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New Hampshire’s economy keeps booming, and more residents are looking to themselves to create the next opportunity, according to the New Hampshire Secretary of State’s (NHSOS) Corporation Division.

The state reached the milestone of 100,000 LLC and corporation annual reports processed this year, a 7.5 percent increase over last year.

“The number of LLC formations in New Hampshire also continues to increase each year as a result of New Hampshire’s strong economy,” the NHSOS office said in a statement. “On average, over 2,000 new businesses are forming each month with our office, most of which are small businesses.”

The numbers are getting rave reviews.

“This is what a strong economy looks like,” Greg Moore, director of Americans for Prosperity/New Hampshire said on Twitter.

The Granite State is outperforming the rest of New England economically, becoming one of the country’s leading economies, with a population of just 1.4 million people. 

“Despite the national narrative around the state of the U.S. economy and a potential slowdown, New Hampshire’s economy is healthy and continues to attract entrepreneurs and new business owners given our pro-business climate,” said Michael Skelton, president and CEO of the Business and Industry Association, the statewide chamber of commerce and leading business advocate.

New Hampshire’s economy, freedom from sales and income taxes, and overall business-friendly environment is attracting more people to move here, and they are succeeding.

New Hampshire’s unemployment rate is a stunning 2.4 percent, a full percentage point below the national average of 3.4 percent. The poverty rate for the state is 7.2 percent, well below the national rate of 11.6 percent. On top of that, the state’s GDP rose again this year to $84 billion, up 2.5 percent from last year. 

More young people are moving to New Hampshire as well, as 25-29-year-olds looking to start careers after college are choosing the Granite State. New Hampshire is the second favorite destination in the age group, after Utah.

The influx of people attracted to New Hampshire’s freedom and independence means more people are starting businesses, the engine that is driving New Hampshire’s boom.

The state is also blowing past old records when it comes to export revenue. Last year, New Hampshire businesses brought home $1 billion more in revenue than they did in 2021, up to $7.3 billion in total.

The export revenue increase is just another reason for people to move to New Hampshire, Gov. Chris Sununu said at the time.

“I encourage any business, small or large, to make the Granite State their home. We are open for business!” Sununu said.

The number of LLC, limited liability corporations, formed in New Hampshire continues to increase each year as a result of New Hampshire’s strong economy, according to the Secretary of State’s Office. On average, more than 2,000 new businesses are forming each month with the state, most of which are small businesses, the NHSOS office reports.

“We understand business owners are busy, so we strive to make it as simple as possible for businesses to stay in compliance with the requirement to file their annual report,” said Thomas Connolly, Director of the Corporation Division. “Our corporate database is an essential tool to support business activity throughout the State.”

Senate Republicans want to help New Hampshire families succeed and stay healthy with a range of proposals as part of their newly unveiled 2023 legislative agenda. It covers taxes, school choice, access to healthcare, and the state’s First-In-The-Nation status. 

 “This year, we are making it our mission to focus on helping our struggling families who are facing rising costs across the board,” Senate President Jeb Bradley (R-Wolfeboro) said Wednesday at a State House press conference.” After enduring more than two years of hardships wrought by federal financial mismanagement, it is critical we continue to help our New Hampshire families.”

With the House of Representatives essentially tied between the two parties, the state Senate is likely to play an even larger role than usual in legislating. Bradley, who took over the top spot after the retirement of Chuck Morse, is seen by members of both parties as a savvy political operator who can navigate partisan political waters.

Bradley makes no secret of the fact he is focused on fiscal issues. He touted continued business tax cuts and pledged his party would “never, ever implement income, sales or capital gains tax.” He also said any budget surplus should go to property tax relief and the state’s Rainy Day fund.

While Republicans celebrated the additional cuts in Business Profits Taxes and Business Enterprise Taxes that took effect January 1, Democrats denounced them.

