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Sponsored By



SPBG Jan 2011 

Cap Group 

Editorial Board

 
Brad Cook 
Sheehan Phinney
Bass + Green

Bruce Berke
Sheehan Phinney
Capitol Group 
 
 
Valerie Acres 
Sheehan Phinney
Capitol Group 
 
Henry Veilleux 
Sheehan Phinney
Capitol Group
 
Erle Pierce Sheehan Phinney
Capitol Group
 
 Michael Skelton
Greater Manchester Chamber of Commerce   
michaels@manchester-chamber.org
 

Sponsor's Insight - 3-11-11 

HOUSE AND SENATE MOVE "REASONABLE COMPENSATION" FORWARD

House and Senate committees are recommending passage of legislation to clarify the "reasonable compensation" deduction under the business profits tax.  This issue affects proprietorships, partnerships, limited liability companies, and S corporations.  Current law allows an owner of a business to claim a "reasonable compensation" deduction when filing the NH business profits tax.  Any compensation above this "reasonable compensation" is subject to the NH business profits tax.  Exactly what is "reasonable compensation" is not perfectly clear, and often times requires a business owner to spend tens of thousands of dollars to prove their compensation is "reasonable." 

 

The Senate Ways & Means Committee has voted 5-0 to recommend passage of SB 125, which would simplify the issue for businesses.  This bill says that once a business owner proves that at least one or more of the partners provided actual services to the business, the amount they claim as compensation shall be presumed reasonable, and that the burden of proving otherwise shall be on the Department of Revenue.  The Department would have to prove "by a preponderance of the evidence" that the deduction claimed by the taxpayer is grossly excessive.  This would be a huge victory for taxpayers.  Current law requires the taxpayer to prove that the compensation is reasonable. The full Senate will vote on the bill next week. 

 

Meanwhile, the House Ways & Means Committee has voted 16-4 to recommend passage of HB 557, which is very similar to SB 125 described above.  The slight difference in the version the House Committee is recommending is that it keeps the $50,000 record-keeping safe harbor provision in current law.  This safe harbor is the amount of compensation for personal services claimed by a business, which does not need to be substantiated by any evidence or records.  Any compensation beyond $50,000 may have to be substantiated if the Department of Revenue challenges the taxpayer.  This provision benefits very small businesses.  The House version also sets the standards in Section 162(a)(1) of the IRS Code as the method for determining the amount of the deduction. 

 

The Department of Revenue Administration has indicated that SB 125 and HB 557 could reduce state revenue by up to $49 million.  That is the amount partnerships and proprietorships paid in business profits tax in 2008.  The $49 million loss assumes that no partnership or proprietorship will be liable for the business profits tax.  They admitted that it could very likely be less, as not all businesses will change their filing practices.  The loss of revenue still may come into play at the end of the Session when legislators are finalizing a State budget.  Democrats will lead a floor fight in the House next week to prevent passage of HB 557. 

 

The House and Senate are moving in different directions on another tax issue.  The House has decided to keep HB 242 in the Ways & Means Committee for further review.  The bill would increase the net operating loss carryover under the business profits tax from $1,000,000 to $10,000,000.  Net operating losses can only be carried forward for the 10 years following the loss year.  Meanwhile, the Senate is poised to pass SB 126 on to the House.  It passed the Senate 23-0 this past week, and was then referred to the Finance Committee, which is also recommending passage onto the House.  The bill is identical to HB 242.

 

Henry Veilleux 
Sheehan Phinney
Capitol Group

Chamber Insight - 3-11-11 


Biometric Data Bill Shelved for 2011 

In the last edition of Capitol Insight I discussed HB 244, relative to prohibiting biometric data. The legislation would prohibit government agencies and private entities from collecting or requiring employees to submit biometric data like finger prints, voice prints, and iris scans. The Chamber strongly opposes this legislation for a seemingly endless list of reasons. Dozens of businesses of all shapes and sizes would feel the impact of legislation as biometric data is commonly used to secure facilities and manage employees who have access to sensitive data or material. Most troublesome though was the fact that the sponsor of the legislation could not identify a specific problem this legislation would fix. Instead HB 244 is intended to prevent "future problems" that would arise if people's biometric data was not protected adequately. The legislature tends to do the most damage and create the most unintended consequences when they pursue legislation that has no real purpose or solves no apparent problem.

Given the lack of purpose and the overwhelming objection to it, you would think the House Commerce committee would have killed HB 244 long ago. Unfortunately, that's not the case. The House Commerce committee voted to retain the bill for the year and revisit the proposal during the 2012 legislative session. While this move takes this issue off the table for this year, it's unfortunate that the committee just did not dismiss this bad legislation now. In all likelihood the committee will spend considerable time attempting to craft a compromise bill that likely will also have a negative impact on the business community. Stay tuned - we'll be back on the case of this issue in 2012.

Committee Passes (For Now) on Northern Pass Legislation

The House Science committee heard several hours of testimony this week on two late entry bills, HB 648 and HB 649. Both bills relate to the Northern Pass energy project. HB 648 seeks to prevent utilities to using eminent domain for transmission line projects. HB 649 also includes language regarding eminent domain as well as a requirement for the Regional Planning Commissions to do a cost benefit analysis of the project.

Ultimately, the committee opted to retain the bills for the remainder of the year and revisit the issue in 2012. There was some talk, however, that the bills could be revisited as soon as this fall. The primary justification for retaining the bills by the majority (vote to retain was 13-5 on both bills) was that as late filings, the committee did not have adequate time to consider the issue. Also, several members questioned whether changing the eminent domain laws was within the scope of the House Science committee.

While the Chamber has not taken a position for or against the Northern Pass project, we opposed HB 648 and HB 649 and were pleased to see committee slow down their consideration of the issue. In our view, the approval process for projects like this should not be changed just because some legislators object to an individual project. The legislature's job is to create the process for which projects like this are approved, not be the arbiter of whether individual project move forward or not. In the case of this project, there is a multi-year permitting and approval process that involves federal and state regulators. With the process in place, now is the time to let it work. Changing the process on the fly sends the message to businesses that New Hampshire has a consistency problem, meaning if we like your project, the process remains. If we don't like your project, we'll change the process to block it.

Mega House Session Set for Next Week

Prepare for a doozy of a House session next week. The House is scheduled to meet on Tuesday, Wednesday, and Thursday and has to act on approximately 250 bills over the course of the week. Not surprisingly, there are more than a few pieces of controversial bills within that 250 which alone could take up several hours.

Two issues the Chamber will be following closely on the House floor include HB 218 and HB 368. HB 218 seeks to repeal the New Hampshire Rail Transit Authority, a measure the Chamber opposes. Expect a spirited floor fight on this issue. HB 368 attempts to gut that state's workforce housing law and was recommended as inexpedient to legislate by a vote of 14-1 by the Municipal and County Government committee. Amazingly, there is some talk of trying to overturn that committee report. We'll be keeping a close eye on this issue.

 

Michael Skelton
Greater Manchester Chamber of Commerce

michaels@manchester-chamber.org