be forgiven under the bill.
âThere are two ways a business can use it to get a double deduction,â he asked.
But supporters of the bill said it was intended to be a lifeline for a business to stay afloat, not allow the state to take a share of the revenue.
âThe program replaced revenue that a business would have lost as a result of the pandemic,â Bradley said. “It’s not double counting.”
Michael Benton, owner of Executive Health and Sports Center, said a PPP loan kept his business afloat and allowed him to keep employees on his payroll so they were available when he reopened his business in July. after its closure for four months.
âIt wasn’t just a loss of income, it was a loss of profits due to the shutdown for four months,â he said. “It is not a matter of accounting, it is money from the federal government to ensure the survival of businesses.”
Like many other business owners, he didn’t have the money to pay taxes on top of the money they got to stay alive.
Mike Somers of the NH Lodging and Restaurant Association noted that his industry was ravaged by the pandemic, but many hotels were unable to secure PPP loans.
He suggested that the committee also consider exempting state grants to businesses through the state’s Main Street Relief Program, which used federal money from the CARES Act to provide grants of up to to $ 350,000 to state enterprises, and would also exempt other state cash grants from the CARES Act.
âMany are in dire straits,â he said. âIt’s very frustrating for a business to fight and scramble to get to this, and ask the state to ask for some of the money that goes to support their business.â
Representative Susan Almy, D-Lebanon, said the exemption was not taken into account when the House passed its budget plan, adding that it was a considerable amount of money.
She asked Bradley if the Senate would make any adjustments to its budget proposal due to the exemption, and Bradley said while not a member of Senate finance, he understood that would explain the reduction in income. .
The committee will hold several working sessions on the bill before making a recommendation and wait for the DRA to determine the impact of adding state aid programs to the exemption.
If New Hampshire approves the bill, it will be the 40th state to exempt grants from fiscal liability.
Originally, the DRA estimated that the PPP exemption would cost the state between $ 80 million and $ 135 million in lost tax revenue, but it was later recalculated and now estimates it will be $ 91.7 million. dollars or a little more with additional loans.
US Treasury released guidelines exempting PPPs
States apologize for a provision in the American Rescue Plan Act that prohibits states from using federal money to replace lost income due to state tax cuts. This could impact New Hampshire with proposed rate cuts for business taxes, room and meals tax, and interest and dividend tax currently in the proposed state budget for the next biennium.
Increase in the tax threshold on corporate profits
The committee also heard a proposal to increase the threshold for paying corporate income tax from $ 50,000 to $ 75,000 that was approved by the Senate.
Main sponsor of SB 101, Senator Donna Soucy, D-Manchester, said the threshold had not been raised for 27 years and therefore had not kept up with inflation.
She said the increase would help thousands of small businesses that would no longer have to shoulder the expense of preparing tax returns when they run out of money.
Committee members and others suggested raising the threshold to $ 100,000 and including an increase in the inflation index every two years.
The committee did not make an immediate recommendation on the bill.
Garry Rayno can be reached at [email protected]