DRA answers LLC questions

In a letter the Business and Industry Association President Jim Roche, Department of Revenue Commission Kevin Clougherty addresses concerns about how the new tax on Limited Liability Corporations (LLC's) would be implemented in New Hampshire.

The BIA has posted the entire letter on their website.
Clougherty Assurance Letter

Clougherty addresses technical questions on how the DRA will interpret the new law, which was rushed into the state budget without a public hearing last week. If passed, the DRA will examine the income, profits, and payments made by every LLC and determine how much compensation is appropriate. If state bureaucrats decide that an LLC is paying its officers too much, it will tax them.

Hattip: Drew Cline

Hold the Budget

The Union Leader takes aim this morning not at the substance of the state budget, but at the fact that so much of it was rushed through in darkness, without public hearings, notices, input, or deliberation:

People affected by substantial changes in government policy deserve a chance to speak out about those changes before they are made. Last week, as budget negotiators debated the details of numerous tax proposals, they refused to allow the public to see some of those details.

For instance, a proposal to apply the state's interest and dividends tax to partners in limited liability companies would tax those business owners to the tune of about $15 million, according to the Department of Revenue Administration. But when the Business and Industry Association asked for the language to see precisely how the tax would be applied and to whom, the request denied. Thus, the state's largest business lobby was unable to take a position on a proposal that could affect more than 10,000 businesses in New Hampshire.

UL- "The secret tax: Business left out:

The Union Leader warns that passing new business taxes, without letting New Hampshire's know what's coming, is bad for business in New Hampshire:

That is no way to run a railroad, as the saying goes. While Gov. John Lynch was in Nashua Thursday reasurring businesses that they had nothing to worry about, the most popular form of new business arrangement in the state was gettting slapped with a new tax and no one it affected was allowed to see exactly who would be hit and how.

If Gov. Lynch wants business owners and entrepreneurs to feel comfortable doing business in New Hampshire, he needs to make sure they are included when lawmakers devise legislation that directly affects them. If people who are thinking of starting a business here get the impression that tax laws are changed suddenly and without warning or concern for those affected, they will think twice before bringing jobs and growth to our state.

Charlie Arlinghaus- We need more time to debate the state budget

By CHARLES M. ARLINGHAUS

New Hampshire's state budget process is falling apart. The only responsible thing for legislators to do is ignore the June deadline, pass a temporary two-month budget and give themselves another 60 days to pass a two-year budget that has been properly debated and analyzed.

The fiscal year covered by the old two-year budget will end June 30. Prudence would normally dictate that a new budget be in place before the old one expires. However, this year is different.

The governor and Legislature are facing a significant budget hole that they have been unable to resolve. The House and Senate passed different budgets. As happens with every budget, a conference committee has been working to split the differences between the two budgets.

This year, however, the conference committee process has been radically changed. The governor has come forward with a host of new taxes and tax increases that are in neither the House nor the Senate version. On Monday, his revenue commissioner presented a detailed memo with 11 new tax proposals to the committee, which must issue its report tomorrow.

Changes to our tax structure such as a new refinancing tax or a significant change to corporate tax laws are usually placed before policy committees. The proposal is turned into a formal bill with legal language and detailed provisions so we can know the intended and unintended consequences of any change in law. People affected by the new law are given a chance to examine the language, object to it, make a case for changes and bring matters of concern to the attention of the policy makers.

The conference committee is traditionally not allowed to bring forward new proposals. It exists to reconcile differences between proposals that have each been passed in the normal process of one legislative house or the other.

It is not necessarily unusual for a governor to come up with a new proposal sometime in the four months between his own budget proposal in February and the end of the budget in June. What is extraordinary is for the governor to present new ideas that didn't come up in his speech or in the House or Senate debates and present them not as laws but as guidelines just three days before the committee completes its report.

The ideas do not include specific, detailed language as laws do. They do not allow an opportunity for review by people and parties affected. They do not allow for an open debate about the implications of policy changes.

