Dems seek to halt business tax cuts to ease property taxes

The state Senate is weighing a bill that aims to re-institute municipal revenue sharing for the first time since the Great Recession for the purposes of easing the burden of local property taxes by suspending further reductions of state business taxes.

Senate Bill 301, sponsored by Democratic Sens. Dan Feltes of Concord, and Donna Soucy of Manchester, prevents further reductions of the business profits and business enterprise taxes, which were decreased to 7.9 percent and .675 percent, respectively during Republican Gov. Chris Sununu’s first term. The bill is currently being debated in the Senate Ways and Means Committee.

The bill projects to produce an additional $36.6 million in 2020 and $55.5 million in 2021 in tax revenue, according to its fiscal note. Soucy said the legislation assumes the state’s economy continues along its current trajectory, boasting the nation’s second lowest unemployment rate at 2.5 percent, according to the Bureau of Labor Statistics. In total, the legislation estimates business tax revenue would generate nearly $750 million year-over-year by maintaining the current rates.

“The bill assumes no significant economic swings in one way or another,” Soucy said. “We see stabilizing the rates as the final stage of the business taxes being reduced. Businesses have seen the benefit of the reduction. There isn’t much in the governor’s (proposed) budget in terms of property tax relief for families, so we see this as a way to benefit both businesses and families.”

The additional revenue would then be distributed to the state’s cities and towns via the Treasury Department using a formula based on a municipality’s size, the amount of property taxes paid in a given community and an equalization of the value of property Feltes, said. The bill is supported by the New Hampshire Municipal Association, which sent representatives to testify on behalf of the bill in committee, according to the association’s Feb. 15 “Legislative Bulletin.”

“This bill accomplishes two things,” said state Sen. Jon Morgan, D-Brentwood. “We’re halting further cuts to the business profit tax and business enterprise tax, and prioritizing who should get tax relief. I can’t tell you how many individuals who I have spoken with who tell me they are getting priced out of their homes because their property taxes are too high.”

The benefit to municipalities would be significant. For instance, Exeter Town Manager Russ Dean said Exeter previously received roughly $280,000 in additional revenue sharing from the state to offset the property tax rate of 7.25 percent at the time, before the practice was ended by the Legislature. Another bill before the Legislature would restore 15 percent of state contribution to municipal employee retirement costs, meaning the state would kick in nearly $270,000 out of Exeter’s total obligation of nearly $1.8 million in 2019.

″(State retirement contributions), plus general revenue sharing would mean approximately $550,000 annually back to us,” Dean said. ”(It’s) a significant chunk of money which would be used to lower the tax rate.”

Dean added revenue sharing would potentially benefit a community undergoing a major capital project such as Exeter’s new $53.8 million wastewater treatment facility, which the town receives 5 percent of the project cost, or $2.7 million. Dean said if the contribution was increased to 20 percent, it would result in an additional $8 million to $10 million reduction in cost to Exeter ratepayers.

Morgan said the legislation was filed in part as a response to Sununu’s business tax cuts, which Democrats have argued continued to downshift costs onto cities and towns in order to subsidize the tax benefits to businesses and large corporations.

“The assumption is the (economic) stabilization has already occurred. This bill is not costing the state any additional money and it is not a tax increase,” Morgan said. “We’re making sure hard-working Granite Staters are getting the property tax relief they need, rather than the tens of millions of dollars we’ve given away to the wealthiest out-of-state corporations by cutting the business profits tax and business enterprise tax.”

In response, a representative from Sununu’s office said the governor does not support SB 301 as currently written, and viewed it as an attempt to undermine his agenda in pursuing lower business taxes for New Hampshire companies, which he attributed to the economic growth the state has enjoyed under his tenure.

“A healthy business cycle is predicated on certainty. Our businesses small and large order many of their affairs according to our government’s long term plans - it is irresponsible governance for the Legislature to ping pong core tax policies every two years,” Sununu said in his state budget address Feb. 14. “High taxes come at the high cost of the erosion of our state’s economic competitiveness. We should not, and cannot turn back now.”

Sen. Bob Guida-R, Warren, also a member of Ways and Means, said because SB 301 halts further reductions in the business profits and business enterprise taxes that statutorily went into effect Jan. 1 under Sununu’s tax cuts, the proposed legislation does amount to a tax increase. He said he was in favor of restoring municipal revenue sharing, but did not provide a specific policy proposal on how to do so until the Senate voted on other bills that together added $10 million in spending outside of the proposed budget.

“I believe we can do both in leaving the tax reductions in place and give money back to the municipalities with a solution that’s much less onerous on businesses,” Guida said. “The economy isn’t broken, it’s roaring. I say if it isn’t broken, don’t fix it. Businesses are operating on 3-, 5-, 10-year projections and those are based on certainty.”

