New Hampshire is a great place to live, work, and raise a family. Incredible natural beauty, low crime rates, and worker-friendly tax policies create a climate of opportunity.
Unfortunately, we continue to lag in business tax competitiveness. In October, the Tax Foundation, a well-respected nonpartisan group dedicated to sound tax policy, ranked New Hampshire’s business tax system 37th in the country — behind New York, Connecticut, Rhode Island, and Massachusetts.
Our state relies heavily on businesses, small and large, to fund government operations and services. Together, the Business Profits Tax (BPT) and Business Enterprise Tax (BET) are the largest revenue sources for the state, bringing in more than three times as much money as the next-largest tax.
According to state data, the share of General and Education Fund revenue from business taxes grew from 25 percent in 2015 to 39 percent in 2023, even as the state reduced business tax rates to improve competitiveness.
And this does not include direct and indirect business payments toward the Statewide Education Property Tax, insurance taxes, and more.
As New Hampshire works its way through a period of economic uncertainty with diminished tax revenues, it should adopt pro-growth tax reform to drive greater investment and improve the state’s competitiveness.
Boosting private-sector growth and exercising fiscal restraint will benefit the entire state.
Four key tax changes would allow small businesses — the blocks of granite on which New Hampshire’s economy is built — to invest more in their workers, facilities, equipment, and communities.
Employment Tax Relief. Already on the table is a proposal to lower the BET rate from 0.55 percent to 0.50 percent. This continues a decade of bipartisan reform aimed at improving business tax competitiveness.
In a nutshell, the BET is a tax on employment. A simple and true maxim in public policy is that if you want less of something, tax it.
Finding qualified workers has been and will continue to be a major challenge for small employers. Reducing taxes on employment will help them hire and grow their workforce.
Section 179 Expensing. The nonpartisan Tax Foundation cites New Hampshire’s relatively low limits on capital investment deductions for small businesses as a drag on the state’s business tax competitiveness.
Named for its place in federal law, Section 179 allows businesses to deduct the cost of investment in certain buildings, vehicles, and equipment in the first year of purchase. This year’s federal tax bill permanently doubled the annual deduction from $1.25 million to $2.5 million. New Hampshire’s deduction has been stuck at $500,000 for years.
Inflation remains one of the top small-business problems, behind only taxes and workforce challenges in small-business surveys. In addition to boosting investment, increasing the state’s Section 179 deduction would help offset inflation by recognizing the full value of an investment in present dollars and freeing up additional funds to continue growing.
Net Operating Loss (NOL) Carryforward. The state’s limit on NOL carryforward is another mark against our competitiveness. It takes years for most businesses to become reliably profitable, and annual revenue often varies even for established firms.
The 2017 federal tax bill allowed businesses to carry NOL to any future year. New Hampshire limits the carryforward to a period of 10 years.
Allowing businesses to carry forward net losses establishes a more accurate financial picture and basis for taxes owed. This restriction is particularly detrimental to small businesses that lose money in their nascent years or experience a large loss as part of a cyclical downturn, followed by modest profits as the business gains its footing.
100 Percent Bonus Depreciation. Bonus depreciation allows businesses to deduct a larger amount of certain capital expenses up front, rather than having to spread the deduction over decades. It can be utilized on top of Section 179 or on its own. Local small businesses see both direct benefit and downstream impact from others’ investments.
Federal lawmakers made 100 percent bonus depreciation permanent earlier this year. New Hampshire does not allow bonus depreciation.
Whether adopted all at once or phased in over time, these four reforms will help secure our state’s economic future, improve our business tax competitiveness, and make it easier for more small businesses to take the risks necessary to flourish and thrive.
We want New Hampshire to remain the economic engine of New England and a national leader in entrepreneurship. Pro-growth tax reform will help us lead the way.
