Week Six - February 12, 2010

This electronic publication, known as The Advocate, is brought to you each Friday by your Greater Nashua Chamber of Commerce, in partnership with our friends at Devine Millimet & Branch, and ActiveEdge. Please use this piece to review what has happened in Concord this past week, read about our Chamber's lobbying efforts relating to those activities, and preview what we are doing on behalf of our Chamber members in the coming week.

This Week’s Update

Lots to cover again this week in the Advocate.

Chamber Weighs In Again On Reasonable Compensation Changes

On Tuesday, the House Ways & Means Committee held a hearing on a revised version of HB 1607, the House’s vehicle for addressing the reasonable compensation problem. Chamber President Chris Williams and Advocacy Committee Chair David Heath both testified before the Committee. David clearly had the full attention of the full committee, who spent half an hour listening to his thorough primer on the issue and highlighting both the good and the bad elements of the newest amendment that triggered the additional hearing in the first place. In a nutshell, David said that, while the amendment is a good step in the right direction, further work is needed to ensure a much better safe harbor for individual investors in a LLC (the latest amendment limit the safe harbor to $50K for the entire entity, rather than allowing a safe harbor for each investor in an entity), among other more technical corrections.

After many hours of discussion over the course of several weeks, the Ways & Means Committee is getting close to the end on this one. The Committee is likely to vote on the bill over the next two weeks, and then the bill is off to the House floor. As things are shaping up, the end of the session is likely to see competing House and Senate versions of solutions to this sticky problem.

Senate Rolls Out Another Reasonable Compensation Fix

Speaking of competing solutions, the Senate Ways & Means Committee will hold a hearing a hearing next Tuesday on SB 497, the Senate’s bipartisan version of a reasonable compensation fix. The Chamber is supporting this bill and it seems evident that most if not all of the businesses organizations in the state will be coalescing around this one, of all the other versions out there.

Overall, SB 497 serves the important purpose of providing some definitive guidance to businesses. We understand that the number of audits conducted over the past five years by DRA concerning reasonable compensation has increased dramatically. SB 497 provides greater clarity for businesses as they try to decide how to deal with their tax planning.

The bill establishes two “safe harbors” for businesses with respect to the determination of reasonable compensation. The first is a self-employment safe harbor. Under that provision, a business can utilize the numbers it files with the federal IRS. This means that, instead of trying to make some sort of guess at what DRA would consider to be reasonable compensation, a business can simply use the numbers from its federal filing. A business can definitively know that it has paid out “reasonable compensation” if the business has paid federal income tax and withholdings on that amount. The second safe harbor is the “independent investor” test. This is also based on numbers in federal returns, and looks at the expected rate of return on investment.

Another section of SB 497 deals with reforming the interest and dividends tax. The bill repeals some of the antiquated aspects of the New Hampshire I&D system, and once again references federal provisions to give businesses a level of ease and certainty in their tax planning and tax filing.

Senate Ways & Means Committee Hears Major Tax Bills

On Tuesday, before a packed house, the Senate Ways & Means Committee took up three tax-related bills sponsored by Senator Jeb Bradley: SB 473, which makes distributions from limited liability companies, partnerships, and associations subject to the interest and dividends tax only if they have transferable shares; SB 474, which reduces the rate of the meals and rooms tax and repeals the tax with respect to campsites; and SB 476, another reasonable compensation bill, which puts the ultimate burden of proof on DRA to prove that a claimed deduction is “grossly excessive.” The Chamber supports all three bills, and Chamber President Chris Williams testified in favor of SB 473 and SB 476. As he noted in his testimony, “The Chamber has been a consistent advocate of pieces of legislation which are designed to strengthen the business climate, encourage economic development, and allow businesses in New Hampshire to flourish. It goes without saying that the health of the New Hampshire economy depends on the small businesses of New Hampshire, which are the job-creating engines within the State.”

Property Taxes On Telephone Poles?

The bills dealing with taxes just keep coming. The Chamber this week supported SB 492, which would extend the telecom poles exemption under the CST. Under current law, although telecommunication providers pay the communication services tax, they are exempt from paying local property taxes on their poles, wires and conduits. That exemption is slated to sunset on July 1, 2010. As a result, SB 492 was filed in order to keep that exemption in place until at least 2014. The hearing on this bill pretty much shook out as a contest between business groups and telecommunication providers such as FairPoint and Comcast on one side, and the NH Municipal Association on the other. It all boils down to one question: whether or not we want to allow for a new tax in New Hampshire. If the exemption is repealed, local governments will have the ability to tax this telecom property, and the costs of those taxes undoubtedly would be passed on to the customer. Nashua’s own Senator Bette Lasky, who testified in support of the bill, put it very well: “We want businesses to set up in Nashua, and not five minutes away in Tyngsboro.” This bill has a lot to do with not creating competitive disadvantages for New Hampshire businesses.

The Looming Problem of State Revenues

Looming large in the background of all these tax bills is the issue of state revenues. This week, Governor Lynch told his department heads that they need to cut $140 million more from their budgets by the end of the 2011 state fiscal year. This is expected to hit the Department of Health and Human Services especially hard, as DHHS represents the biggest part of the state budget. Commissioner Nick Toumpas has been meeting with stakeholders and with key legislative committees to lay out his plans for meeting what is projected to be a $43 million shortfall in the HHS budget at the end of this fiscal year in June. Commissioner Toumpas has made it clear to stakeholders that the current round of cuts falls short of taking care of the whole, and that another round of cuts to the tune of about $13 million will be necessary by June 30.

There is always the temptation under such circumstances to try to shift costs to businesses like hospitals and nursing homes because of the mistaken perception that they are in a position to absorb cuts better. So, we will be keeping an eye on this.

Another temptation which the State is likely to have is to focus on the short-term revenue shortfalls to the detriment of longer range solutions such as an increase in the net operating loss limits, as proposed in SB 483. The Chamber has always stood by the belief that a rising tide floats all boats. The best way to maximize revenue is to foster business growth and create new jobs. That will happen if businesses have money to invest.

Acknowledgements

This weekly update is made possible by the generous support of Devine Millimet & Branch, one of the state’s top law firms and our Chamber’s contracted representative in Concord. If your business has a legislative or local issue that needs strategic consulting and attention, they are a valuable resource that can help navigate you through both local and state processes.

This weekly update is designed and maintained by our friends at ActiveEdge, and we thank them for their help in delivering this piece to your inbox every Friday!

If you have questions about this update, or comments to share with us about other issues in Concord, please email Chris Williams at cwilliams@nashuachamber.com. We want to be sure we're representing you to the best of our ability, so do not hesitate to reach out to us!

J. Christopher Williams
President & CEO
Greater Nashua Chamber of Commerce
151 Main St.
Nashua, NH 03060
Phone: 603.881.8333
Fax: 603.881.7323