CONCORD — A look at the Department of Revenue Administration’s fiscal year 2020 first-quarter report on business tax refunds is sobering.
Legislative and executive branch budget negotiators must have been aware of the business tax refund trend when they lowered estimates for business tax receipts for the next two years as part of the recent budget settlement.
In that agreement, business tax receipts for the biennium were reduced by $44 million from the $896 million in revenue the business enterprise and business profits taxes were estimated to produce in the House- and Senate-passed budget that Gov. Chris Sununu vetoed.
The DRA report on refunds for business taxpayers, which the Joint Legislative Fiscal Committee will review this week, shows the highest tax refunds to businesses in the past six fiscal years during the first quarter of the new biennium from July to September at $27.52 million.
The report from DRA Commissioner Lindsey Stepp shows $22.75 million in outstanding refund requests at the beginning of the quarter, with another $22.1 million in requests from 1,200 businesses during the three-month period.
While the department paid $27.52 million to 963 businesses in the quarter, the department begins the second quarter with $17.2 million in outstanding refunds from businesses.
That is not good news, as history shows that over the past six fiscal years, refund payouts are highest during second quarters by far.
Outside of this year’s first-quarter refunds, none of the other quarter refund payouts tops $10 million in any of the past six years.
There is little doubt the first two quarters of FY 2020 will see significant refunds paid to businesses for both the business enterprise and business profits taxes.
The refund may be made for many reasons.
Some businesses feared the budget approved by the Legislature would go into effect, freezing the business tax rates at the fiscal 2019 level instead of the rate decreases that went into effect Jan. 1. That did not happen, so the rates will continue at the lower level for this fiscal year.
But that likely is not the major reason for the increase in refunds, which is that businesses overpaid their tax liabilities believing they would experience greater activity than they did during the last fiscal year or even the last fiscal quarter.
If that is the case, the refunds will likely continue for the remaining eight months of this fiscal year.
Business taxes have shot up over the past few years for several reasons, including a change in federal tax law that allowed many businesses to bring money parked overseas back into United States without penalty.
That helped increase the business profits tax receipts for New Hampshire and other states. Also, at the end of the last recession, New Hampshire greatly increased the amount of losses a company could use to offset future tax liability to $1 million and said the period to claim an offset would last for 10 years.
That reduced businesses’ taxes until the losses could be absorbed.
Obviously, the economy has been booming and business tax collection reflected that, particularly the business enterprise tax.
Naturally, the increases in business tax collections could not be maintained at the rate they were over the past four or five years and were expected to return to the 2-3 percent range.
And while that is happening, there is something more concerning, which is that business tax returns are well below what they were a year ago at this time.
September is the first really big business tax collection month, although it is far short of March and April, but substantial. For September, business taxes were $20.5 million less in September than a year ago, which is almost 15 percent lower.
For the first three months of FY 2020, business taxes are $26 million less than a year ago or 14 percent below what was collected last year.
Last fiscal year, which ended June 30, showed a $162.2 million surplus for businesses’ taxes, so the reduction in collections is in stark contrast to the past few years.
Coupled with the refund requests, it is apparent lawmakers may be making some significant adjustments in the operating budget before the 2020 fiscal year budget ends June 30, 2020.
And it could well mean there may not be any further reductions in business tax rates any time soon unless the trend changes.
Business taxes don’t reflect all of New Hampshire’s revenue, but they account for more than a quarter of state general fund revenue.
The overall revenue picture without figures for October, which will be released this week, is not showing any great strengths to overcome the business tax revenue loss.
Tobacco tax revenue is down $3.5 million for the first quarter of the new fiscal year. Tobacco revenues are always volatile due to timing issues when wholesalers purchase stamps, so this slowdown may not be a major trend.
But the trend for liquor revenue for the state has been below projections for some time and does not appear to be turning around.
Profits from liquor sales paid into the general fund is $3.5 million less than a year ago.
The state’s hot real estate market and resulting spike in real estate transfer tax revenues appear to be cooling off. September revenues were $2 million less than a year ago, and the DRA notes that both the number of sales and value of properties sold were down from a year ago. In fact, revenue was lower in seven of the state’s 10 counties for September, which reflects August sales.
And the state utility property tax, which supports reduction, is down $1.6 million year over year. The DRA said much of the decrease is due to the revaluations of generating facilities, which recently changed ownership.
Not a promising picture as the state’s and nation’s politicians head into an election year. The question is: Who will voters blame for a potential economic slowdown in the coming year?
Garry Rayno covers the State House for InDepthNH.org.