HB 569-FN-A - AS INTRODUCED
2015 SESSION
15-0059
09/04
HOUSE BILL 569-FN-A
AN ACT including certain nonprofit charitable enterprises under the business enterprise tax and reducing the rate of the tax.
SPONSORS: Rep. Hess, Merr 24; Rep. R. Walsh, Hills 11; Rep. Weyler, Rock 13; Rep. Kurk, Hills 2; Rep. T. Walsh, Merr 24; Rep. Gorman, Hills 31; Rep. Backus, Hills 19; Rep. Leishman, Hills 24; Rep. Lovejoy, Rock 36; Rep. Chandler, Carr 1
This bill includes in taxation under the business enterprise tax the enterprise value of nonprofit charitable organizations organized under Internal Revenue Code section 501(c)(3) which have annual program service revenue and business revenues from related tax exempt organizations less contributions and grants exceeding $10,000,000, as reported on Internal Revenue Service Form 990 filed by such enterprise. The bill also lowers the rate of the business enterprise tax.
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Explanation: Matter added to current law appears in bold italics.
Matter removed from current law appears [in brackets and struckthrough.]
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
15-0059
09/04
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Fifteen
AN ACT including certain nonprofit charitable enterprises under the business enterprise tax and reducing the rate of the tax.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 Legislative Findings and Purpose.
I. The general court finds that:
(a) The business enterprise tax (“BET”) is essentially a value-added tax imposing a very small levy on the labor and capital resources of organizations engaged in economic activity in New Hampshire.
(b) Twenty eight of the 29 classes of organizations deemed tax exempt under Section 501(c) of the Internal Revenue Code are subject to the BET. Only 501(c)(3) entities are explicitly exempt from the BET.
(c) Whether from an economic policy, public policy, or tax policy perspective, there is no rational basis to exempt all 501(c)(3) organizations from the BET.
(d) Large, public 501(c)(3) organizations which receive substantial revenue from “program service revenue”, i.e. “fees for services rendered” as reported on Line 9 of IRS Form 990, are economically indistinguishable from for-profit entities and other non-profit 501(c) entities subject to the BET.
(e) Large, public 501(c)(3) organizations deriving substantial revenue from “program service revenue” are a substantial and growing sector of our total economy, currently estimated at 10 percent to 12 percent of New Hampshire’s gross state product, and are among the largest accumulators of wealth in our society today.
(f) These large, public 501(c)(3) organizations use labor and capital resources, the components of the BET, just like for-profit business entities; and utilize and benefit from state and local publically-funded services the same way as for-profit business entities.
(g) A number of these large, public 501(c)(3) organizations have been acquiring professional and other for-profit entities, turning them into tax exempt 501(c)(3) organizations and thereby removing them from the BET tax base and contracting that tax base.
(h) These large, public 501(c)(3) organizations provide some services which complement and supplement services provided by the public sector, and therefore should receive reporting thresholds and enterprise value tax exemptions larger than those applicable to for-profit entities.
II. The general court intends that the inclusion in taxation under the business enterprise tax of nonprofit charitable organizations whose program service revenues less revenues from contributions and grants exceed $10,000,000 per year will result in additional business tax revenues, so that the rate of the business enterprise tax may be reduced accordingly for a revenue neutral result.
2 Business Enterprise Tax; Definitions; Business Activity; Business Enterprise. Amend RSA 77-E:1, II and III to read as follows:
II. “Business activity” means a transfer of legal or equitable title to or rental of property, whether real, personal or mixed, tangible or intangible, or the performance of services, or a combination thereof, made or engaged in, or caused to be made or engaged in, whether in intrastate, interstate, or foreign commerce, with the object of gain, benefit, income, revenue or advantage, whether direct or indirect, to the business enterprise or to others, but shall not include the services rendered by an employee to an employer or services as a director of a corporation. The term “business activity” includes all activities conducted by a business enterprise that is expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code to the extent that such activities generate program service revenue and activities conducted by all related tax exempt organizations as reported on such business enterprise’s Internal Revenue Services Form 990, Schedule R, Part II to the extent such activities generate business revenue. Although an activity of an enterprise may be incidental to another of its business activities, each activity shall be considered to be business engaged in or carried on within the meaning of this chapter. Notwithstanding any other provision of this paragraph, a holder of an ownership interest in a qualified investment company as defined in RSA 77-E:1, XIV, shall not be deemed to be carrying on any business activity within this state due solely to its holding an ownership interest in such qualified investment company.