Burlington hopes to phase out tax to attract business

BURLINGTON, Vt. (WCAX) It's no secret it can be expensive to live and shop in Burlington. But there's an extra cost you may not even realize you're paying. Every time you shop at a store in Burlington, a business tax is being passed on to you. Business owners say they have to raise prices to pay the antiquated tax. But as our Neliana Ferraro learned, the Burlington City Council hopes the tax won't be around for much longer.

"I mean, the list of taxes is as long as your arm," said Mark Bouchett of Homeport in Burlington.

Business owners in Burlington are weighed down by a lot of taxes and fees. Homeport on Church Street, for example, has to pay an additional 1 percent sales tax, a meals and rooms tax, a Church Street Marketplace fee.

"The reason why we complain about them is not because we don't want to pay them; we don't pay them. Our customers pay them," Bouchett said.

That sometimes means upping prices for you.

All businesses also have to pay the business personal property tax. Owners have to tally their assets-- that's computers, counters, signs, display cases, dumpsters, heavy equipment and even things as small as calculators.

"It's a tax that's difficult for businesses to comply with and we get huge complaints from our business community about this," said Mayor Miro Weinberger, D-Burlington.

The Burlington City Council hopes to phase out this business personal property tax between now and 2026.

"Across Vermont and across the country, you have seen municipalities move away from this particular tax," Weinberger said.

The tax can sometimes discourage businesses from coming to the Queen City and staying competitive.

"My son just closed a business down the street for just these types of reasons," Bouchett said.

He had to make a tough choice to close Juice Box in Burlington and keep the one in Berlin.

Bouchett says jumping to another city is always an option for Homeport, too.

"It's always on the table," he said. "It's on the table for us every day."

Many communities don't collect this tax anymore. There are only 30 towns in Vermont that still have it in place. In Chittenden County, only Winooski and Burlington make businesses pay the tax.

There will be public hearings over the next few weeks where you will be able to give city leaders feedback on the proposal. They'll make adjustments and bring the final plan up for a vote on Town Meeting Day.

An unacceptable price for low business taxes

The Labour pledge to raise corporate taxes (Report, 10 May) is the economically responsible reaction to the failures of corporate tax competition. The deductive mathematical models from supply-side economics that justify low corporate taxation assume that "the state" is purely self-seeking and "the firm" an efficient bundle of contracts that creates wealth. They ignore the historical functions of actual states as the primary force for social integration and development in capitalist systems. They ignore the shift of actual large corporations away from the "retain and reinvest" model of the post-war period to the extractive "downsize and divest" model of the present, to use William Lazonick's terms.

Supply-side theory insists that reduced corporate taxation equals increased productive investment and long-term wage growth, but where is the evidence for this outcome? The "competitively" lower taxed UK has seen slower improvements in productivity than Germany, France, Sweden, Norway or the US, which retains the highest corporation tax of all. British business expenditure on R&D as a proportion of GDP has declined in the last decade and the UK has suffered a historic drop in real wages. In an era of unprecedented corporate profits and high cash holdings the evidence for the redundancy of tax relief is remarkable: UK corporate tax cuts have apparently translated straight into higher shareholder payouts and share repurchases to further inflate the share price: ie they have been absorbed into the prevailing US and UK dynamic of financial value extraction that underpins the escalating wealth of the 1%, not an investment dynamic.

Investment funds typically consider a dividend payout ratio (the relationship of payout to earnings) of over 55% as indicating a drain on long-term earnings potential and unsustainable. By August 2016 the ratio for the FTSE 100 stood at 107%.

Large corporations may decry Labour's tax policy but the OECD evidence is that firms intent on long-term investment (rather than, say, mergers and acquisitions to secure tax breaks) are primarily concerned with the skills base, infrastructure and R&D. Labour's corporate tax policy is essential not just to help pay for this human and fixed capital investment but to wean large UK firms off the crack of wealth extraction and back to wealth creation.

4 Ways Trump Could Change Your Business Taxes

In a small town in northern Michigan, Daniel Walsh, the CEO of Purebacco USA, has been spending a lot of time analyzing his company's taxes. Besides state and federal taxes, the Gaylord, Michigan-based vaping-components manufacturer pays use taxes, interstate taxes, payroll taxes, import taxes, property taxes, business-property-use taxes, and out-of-state purchase taxes. Tack on tax compliance and administration costs, and he can kiss 60 cents on every dollar of profit goodbye--and that doesn't even include sales taxes, which he says amount to another 6 to 10 cents.

"When you hit that 90 percent tax level, there is just not that much incentive to doing business," says Walsh, whose company landed at No. 169 on the 2016 Inc. 5000 list of the fastest-growing private companies in America. "We're really not far from that."

So President Donald Trump's promise to slash the federal corporate tax rate is welcome news. "Tax is a big deal to us," says Walsh, whose 12-person company brought in $3.1 million in revenue in 2015. "We've been pulling back one region at a time since the business climate is so hostile."

