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With the tax filing deadline fast approaching, a new analysis finds New Hampshire residents have the lowest tax burden in New England and one of the lowest nationally.

Meanwhile, just across the line in Massachusetts, soaring taxes on top earners are sending them fleeing to low-tax states like Florida and, yes, New Hampshire.

The new WalletHub analysis uses a metric of income taxes, sales taxes, and property taxes to calculate overall tax burdens. New Hampshire has the third lowest overall tax burden, trailing just Alaska and Delaware. New Hampshire’s performance is even more impressive when compared to other states in the region. Three of the five states with the highest tax burden are in New England (Maine, Vermont, and Rhode Island).

New Hampshire is the only New England state not in the top 20 for tax burden.

State Senate Finance Committee Chairman James Gray (R-Rochester) said New Hampshire’s low taxes and efficient government are some of the reasons for the state’s economic success. “There’s an awful lot of people who choose New Hampshire because we are fiscally responsible with our money,” Gray said.

A different Wallethub analysis last week ranked New Hampshire number one for taxpayer return on investment.

The one glaring exception was property taxes. Granite State homeowners have the third highest property tax burden in the country, according to WalletHub, behind Maine and Vermont.

Gray said New Hampshire’s reliance on property tax to pay for services like education gives voters the most control over their money possible. He said that local control likely results in lower spending and taxes than if the decisions were all made in Concord.

“You have to have something to run a government by, and a lot of the things that we fund, especially schools, we pay for through a property tax,” Gray said. 

The effects of New Hampshire’s low taxes and efficient spending don’t end at the border. A new report from the Massachusetts Society of CPAs on the impact of the Bay State’s new “millionaire’s tax” — which raises the top state income tax rate to nine percent — says 82 percent of CPAs report they have high-income clients seriously considering relocating in the next 12 months. 

And tax-free New Hampshire is near the top of their list of potential destinations.

“Florida and New Hampshire are overwhelmingly the most popular choices for relocation,” the CPA report states. “While some may argue that a move to Florida is driven by a desire for better weather and a different lifestyle, the fact that the second most popular destination is New Hampshire suggests that people want to stay in the area but may be motivated instead by a lower cost of living, including a lower tax burden.

“Furthermore, New Hampshire is set to repeal its Interest and Dividends Tax by 2026, which would decide to relocate even more appealing.”

Granite State Democrats tried but failed to push through legislation reversing the repeal of the interest and dividends tax for people earning $50,000 or more per year.

New Hampshire already has the strongest economy in New England, with low unemployment and low poverty rates. The Live Free or Die state’s commitment to low taxes will help it stay in the pole position, according to Joseph Krupka, an accounting professor at Florida State University.

“Here is a simple answer, the lower state tax burden will drive the state economy. Corporations seek state tax incentives when developing long-term strategies for where to locate new facilities such as plants and offices,” Krupka said. “Reduced corporation and real estate tax burdens along with a favorable personal income tax for their employees are the two keys.”

Gray knows there are a lot of factors considered by business owners who want to relocate, from infrastructure and energy costs to the local labor supply. Some states even offer financial incentives that New Hampshire does not currently match. But, he said, New Hampshire will keep to its low-tax structure.

“That’s just the way we do it,” Gray said. 

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.”

U.S. Rep. Chris Pappas says the Biden’ Build Back Better” plan he voted for last Friday “is fully paid for and will reduce the deficit by $112 billion.”

Rep. Annie Kuster also says the bill “is fully paid for” by “making super-wealthy corporations and the top one percent pay their fair share.”

But nearly every economic review of the legislation, including the Congressional Budget Office analysis they both claim to rely on, says the bill will add billions in new debt. And the nonpartisan Committee for a Responsible Federal Budget (CRFB) projects the actual cost of the bill is closer to $5 trillion.