The only thing preventing an open and transparent process is the late, last-minute, hastily pulled together nature of the proposals. At this stage, there is no time left if the Legislature is going to present a report tomorrow so the budget can be signed before June 30.

The obvious solution is to change the time problem. I'm not talking about officially stopping clocks so we pretend it isn't really June 30, as some states around the country do. On the contrary, let's just admit we need more time to deal with the last-minute suggestions.

Six years ago, after Gov. Craig Benson vetoed the budget, the Legislature passed a continuing resolution allowing spending at current levels for the next few months while legislators crafted a compromise. On Sept. 4, a new compromise budget became law.

If the new budget is to include a plethora of new taxes that have not yet been through our normal transparent process, more time is a requirement.

Some people will claim that not passing a budget by June 30 is an admission of failure. On the contrary, I think it would be an honest and straightforward admission that there have been complications to the budget process this year. Legislative budget writers would send an important message about open government. More time would allow them to consider the governor's tax-raising ideas. Without the opportunity for an open process and an actual drafted law to consider and analyze, the governor's tax increases would have to be rejected out of hand just in the interest of fairness.

Last-minute changes without hearing are the stuff of political machines. Both parties could agree that a compromise has not been reached and the right of open debate makes an extension the fair thing to do both to protect the rights of the minority and to allow the governor to be heard. Passing last-minute tax hikes that had yet to be fully formulated three days before the budget is due to be finalized is the worst of all possible choices.

A continuing resolution will allow the Legislature to take a deep breath, hear from affected parties, and not rush to judgment.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.

Drew Cline- "LLCs in New Hampshire"

Drew Cline tries to show the scale of Governor Lynch's new small business tax: on LLC's:

According to the Secretary of State’s office, there are 77,320 New Hampshire-based limited liability companies registered in the state and another 19,917 that are based out-of-state but registered to do business here. These are not some rare, exotic business entities. With nearly 100,000 of them in the state, that’s a lot of businesses to suddenly hit with a major tax hike.

And today he follows up with even more details about LLC's in New Hampshire:

Of the nearly 100,000 Limited Liability Companies registered in the state, only a fraction have employees. There are only 35,000 firms total in the state that employ at least one person. Some of the remaining LLCs might draw income but not have any official employees, according to the state’s Employment and Labor Market Information Bureau. They might exist to own rental property, for example. Most are probably simply registered but not functioning businesses.

Great information. Now if we can just get the UL to permalink his posts.

11 News Ways to Raise Your Taxes- Grant Bosse Reports

NH Watchdog's Grant Bosse reports from the Legislative Office Building in Concord about the DRA's 11 new tax proposals:

You can read the DRA's entire presentation on 11 new taxes for New Hampshire.

Tax Soup

Dan Touhy's piece in the Union Leader has the best headline of the day, "State budget writers cook up tax soup"

Other options under scrutiny include a quarter-percentage point increase in the business enterprise tax to raise an extra $30 million a year, suspension of that tax credit against the business profits tax, and a new tax on distribution of profits to members of limited liability companies.

Clougherty said treating LLCs like corporations is a matter of fairness. He said the state could be subject to a legal challenge without it.

"We're trying to level the playing field so that all corporate entities are treated the same," he said. "I'm very concerned about our liability if we are not treating everybody fairly."

Clougherty outlined ways to broaden the tax base. Some ideas would require legislative approval. None of them appear to be shoo-ins for the House and Senate, which must negotiate a final product of the estimated $11.6 billion plan by July 1, the start of the next two-year budget cycle.

Another idea is to capture real estate transfer taxes avoided by certain major businesses and real estate trusts using 501-c status, the Internal Revenue Service code usually designated for charitable organizations. Clougherty said the change, and modifying the definition of "holding company" under state law, would treat business entities consistently. It could also generate nearly $3 million within three years, according to his report.