Slew of New Year's Taxes

As 2010 begins, New Hampshire Watchdog has put together a couple of lists detailing about a dozen likely or re-instituted state and federal taxes we will face in the new year.

First, in addition to the 30-plus new or increased taxes and fees already instituted, here are 5 other increases Democrats in Concord are likely to consider at the suggestion of Department of Revenue Commissioner Kevin Clougherty:

1) Real Estate Transfer Tax: The Real Estate Transfer Tax, or RETT, is among the most cyclical of New Hampshire’s business taxes. It booms when the real estate market is hot, and craters when real estate slows. Currently, home buyers and commercial real estate buyers pay a 0.75% tax when real property is transferred. Clougherty outlines three possible expansions of the RETT. The DRA Memo charts projected revenues for Fiscal Years 2010 and 2011 based on the current rate, and on increasing the rate to 1%, 1.15%, 1.25%, and 1.5%. It also calculates how much revenue would be generated if the tax included an exemption on the first $25,000, $50,000, $75,000, or $100,000 in property value. According to the DRA memo, the RETT would have generated anywhere between $69 million to $200 million over the next two years based on the tax rate and exemption levels chosen. However, the most controversial change suggested by the DRA Memo as an extension of the RETT to cover refinancing as well as property transfers. According to Clougherty, taxing real estate refinancing would generate revenue as the real estate market and interest rates decline, cushioning the cyclical nature of real estate tax collections. Governor John Lynch originally supported this expansion of real estate taxes, which met with thunderous protests from the real estate community, who argued that the new tax would target homeowners attempting to refinance their mortgages in order to stay in their homes. Lynch and the Legislature eventually shelved the Refi Tax

2) BET Credits against the BPT: As the Business Enterprise Tax was designed as a way to spread New Hampshire’s business tax burden away from its largest firms and over a broader base, the new tax was written so that no business would pay twice. All firms pay the BET, but only businesses making a profit in a given year pay the Business Profits Tax. However, tax payments under the BET are fully credited against BPT liability. Effectively, businesses pay either the BET or the BPT, which is higher, but not both. The DRA Memo cites 2208 statistics in which 18,154 tax filers applied for $121,506,595 in BET credits against the BPT, of which $41 million was from the top 100 business taxpayers. Clougherty says that since the business tax base shrinks during a recession, lawmakers can’t count on that large an increase in revenues if the credit were removed this year. He also warns that the tax increase would have a disproportionate impact on the largest taxpayers, and hit the banking community especially hard due to the way that interest in treated under the tax.

3) BET Thresholds: The Business Enterprise Tax requires businesses large and small to pay the state based not on their profits, but on their total receipts. The tax was put in place in 1993 to broaden the state’s business tax base, which had concentrated to a few large, profitable businesses paying the Business Profits Tax. But the BET only kicks in after a business has reached a threshold of $150,000 in gross receipts or $75,000 in enterprise value. Once a business grows to that level, it pays 0.75% in taxes on every dollar that comes in the door, regardless of expenses. The DRA Memo suggests lowering those thresholds to their original levels of $100,000 and $50,000, and estimates that the lower threshold would generate an additional $2 million annually.

4) Net Operating Losses: Under current law, businesses are allowed to carryover net operating losses into future tax years in order to offset future tax liability. The carry forward amount for NOL’s generated after July 1, 2005 is $1 million each year. The DRA Memo mentions that the original carry forward amount was limited to $250,000 annually back in 1988, and was NOL’s could only be carried over for five years. The DRA Memo does not estimate how much additional revenue would be generated by reverting to the lower limits.

5) Online Booking of Room Rentals: According to the DRA Memo, online travel companies charge customers for hotel occupancy taxes when they book their rooms, but pay only a portion of those taxes to local and state governments. Clougherty argues that the issue in current under litigation, but recommended that New Hampshire create a new category of “wholesaler” to apply to online travel companies. However, administering this tax, and collecting it from out-of-state businesses with no link to New Hampshire could be difficult. Clougherty explains that his office is working with the Federation of Tax Administrators to draft federal legislation to enable states to collect taxes charged by online travel companies.

Federally, a number of tax increases kicked in at the stroke of midnight due to inaction by Democrats in Washington (via the Heritage Foundation):

The House has passed legislation (H.R. 4213) that would have extended 63 current tax provisions, but the Senate failed to bring this bill to a vote. Thus, all of these provisions expired at midnight last night. Notable provisions as reported today by Tax Notes include:

Deduction of state and local general sales taxes (section 164) (Personal Tax Incentives)

Additional standard deduction, up to $500 for individuals and $1,000 for couples, for state and local property taxes (section 63) (Personal Tax Incentives)

Research tax credit and alternative simplified credit (section 41) (General Business Tax Incentives)

New markets tax credit (section 45D) (Community Assistance Provisions)

Empowerment zone incentives (sections 1391 and 1202) (Community Assistance Provisions)

Renewal community tax incentives (sections 1400E, 1400F, 1400I, and 1400J) (Community Assistance Provisions)

District of Columbia Investment Incentives (sections 1400, 1400A, 1400B, and 1400C) (Community Assistance Provisions)

Net disaster loss designation and $500 limit per casualty for personal casualty losses attributed to federally declared natural disasters (section 165) (General Disaster Relief Provisions)

Expensing for qualified disaster expenses (section 198A) (General Disaster Relief Provisions)

Biodiesel and renewable diesel incentives (section 40A) (Energy Incentives)

Alternative motor vehicle credit for heavy hybrids (section 30B) (Energy Incentives)