That is just one aspect of the budget reconciliation bill Kuster and Pappas helped pass in a straight partisan vote (Maine’s Rep. Jared Golden was the only Democratic “no” vote) that has received little attention from New Hampshire’s media. Democrats say the Child Tax Credit monthly checks, increased healthcare subsidies, and taxpayer-funded pre-K for all will be popular with voters. And they may be right. But there are other details almost certain to appear in campaign ads next year.

ADDING TO THE DEBT

New Hampshire’s congressional delegation touted their votes when the House bill passed last week, even as the Congressional Budget Office released a report indicating the $1.75 trillion social spending bill could increase the deficit between $160 and $360 billion over ten years, despite Biden administration promises the spending will be covered by increased taxes.

And the CRFB points out the Democrats’ plan includes ten years of revenue, but only includes spending on some of the largest items for five years — or even one. For example, the Child Tax Credit sending monthly checks to couples earning up to $150,000 costs $130 billion. But Democrats only include it in their 10-year plan for just one year. Assuming the checks don’t stop in 2024 — an election year– and instead last for the entire 1o years, the actual cost is an additional $1 trillion. None of which is paid for in the current plan.

BENEFITS FOR ILLEGAL IMMIGRANTS

Under the Trump administration, recipients of the monthly Child Tax Credit checks ($300 per child under age six and $250 for each child ages six to 17) had to have Social Security numbers. Under the Build Back Better bill passed by Kuster and Pappas, that requirement is gone, allowing many more people in the U.S. illegally to collect the taxpayer-funded benefit.

The bill also includes a 10-year “amnesty-lite” program in the form of work permits, Social Security numbers, eligibility for welfare benefits, and the ability to get a driver’s license for some 4 or 6 million illegal immigrants. The Washington Post calls it “the largest mass-legalization program for undocumented immigrants in U.S. history.”

TAX CUTS FOR THE WEALTHY

The Biden budget lifts the cap on state and local tax (SALT) deductions for federal filers from $10,000 to $80,000. Few Americans — and very few Granite Staters — pay $80,000 in state and local taxes. According to the left-leaning Tax Policy Center, the top 20 percent of earners would reap more than 96 percent of the benefits of a SALT repeal, and the top one percent of all earners would see 57 percent of benefits.

Lifting the SALT deduction cap helps subsidize the costs of high local taxes in places like Massachusetts, New York and California. But it does little for the taxpayers of the Granite State. The roughly 10 percent of folks in New Hampshire who itemize deductions only receive about 0.4 percent of the total SALT deduction benefits.

MASSIVE INCREASE IN THE SIZE OF THE IRS

Public pressure killed the Biden administration’s plans to increase bank reporting requirements to reach more lower-income earners — a plan supported early on by both Kuster and Pappas. However, House Democrats did vote to drastically increase the size of the IRS in hopes of collecting more tax revenues.

Democrats voted to add $88 billion of new funding for the IRS, including $45 billion dedicated to enforcement and $4 billion to administer green energy initiatives. The biggest expense will be some 80,000 new IRS agents to conduct audits. The revenue target set by the legislation is $400 billion in additional tax collections over ten years. Given that high-income earners tend to have tax attorneys handling their finances, many observers believe this $40 billion a year will come from small business owners and upper-middle-class individuals.

Democrats dismiss this data, arguing the benefits of the bill outweigh any problems.

“This legislation will lower taxes while bringing down the cost of the everyday expenses that burden so many Granite Staters,” Pappas said. “It will invest in a strong workforce that will help our small businesses and economy thrive. It will lift up working people, give our kids the best head start we can, and chart a course for a healthier, stronger, more resilient future.”

Legislators in Concord are about to add another layer to the already challenging cost of doing business in NH by abandoning the last steps of modest reductions of the state’s two major business taxes. In 2015, the Business Profits Tax (New Hampshire’s corporate income tax), an assessment on all profits earned by a business, was 8.5%. The Business Enterprise Tax, which is primarily based on total compensation businesses pay employees, was 0.75%. The state’s corporate taxes were among the highest in the country. Combined with one of the nation’s highest energy costs, a limited labor market, and high housing costs, legislators will be making it more difficult to attract new companies and retain those already doing business in the state.