“These tax cuts are being downshifted to towns and WILL come back to hardworking New Hampshire families in the form of sweeping property tax increases across the board,” said New Hampshire Democratic Party communications director Colin Booth on Twitter. “But don’t expect the @NHGOP to take any credit when that happens.”

But state revenue has increased since the business tax cuts have begun phasing in, as has state revenue to cities and towns. In the last budget, the state provided $100 million to local governments to take pressure off property taxes.

Asked for data showing fewer state dollars going to cities and towns as a result of the business tax cuts, Booth declined to respond.

Senate Majority Leader Sharon Carson (R-Londonderry) focused on education in her remarks. “We will defend academic opportunities for our students by continuing to support our state’s Education Freedom Account Program and empower parents by providing transparency into their children’s learning environment.”

Carson also touted plans to “reform the state’s bail system,” which will likely undo previous changes that critics say have kept dangerous people on the streets.

“Our comprehensive agenda brings Granite Staters to the forefront. Exactly where they should be,” Carson said.

Senate Democratic Leader Donna Soucy (D-Manchester) said her conference will announce its agenda next week but previewed its goals of working on issues like property tax relief, access to affordable housing, and, of course, access to abortion up to birth.

“Protecting the civil rights of women should be one of the top priorities of the legislature and the Senate Democrats will never back down from supporting women making their own reproductive healthcare decisions,” Soucy said in a statement.

Democrats in Concord spent Wednesday trying and failing to allow for proxy voting and attendance via online video services like Zoom. Democratic House members have been suing the state for the last two years to allow members to attend sessions and vote remotely. They have yet to prevail in court, and their most recent appeal was rejected by the U.S. Supreme Court.

The other Democratic priority on Wednesday was trying to get the rule allowing members to carry concealed weapons in the State House changed. Democrats failed there as well, meaning House members will remain armed if they choose while in session.

The GOP, as part of its agenda, is also pushing for a law to protect New Hampshire’s First-In-The-Nation status in the presidential primary process. The Democratic National Committee announced new rules late last year that would force New Hampshire out of the top spot in the nominating process. Sen. Regina Birdsell (R-Hampstead) said Wednesday she plans to spearhead the effort to fight off any challenge to New Hampshire’s position.

“Unfortunately, we found that our historic tradition has been under attack by those looking to maybe repurpose it for their political gain,” Birdsell said. “Know that we will respond aggressively to anyone that attempts, like the DNC or anyone, who attempts to take that away from us.”

Political strategists see it as the third rail of New Hampshire politics, but some Granite State Democrats just can’t seem to let it go: A state income tax.

In a recent interview with the Keene Sentinel, Peterborough Democrats Jonah Wheeler and Rep. Peter Leishman both said they could support a broad-based income tax to shift the burden of education funding away from property taxes. 

“Wheeler said that to further boost public-education funding, he believes a new source of revenue is needed in the form of an income tax, which he said would simultaneously take the burden off property taxpayers,” according to the paper. “Leishman said he would support that kind of legislation and has voted in favor of it in the past.”

They aren’t alone.

During an October 2022 podcast interview, Claremont Republican-turned-Democrat state Senate candidate Charlene Lovett said she was “open to looking at” a shift to an income tax as well. During the interview, she discussed her Citizens Count survey declaration that she is  “undecided” on the idea of a broad-based income tax and the backlash that answer inspired.

But rather than taking a clear anti-income tax stance, she said it is an option that should be discussed.

“We’ve gotta deal with the fact we have an over-reliance on property taxes and it’s hurting people,” Lovett said in the podcast. “I think we have to look at that.” 

Lovett said her openness to considering an income tax is based on hearing from people financially burdened by property taxes during her years as mayor of Claremont. It has the highest property tax rate in the state.

While Lovett is trying to thread a political needle on the income tax, other Democrats are more open about embracing broad-based taxes — or at least on ruling them out.

