The House on Thursday rejected a Republican proposal to prevent significant business tax increases that are likely to hit on January 1. Unless legislators act between now and the end of the year, New Hampshire businesses that survive 2020 should prepare to begin paying higher tax rates in 2021.
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The tax increases were built into last year’s state budget compromise. The budget contained triggers that would increase the Business Profits Tax by 2.6% and the Business Enterprise Tax by 12.5% if state revenues fell by at least 6% below official estimates in Fiscal Year 2020.
The state’s 2020 fiscal year closes at the end of this month. The Department of Revenue Administration in late May projected that total state revenues would fall by a little more than 10% below estimates by the end of June for the taxes it collects. A later analysis of total tax and fee revenue monitored by the Department of Administrative Services put all collections at 4.3% below plan at the end of May.
The state is very close to hitting the tax increase trigger, but it’s not a certainty yet.
Some legislators don’t seem to understand that if the triggers are met, the increases will take effect at the beginning of next year. We’ve seen some comments that the increases won’t hit businesses until 2022.
The tax increases will go into effect for “all taxable periods ending on or after December 31, 2021,” the Department of Revenue Administration states in its guidance for businesses. The tax year ending on Dec. 31, 2021 starts on Jan. 1, 2021.
Unlike individual federal income tax filers, businesses pay estimated state taxes quarterly. So they will begin making their estimated tax payments for the 2021 tax year in the first quarter of 2021, not in April of 2022.
It’s not certain, but it appears likely that New Hampshire businesses that survive the 2020 lockdown and recession will be hit with significant tax increases in the beginning of next year. The determination of whether the increases happen will not come until the state releases final revenue figures in December.
Legislators who don’t wish to damage New Hampshire employers with another financial hit after the brutal first half of 2020 can remove this threat, and the anxiety it’s causing employers, by repealing the triggers.