Recognizing the economy was improving and wanting to stimulate further growth, the democratic governor and republican legislature at the time agreed to reduce business tax rates in small steps over several years. For the taxable period ending in 2016, the BPT went down to 8.2%. For 2018, it went down to 7.9%, and for taxable year 2019 the rate is 7.7%. The BET also went from 0.75% to 0.72%, then 0.675%, and to .6% in taxable year 2019. (How businesses set their fiscal year and whether they pay quarterly are left to their discretion, but all businesses operating in New Hampshire pay one or both of these taxes.) To ensure the cuts wouldn’t leave the state short, the first two tax reductions were contingent on meeting established revenue thresholds. If too few taxes were collected and the thresholds were not attained, the rate reductions would be reset.

The final tax reductions are scheduled for 2021, when the BPT rate will be 7.5% and the BET 0.5%. However, there is a move at the State House to squash this tax relief already written into law and already factored by businesses when calculating their future operational costs. HB 623, which passed in the House last week 200-141 and now goes to the Finance Committee for further debate, would “freeze” these tax rates at the 2018 level (7.9%/0.675%). However, since we’re already in 2019, it’s not a freeze but a tax hike. A similar bill in the Senate, SB 301, would also raise business taxes to these levels. A third bill, SB 135, takes a slightly different approach. Like the other two bills it rolls back business tax rates to the 2018 level, but instead of freezing them at those rates, the bill suspends the final two business tax reductions for two years.

One could infer that reversing agreed-upon tax rates must be the result of some fiscal calamity. Ironically, business tax revenues are not down; they’re up! New Hampshire has a very large surplus in business tax revenue, even with the BPT and BET reductions (or perhaps because of them). State revenue reports show that even with the lower rates, New Hampshire collected nearly $114 million more in business tax revenue than anticipated last fiscal year. After the first seven months of this fiscal year, the state is already $143 million over projections.  In fact, total revenue exceeding projections since FY 2016 is $406 million.

If the tax receipts are still flowing in, even stronger than before, why is the legislature seeking to go back on its word to businesses? Perhaps a clue lies within the way proponents talk about the rate reduction. More than one policy leader has characterized them as “tax cuts for large out-of-state corporations.” Notwithstanding the fact that “out-of-state corporations” like BAE Systems, Liberty Mutual Insurance, Whelen Engineering, and hundreds of others are some of the most attractive employers in the state, seeking to position tax relief as solely going to large employers to the exclusion of our small businesses is disingenuous. By raising business tax rates, hundreds of small businesses up and down every Main Street in New Hampshire will also be harmed.

Some are also dismissive of the over-performance of business tax revenue, claiming it’s a one-time bump from recent federal tax reform. While those cuts probably had some impact, New Hampshire business tax revenues have been exceeding projections since 2016, long before the federal cuts were signed into law.

In his recent budget address Governor Sununu said, “It is irresponsible governance for the legislature to ping pong core tax policies every two years.” We agree. The state made a promise to businesses. The state ought to keep it.

Collectively, we need to keep the NH economy strong with businesses growing, paying fair taxes, and attracting new business to the state. This will gain the revenues to grow the state, not place an undue burden on existing companies to carry the weight and fold under the pressure.

Sen. Lou D’Allesandro tells NHJournal that his Democratic colleagues in the New Hampshire House need to abandon their dreams of a tax hike.

“We are not raising taxes, period,” the veteran state senator told NHJournal. “We are just going to hold them in place. That’s all.”

D’Allesandro was responding to questions about Gov. Chris Sununu’s inaugural address, in particular the governor’s call for the Democrat-controlled legislature to avoid tax increases. “I implore this legislature to learn from the mistakes of the past. The last thing we should be doing is raising taxes or pushing a budget that does not live within our means,” Sununu said.