III. “Business enterprise” means any profit or nonprofit enterprise or organization, whether corporation, partnership, limited liability company, proprietorship, association, trust, business trust, real estate trust or other form of organization engaged in or carrying on any business activity within this state, except such enterprises as are expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code to the extent such enterprise does not engage in any business activity constituting unrelated business activity as defined by section 513 of the United States Internal Revenue Code and is not required to file a federal annual information return on Form 990 with the United States Internal Revenue Service. Each business enterprise under this definition shall be subject to the tax imposed under RSA 77-E as a separate entity except that trusts treated as grantor trusts under section 671 of the United States Internal Revenue Code shall be included in the return of their owners, and such owners shall be subject to the tax thereon to the extent any such owners would be considered a business enterprise hereunder notwithstanding the existence of the trust. The use of consolidated returns as defined in the United States Internal Revenue Code or of combined reporting is not permitted. Notwithstanding any other provision of this paragraph, an enterprise shall not be characterized as a business enterprise and shall be excluded from taxation at the entity level if it is a qualified investment company as defined in RSA 77-E:1, XIV. The term “business enterprise” shall not include any establishment operated by any federal, state, or municipal agency or institution or by any instrumentality thereof.
3 Business Enterprise Tax; Definition; Gross Business Receipts. Amend RSA 77-E:1, X to read as follows:
X. “Gross business receipts” means all income for federal income tax purposes from whatever source derived in the conduct of business activity, including but not limited to gross proceeds from sales, compensation for rendering services, gross proceeds realized from trading in stocks, bonds, or other evidences of indebtedness, gross proceeds realized from sale of assets used in trade or business, interest, discount, gross rents, royalties, fees, commissions, dividends, without any deduction on account of the cost of property sold, the cost of materials used, labor costs, interest, discount, delivery costs, taxes, or any other expense paid or accrued and without any deduction on account of losses. In the case of nonprofit enterprises not required to pay income taxes, other than business enterprises that are expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code, gross business receipts means the sum of all revenues derived in the conduct of business activity, including but not limited to the items included in the preceding sentence. In the case of business enterprise that is expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code, the term “gross business receipts” means program service revenue realized by such enterprise and gross business revenues of all related tax exempt organizations as reported on Schedule R, Part II of Internal Revenue Service Form 990, less revenues from contributions and grants. Any receipts that would otherwise be considered “gross business receipts” received by an enterprise that constitutes a qualified trust under section 401, or is defined in section 501(c)(9), or section 584, of the United States Internal Revenue Code shall not be included in gross business receipts for purposes of this chapter.
4 New Paragraphs; Definitions Added; Program Service Revenue; Contributions and Grants. Amend RSA 77-E:1 by inserting after paragraph XVII the following new paragraphs:
XVIII. “Program service revenue” means the amount that is required to be reported by a business enterprise that is expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code as program service revenue on line 9, or the successor to line 9, of the federal annual information return on Form 990 filed by such enterprise with the United States Internal Revenue Service.
XIX. “Contributions and grants” means the amount that is required to be reported by a business enterprise which is expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code as contributions and grants on line 8, or the successor to line 8, of the federal annual information return on Form 990 filed by such enterprise with the United States Internal Revenue Service.
5 Imposition of Tax; Rate Reduced. Amend RSA 77-E:2 to read as follows:
77-E:2 Imposition of Tax. A tax is imposed at the rate of [3/4] 0.65 of one percent upon the taxable enterprise value tax base of every business enterprise.
6 New Paragraph; Enterprise Value Tax Base; Special Adjustments. Amend RSA 77-E:3 by inserting after paragraph III the following new paragraph:
IV. In the case of a business enterprise which is expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code, a deduction of $10,000,000 from the gross business receipts of such enterprise.