Rep. Debra Altschiller (D-Stratham), who is running for the District 24 Senate seat being vacated by Tom Sherman, is one of many Democrats who voted against last year’s House constitutional amendment to ban income taxes. Joining Altschiller in that vote were Reps. Steve Shurtleff (D-Concord) and Matt Wilhelm (D-Manchester), currently locked in a battle for their party’s leadership.

Neither Shurtleff nor Wilhelm responded to an NH Journal question about whether they plan to support an income tax if they become House Speaker or House Minority Leader.

The amendment to ban income taxes garnered a majority vote but died because it failed to get the necessary three-fifths majority.

Rep. Eric Gallager (D-Concord) has long been vocal about his support for taxing Granite Stater’s income, but he seems to understand the political reality for Democrats.

“I can call for one because I’m in a safe D seat running unopposed,” Gallager said recently on Twitter. “But if I ever ran for governor I’d have to stop, which is one of the major reasons why I don’t ever think I’ll do so.”

Gallager’s sense of his political future aside, no Democratic gubernatorial candidate in recent memory has supported an income tax. Current Democratic standard bearer Sherman (D-Rye) has been vocal in rejecting income taxes and sales taxes in his faltering campaign against Gov. Chris Sununu.

“I will veto an income tax or sales tax if it comes across my desk,” Sherman told the Pulse of NH.

But Sherman did back a mandatory paid family medical leave plan passed by the Democratic legislature in 2019, which was paid for by a mandatory payment based on wages. Republicans argue that is an income tax (it is actually a payroll tax), but Democrats still continue to trip over the issue.

During a recent candidate forum in the District 1 Senate race, Rep. Edith Tucker (D-Randolph) tried to explain her vote for the paid leave plan and its funding mechanism.

“It’s not an income tax,” she insisted. “It’s a tax taken for a particular purpose from your paycheck.”

Granite State voters may not see the distinction.

When neighboring “Taxachusetts” was considering a hike in its already high income tax in 2013, many people in the Granite State welcomed the proposal.

“Welcome to New Hampshire!,” said Senate Majority Leader Jeb Bradley at the time. “We should be putting up billboards. We have long marketed New Hampshire’s attractiveness as a place to do business for precisely this reason.”

But recent research suggests that raising taxes and spending in one state can have substantial negative effects on people in neighboring states.

While border counties within a state that raises taxes are obviously affected by the change, about half the effect spills over to counties on the other side of the border, found Sam Peltzman, a researcher at the University of Chicago, in a study released last year.

Research suggests areas that rely on interstate business suffered in the wake of a 1 percent rise in a state’s taxes and spending. (Credit: University of Chicago)

Peltzman examined economies in neighboring states from 1975 to 2012. He measured employment levels, wages, and the number of businesses established after tax and spending policies were implemented. The results suggested that the economy of a border county shrank when its state’s taxes and spending increased, and local economies on the other side of the border were also impacted.

“The results in this paper tend to add weight to the view that larger state and local government is purchased at the cost of a smaller private sector,” Peltzman wrote in his study.

So why are two state’s economies, like Massachusetts and New Hampshire, so intertwined? Well, for many people who live in border cities and towns in the Granite State — Nashua, Londonderry, and Salem, to name a few — they commute everyday to the Bay State for work.

When Massachusetts was considering a bump in the income tax, many residents who lived in or near Nashua said they would feel the effects of it when they took home a smaller paycheck. If they take home a smaller paycheck, they have less money to put back into the economies of the towns where they live.

Even New Hampshire businesses near the border can feel the impact of tax changes in the state south of the border.

Massachusetts changed its sales tax to include a “tech tax,” a 6.25 percent sales tax on computer and software technology services, which went into effect in 2013. It was a short-lived tax, quickly being repealed by former Gov. Deval Patrick, but even New Hampshire businesses with a physical presence in Massachusetts that provided Bay State customers with services covered by the tax had to pay it. A “physical presence” could mean having one sales representative with a home office in Massachusetts, according to some interpretations of the law.