Last year NH Senate Democrats released their “Granite State Opportunity Plan” which deplores “tax breaks for corporate special interests.” Sen. D’Allesandro’s proposal is to freeze the business profits tax rate at 7.9 percent. This would technically be a tax hike given that the rate fell to 7.7 percent on New Year’s Day.  D’Allesandro would also keep the business enterprise tax at 0.675 percent, ending scheduled future tax cuts.

Progressives in the House, however, want a true tax increase. According to New Hampshire Business Journal, House Ways and Means chair Rep. Susan Almy (D-Lebanon) wants to raise the business profits tax back to 8.5 percent, with the potential of going even higher.  And according to Speaker Shurtleff, Rep. Almy is “on the right track.”

That track will have to get past Sen. D’Allesandro and the governor’s veto, however. “We’re not raising taxes in the Senate,” D’Allesandro said. “The House, they’re on the other side of the wall. And it’s a big, beautiful wall, too!”

And what did the senator think of the rest of Gov. Sununu’s speech?

“It was too long,” he told NHJournal. “Short on substance, good on anecdotes. That’s Governor Sununu.”

Baseball fans love to argue who has the strongest team, the best pitching, and fiercest lineup. And they make their case by using stats: winning record, ERA, batting average.

At the State House, many of the players say they’ll support legislation that promotes a healthy climate for job creation and a strong New Hampshire economy. Because businesses are the number one payer of state taxes, legislators often say they’ll get behind efforts that help businesses thrive. But when they finally get their turn at the plate, some just leave the bat on their shoulder and watch pitches go by.

BIA recently published its fourteenth annual Legislative Scorecard and fifth annual Victories & Defeats for New Hampshire Businesses. (Access the publication on our website, BIAofNH.com.) The companion pieces track how all Senators and House members voted on legislation of keen interest to the business community and summarizes the outcome of a wide variety of bills in a mix of policy areas.

The Scorecard section is easy to follow. Individual scores are based on roll call votes only (those in which lawmakers’ votes are recorded by the clerk), not up-or-down voice votes in which a Senator’s or Representative’s position is difficult, if not impossible, to identify. Selected legislation (ten bills for the Senate, eleven bills in the House) covers a variety of issue areas.

BIA is a nonpartisan advocate for our members – leading employers in every corner of the state. Business-friendly legislation sometimes falls on the political left and sometimes falls on the political right. Not everyone agrees with BIA on every vote; however, 141 Senators and Representatives – both democrats and republicans – scored high enough to warrant special recognition.

Those scoring between 86-100% on selected legislation received the honor, “Champion of Business.” Those who scored between 70-85% are recognized as “Friend of Business.” If you meet a state legislator running for re-election over the next few weeks, ask them what their BIA Scorecard percentage was (or look it up yourself online).

While the Scorecard is intended to hold legislators accountable for their response to business issues, the Victories & Defeats portion of the publication reports on the legislature’s efforts to enhance New Hampshire’s climate for job creation. By extension, the publication is a reflection of BIA’s efforts to influence public policy. As New Hampshire’s leading business advocate, our members expect us to communicate their concerns to elected officials. No one bats a thousand, but looking back at the 2018 session, BIA did well.

For example, in the area of employment law, we flashed some Gold Glove-caliber defense on a flurry of bills that would have allowed state government to intrude on private business decisions in everything from hiring practices to scheduling to benefits administration. We think employers know better than politicians how to run their businesses. Most lawmakers agreed with us, and all bills of this type, which are listed in the document, were defeated.

Another area where legislators heard us was on environmental policy. Most thoughtful business leaders agree the issue of emerging contaminants, such as PFOS and PFOA, should be taken seriously and thoughtfully addressed. Throughout the 2018 session however, we saw an overreaction to this issue. Although modern technology can now detect the presence of chemicals at increasingly smaller concentrations (parts-per-trillion), science around health impacts of smaller concentrations is lagging.

