State Rep. David Hess has proposed legislation that would treat large New Hampshire nonprofits as private businesses, subjecting them to the state’s Business Enterprise Tax (BET). If successful, the bill would exact a heavy toll on the state’s nonprofit sector. New Hampshire Catholic Charities, for example, would have to pay out around $200,000 annually in BET taxes if the bill passes.
The BET is among the most profitable taxes in New Hampshire, responsible for $219.6 million in state revenue during 2014. It is currently a fixed rate of .75 percent on interest, dividends, and wages at large private businesses. Currently, 501(c)3 organizations are exempt from the tax.
An estimated 88 nonprofits would feel the effects of the legislation, among them the New Hampshire Alliance of YMCAs, institutions of high learning, and nonprofit hospitals.
The effort appears to be part of a larger, party-line battle on taxation and the future of state budgeting. Republicans have proposed two bills which would deprive the state government of a combined $42 million in revenue. One bill would reduce the state’s profits tax from 8.5 to 8 percent, and the other would address the BET, with an aim of lowering the rate from .75 percent to .675 percent.
Discussing the proposed legislation, Rep. Hess remarked that the legislation was not to raise additional revenue for the state, but rather to pave the way for a general lowering of the BET by spreading the burden of taxation. As for putting nonprofits on the hook to pay the difference, Hess commented that, “If it acts like a business, has a business plan, walks like a business … maybe it should be taxed under the Business Enterprise Tax like its competitors.”
Criteria for what “acts” and “walks” like a private business, however, differ among leading nonprofit voices in New Hampshire.
As Mary Ellen Jackson of the New Hampshire Center for Nonprofits states in an op-ed appearing in the Concord Monitor, “nonprofits are able to conduct their work in highly economical ways is because they operate on business models that leverage volunteers, donations and private grants and because they pour all profit back into mission, not shareholders pockets.”
Jackson points out that a number of institutions providing essential services to New Hampshirites would be affected, including mental health centers, disability services programs, nonprofit nursing homes, and affordable housing groups, and that their work would be undermined by the addition of an onerous tax that was not designed for application to nonprofits.
Outside of the financial pinch on nonprofits, the tax cuts would also result in an overall loss in state revenue that would nearly amount to the entire annual budget of the state’s community college system, thereby threatening such vital services.
Considering that the Tax Foundation ranked New Hampshire seventh in the nation for ideal business tax environment, the proposed legislation is misguided and unnecessary. By sequestering a sizable portion of nonprofits’ resources, the legislation would force organizations to cut their services, having a direct negative impact on the nonprofits’ beneficiaries while simultaneously dampening the appeal of vital jobs in the nonprofit sector.