In 2014, the Bay State also made some changes to its corporate income tax that impacted some New Hampshire businesses. It applied to any service-based business that has Massachusetts customers, like law firms, medical providers, and consultants, or businesses that sell some intangible products used in Massachusetts like the licensing of software.

These companies now have to pay an 8 percent tax on the revenue derived from those Massachusetts clients. Before, a New Hampshire company’s revenues collected from Massachusetts would be used to calculate the business profits tax (BPT) owed to New Hampshire. But now, businesses are double taxed. A company still must count all of its revenue for New Hampshire’s BPT, but the revenue collected in Massachusetts needs to be counted and taxed by the Bay State.

It can be a complicated system and, sometimes, New Hampshire businesses don’t even know when they would need to pay Massachusetts taxes. In turn, some companies think twice about doing business or hiring out of state for fear of having to pay more money to another government, which could affect their bottom line.

“State tax structures can create cross-border issues in a number of ways, including positive economic development in bordering communities that are able to draw businesses and individuals into the state as well negative impacts from tax policy decisions that create adverse tax climates causing individuals and businesses to leave the state for a preferential neighboring state,” said Kathryn Michaelis, an attorney in the tax practice group at the Rath, Young and Pignatelli law firm in Concord.

It’s not all doom and gloom for New Hampshire residents and businesses paying Massachusetts taxes. Many Massachusetts residents cross the border because New Hampshire has historically one of the lowest tax rates on cigarettes in the region, a lower gas tax, no tax on liquor sales, and no sales tax. This strategy allows the state to net revenue on the sales, despite the absence of a tax, which makes it appealing to other businesses and consumers, and pumps economic activity into the cities and towns on the border.

At one point, Massachusetts tried to capitalize on the cross-border purchases by challenging in court that they should collect taxes from a store that sells tires to Massachusetts residents in New Hampshire. A court disagreed.

But New Hampshire still struggles economically on several fronts, including high electricity costs, expensive property taxes, and a high cost of doing business in the state. Both Massachusetts and New Hampshire employees get paid more than average American workers, driving up employers’ labor costs.

“While a favorable tax climate may draw in businesses to a bordering community, the state and local officials must always be careful to not offer tax incentives or subsidies or restructure the tax system in such a way that it creates too much of a cost burden on the locality or state in the long-run,” Michaelis told NH Journal. “Each state and local jurisdiction needs to find balance in retaining and recruiting business while ensuring that its revenue remains steady to support government services.”

New Hampshire worked hard in the 1980s and 1990s to have the “New Hampshire Advantage” where students would graduate school, go to college, and eventually return to raise families and work. People from Massachusetts, New York, and New Jersey moved to the state and businesses would have access to this cluster of highly educated and skilled workforce.

By the 2000s, positive net migration stopped, college graduates moved away, and New Hampshire’s business climate was not as diverse. Now, politicians are trying to figure out how to deal with a workplace shortage and make New Hampshire an attractive place for businesses.

One way the Republican-controlled State House sees on getting their advantage back is through right-to-work laws, which would prohibit public and private sector unions from charging non-members fees for negotiating on their behalf. If passed, New Hampshire would become the only state in the Northeast to have a right-to-work law.

The cross-border economic relationship is not unique to Massachusetts and New Hampshire. Illinois and Indiana have a similar relationship, with my many people leaving Illinois due to its high taxes. The same is true for New Jersey and Delaware, where a high gas tax in the Garden State could benefit Delaware, yet both have high property taxes. What tax policy is passed in one state could spill over into its neighboring states.

Carl Davis, research director for the Institute on Taxation and Economic Policy, said it can be difficult to isolate the taxes and determine if economic growth or hinderance is a result of an increase or decrease in taxes.

“It’s not cut and dry,” he told NH Journal. “It’s hard to look back and see if a state raised taxes because they have a poor economy or because of their taxes, their economy is doing well. There are always trade-offs.”

But for New Hampshire and Massachusetts, the economies and tax policies of the two states seem to be fairly linked for its residents, businesses, and communities.

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