We saw lawmakers attempt to address this conundrum by tasking the state to do something the federal government’s Environmental Protection Agency, academia, and industry scientists have yet to do: establish new standards for a cornucopia of compounds in the air, groundwater, and surface water. Then legislators proposed taking existing standards and unilaterally change them to arbitrary levels – levels not based on science, just numbers that would show their constituents they’re “doing something.” After articulating the folly of this approach, these bills were defeated.

We had a mixture of wins and losses in the areas of tax policy, economic development, health care, and education. For example, the House and Senate missed opportunities to put downward pressure on New Hampshire electricity prices, which are already 50-60% higher than the national average year-round. They instead listened to special interests that wanted ratepayer subsidies for unprofitable power generators.

The season at the State House is over and we spectators are already thinking about the next season coming up in January. BIA’s Legislative Scorecard and Victories & Defeats publication is a stat sheet for voters to evaluate their elected officials and determine who’s an MVP and who should ride the bench.

New Hampshire lawmakers only have until Thursday to finalize what the final state budget will look like for the next biennium, but there are two issues that could hurt its chances of getting passed in the full House.

One of the policies is not even related to monetary funds, it’s about a family planning contracts provision that was hotly contested in the Senate version of the state budget last month.

The Senate added language to its budget prohibiting the state from giving money to health care facilities to provide abortions. Republicans argued the language simply codifies current practice under the federal Hyde Amendment, but Democrats called it an attack on women’s health.

“The decision by House conferees to accept the Hyde amendment as part of the state budget proposal is a completely unnecessary attack on women’s health,” said Rep. Mary Jane Wallner, D-Concord, ranking Democrat on the House Finance Committee and a budget conferee.

“Because federal law already prohibits the use of tax dollars on abortion services, this amendment is a political statement, not a budget statement,” she added.

A conference committee is working to compromise on differences between the $11.8 billion budget passed in the Senate and an $11.9 billion spending plan proposed by the House Finance Committee that was eventually rejected by the full House after conservatives voted against the budget with Democrats.

Wallner blasted Republicans for sneaking the provision into the budget without public input.

“These provisions never received a public hearing in either the House or Senate, in direct violation of the legislative process,” she said. “If Republican lawmakers are going to turn the budget process into a partisan debate over social issues, the least they can do is follow their own rules and be transparent about it.”

Budget writers began hammering out the details in the conference committee on Friday, with less than a week to submit a budget report by Thursday, so both legislative chambers can vote on the final version of the state budget by June 22. The current fiscal year will end on June 30.

The move to include the abortion provision signals that House GOP leadership is looking to work with conservative members, instead of Democrats, to get a budget passed. Several Democrats in the House have reportedly called the provision a “deal breaker” and if it’s included in the final version, they will vote against it.

The Senate, since it’s a smaller body of 24 members, is not as politically divided as the 400 legislators in the House. The House has several different caucuses, all wanting something different out of the state budget.

In April, the House failed to pass its version of a budget for the first time since records were kept in 1969. Members of the conservative House Freedom Caucus sided with Democrats to defeat the plan crafted by House GOP leadership citing that spending was too high and there weren’t enough tax cuts.

The Senate version included cuts to the state’s business profits tax and business enterprise tax. House Speaker Shawn Jasper took to Twitter to indicate his support for these cuts.

I support biz tax relief for NH job creators. I urge House colleagues to support our budget that will contain responsible cuts. #NHPolitics

— Speaker Shawn Jasper (@NHSpeaker) June 12, 2017

But the House Freedom Caucus and one of its members, Rep. Victoria Sullivan, R-Manchester, asked if those were the only tax cuts planning to be included in the final version.

Looking forward to more information. Are biz tax cuts the only cuts?

— Victoria Sullivan (@VSullivan4NH) June 12, 2017

With more, or other, tax cuts in the state budget, conservatives could be more inclined to support the GOP-led spending plan. Yet, if the abortion provision and no tax cuts are included in the final version before the House next week, there might not be a budget passed before the end of the fiscal year, which means lawmakers would need to pass a continuing resolution to fund the state government at its current levels and then come back to negotiate a budget again in the fall.

A lot could still happen in the final negotiation days.

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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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