7 Business Enterprise Tax; Returns. Amend RSA 77-E:5, I to read as follows:
77-E:5 Returns.
I. Except as provided in paragraph I-a, every business enterprise having gross business receipts in excess of $200,000 as adjusted biennially for inflation and rounded to the nearest $1,000 by the commissioner using the Consumer Price Index, Northeast Region as defined by RSA 77-E:1, X, during the taxable period or the enterprise value tax base of which is greater than $100,000 as adjusted biennially for inflation and rounded to the nearest $1,000 by the commissioner using the Consumer Price Index, Northeast Region, shall, on or before the fifteenth day of the third month in the case of enterprises required to file a United States corporation tax return, and the fifteenth day of the fourth month in the case of all other business enterprises, following expiration of its taxable period, make a return to the commissioner. All returns shall be signed by the business enterprise or by its authorized representative, subject to the pains and penalties of perjury and the penalties provided in RSA 21-J:39.
I-a. Every business enterprise which is expressly made exempt from income taxation under section 501(c)(3) of the United States Internal Revenue Code having gross business receipts in excess of $10,000,000, shall, on or before the fifteenth day of the fifth month following expiration of its taxable period, make a return to the commissioner. All returns shall be signed by the business enterprise or by its authorized representative, subject to the pains and penalties of perjury and the penalties provided in RSA 21-J:39.
8 Effective Date. This act shall take effect July 1, 2015.
LBAO
15-0059
Revised 01/26/15
HB 569-FN-A - FISCAL NOTE
AN ACT including certain nonprofit charitable enterprises under the business enterprise tax and reducing the rate of the tax.
FISCAL IMPACT:
The Department of Revenue Administration states this bill, as introduced, will decrease state general and education trust fund revenue by an indeterminable amount in FY 2017 and each year thereafter. There will be no fiscal impact on state, county, and local expenditures, or county and local revenue.
METHODOLOGY:
The Department of Revenue Administration (DRA) states this bill would make nonprofit charitable organizations organized under Section 501(c)(3) organizations of the Internal Revenue Code with gross business receipts in excess of $10,000,000 subject to tax under the Business Enterprise Tax (BET). To the extent the 501(c)(3) organization has any business activity constituting unrelated business activity as defined by Section 513 of the United States Internal Revenue Code, this activity would be subject to tax under the current thresholds of gross business receipts of $200,000 or an EVTB of $100,000. This bill would also reduce the current BET rate from 0.75% to 0.65%. Section 1 of the bill, “Purpose,” states that the additional BET revenue generated from the taxation of nonprofit charitable organizations would be equal to the revenue lost from the reduction in the BET rate, thus, creating a revenue neutral result. Without complete data on the potential additional revenue, the DRA cannot confirm whether a “revenue neutral” result would be achieved. This bill would require the DRA to update systems, rules and forms to reflect the additional entities subject to taxation and the reduction in the BET rate; however, this bill could be administered by the DRA without any additional cost.
This bill would take effect July 1, and therefore the plan amount for FY 2015 was used to estimate the impact of the reduction in the BET rate. The estimated BET revenue for FY 2015 is $227,700,000 divided by 0.75%, results in a taxable base of $30,360,000,000. The taxable base of $30,360,000,000 multiplied by new rate of 0.65% would result in revenue of $197,340,000, which is a reduction in revenue of $30,360,000. In order for this bill to be revenue neutral, nonprofit charitable organizations meeting the thresholds for gross business receipts would need to have a total taxable base of $4,670,769,231 ($30,360,000 divided by 0.65%). The Department of Employment Security (DES) provided the NH gross wages for all Non-Profit organizations reporting wages to the state for calendar year 2013 and that amount was $3,951,986,531. If all of the wages reported by DES as being non-profit gross wages is taxable under the BET, then it is not possible this bill would be revenue neutral or produce an increase in revenue. The DRA does not have data on all the possible enterprise tax value base of these organizations, so the exact fiscal impact cannot be determined.