Like Walsh, business owners across the U.S. are following Trump's tweets, speeches, and executive orders closely--eager for any indication that he'll make good on campaign promises to cut the federal corporate tax rate in half.

In a recent discussion with airline CEOs, Trump noted that there would be an announcement that would be "phenomenal in terms of tax" in the next two to three weeks.

While details are thin, if it's anything like what Trump put forward on the campaign trail, chances are good that as many businesses will be pleased as are dissatisfied--and you'll need to potentially make major course corrections to your business as a result.

"Doing large-scale tax reform is still a difficult thing, and it does involve winners and losers," says Joseph Rosenberg, a senior research associate at the Urban-Brookings Tax Policy Center, a nonpartisan tax-policy research organization in Washington, D.C.

Here's a look at four key ways your business's taxes could change, for better or worse.

1. Your tax bill could drop, or not
The president has, at various points on the campaign trail, called for lowering the federal corporate tax rate to 15 or 20 percent from the upper-level range of 35 percent. And while he has said the measure would apply to all businesses, both small and large, it's not yet clear if pass-through entities like LLCs and S Corps will be included. Most small businesses are structured as pass-through entities, which means a business's income is taxed on an owner's individual return.

The president may choose to favor a plan put forward last year by House Speaker Paul Ryan (R., Wisconsin) and Ways and Means Committee Chairman Kevin Brady (R., Texas). That proposal, named A Better Way, offers to create a separate low tax rate of 25 percent for small businesses. (Under that plan, bigger businesses would pay just 20 percent.)

Related: Small Retailers Grapple With Trump's Plan to Transform the U.S. Tax System

Of course, tax cuts have a price. Trump's revised tax plan, which he released in September and which includes cutting the corporate tax rate to 15 percent, is expected to reduce U.S. federal tax receipts by $2.35 trillion over 10 years. Should pass-through businesses see this same tax break, the cost would tick up another $900 billion to $1.5 trillion over the same period, according to the Tax Policy Center.

2. Your import costs could jump
To account for some of the loss, the president is considering a policy known as a border adjustment, which would add a 20 percent tax on all imported goods. The Better Way plan from the House, which holds the border-adjustment proposal as its reform centerpiece, would transition the U.S. to what it calls a destination-basis tax system. So instead of basing a company's federal tax liability on both the location of production and the location of the company, it would stem from the location of its sales.

"That's probably the most controversial part of the tax plan," says Robert Willens, an independent tax and accounting analyst in New York City. "It would convert the system from income based to hybrid sales tax."

Should it pass, the border adjustment is expected to raise $1.2 trillion over 10 years, according to the Tax Policy Center. The president has considered more tactical options, including a tariff on U.S. companies that manufacture outside the U.S. and a 20 percent tax on just Mexican imports. However, he could wind up favoring the border-adjustment proposal, as it is more comprehensive and thus more lucrative. That could help him fund his tax cuts.

3. You may have to pay federal taxes on overseas earnings
Another revenue raising effort favored by the president--which has more big business implications--is what's called "deemed repatriation" of currently deferred foreign profits. It is estimated that U.S. companies like Apple have as much as $2.5 trillion in cash sitting overseas. Under the proposal, these companies would be compelled to bring those proceeds back to the U.S. and pay taxes, at a rate of 10 percent over 10 years. Like a repatriation tax holiday, a deemed repatriation would generate one-time federal revenues.

An earlier version of Trump's tax plan held that a deemed repatriation would pair with eliminating U.S. companies' ability to defer paying taxes on income earned outside the U.S. That element was omitted from his revised tax plan, so it's unclear how he would handle non-U.S.-generated income going forward.

The House Better Way proposal suggests implementing a "territorial" system of taxes by way of a 100 percent exemption for dividends from foreign subsidiaries of U.S. companies. Translation: "It allows for the tax-free repatriation of earnings," says Willens.

4. You could lose almost all federal business tax credits
Trump is also calling for eliminating all but one federal business tax credit, for research and development. That includes putting limits on some companies' ability to deduct interest expenses, which could make financing capital asset purchases or servicing bank loans more costly, says Rosenberg. Currently, most companies can deduct interest expenses.

Under the latest version of the Trump tax plan, U.S. manufacturing companies can elect to expense investments in equipment, structures, and inventories--deducting them immediately--rather than depreciating these purchases over time, as current law requires. Businesses that elect immediate expensing would not be allowed to deduct interest expenses.

It's worth noting that there's disagreement within the tax community about whether this option would be given only to U.S. manufacturers. Trump has made statements suggesting that he may open up the option to all businesses.

The House Better Way plan, by contrast, doesn't provide an option. It simply allows expensing for all businesses without the ability to deduct interest paid. "They don't like that the tax code [currently] encourages leveraging," says Willens. "They would eliminate the preference for indebtedness."

Whatever the downsides may be, you won't hear Walsh complaining. "I'm excited about whatever Trump's tax plan is. He's a businessman," he says. "Hopefully the new laws will bring us some relief."