Last month, the New Hampshire House of Representatives passed a bill to lower the state’s business enterprise tax rate from 0.55% to 0.5%, according to a document published on the General Court of New Hampshire’s website.
The BET is “unique among state taxes” because it targets compensation — including wages paid to workers and dividend interest paid to shareholders — rather than business profits, according to New Hampshire Fiscal Policy Institute research director Phil Sletten.
“No other state has something that’s exactly like the business enterprise tax,” Sletten said.
Sletten argued that a reduction in the BET would primarily benefit small businesses.
A lower BET “would be significant [for companies] hiring one, two, three or four more employees, not those hiring thousands more people,” Sletten said.
An NHFPI study, which analyzed taxpayer filing data from 2023, found that a lower BET would save the average business $565 but reduce state tax revenues by $26 million.
Economics professor Bruce Sacerdote ’90 noted that the study did not consider a possible “behavioral response” from businesses that may change their policies in reaction to a tax cut. However, he said that its findings were nevertheless “sensible.”
“The labor literature shows that labor supply is relatively inelastic to small changes in the tax rate,” Sacerdote said.
State Rep. Ross Berry, R-Hillsborough, who voted in favor of the bill, said the tax reduction aims to put “more money into the hands of small businesses.”
“The overwhelming, vast majority of businesses in New Hampshire are small businesses,” Berry said. “So whenever you’re putting more money back into those entities, that’s a good day.”
Sacerdote said the drop in state revenues is “small relative to the state’s annual spending of $8 billion.”
“Fortunately it’s not a huge drop in the revenues available to the state, but I also understand why some legislators are concerned about the loss and the implied cuts to state services,” Sacerdote said. “N.H. runs such a lean operation that few people would say we are spending money needlessly.”
State Rep. Susan Almy, D-Lebanon, who voted against the bill, said she believes the tax reduction will force the state to raise fees on services.
Almy said that instead of reducing the BET tax, state politicians should “raise the BET floor” to a level which would make more businesses exempt from it. Currently, companies whose total compensation to workers and shareholders is below $298,000 are exempt from the tax.
Almy noted that the floor already is raised every two years to account for inflation.
Sletten said that not all of the money saved by companies due to the tax reduction will be reinvested into New Hampshire.
“More than half the revenue from these taxes comes from multi-component entities, which are probably large entities operating in multiple states, if not multiple countries,” Sletten said. “We don’t know where these dollar savings are going to end up in the economy.”
However, Sletten said that “it’s very difficult to predict” what the effects of the tax cut will be.
It is a “complex calculation when trying to understand what a corporate tax rate reduction means for the New Hampshire economy,” Sletten said.
