House Ways and Means Committee wants to review business grant forgiveness
CONCORD — The House Ways and Means Committee wants to investigate what exempting federal grants from business tax liability will mean to the state’s revenues.
The committee held a hearing on Senate Bill 3, which would exempt the Paycheck Protection Program loans to New Hampshire businesses that are forgiven under the federal aid program.
According to Department of Revenue Administration estimates, the bill could reduce state business tax revenue by $91.7 million and maybe a little more if additional loans are approved prior to the program’s end May 31.
Under federal Internal Revenue Service guidelines, businesses receiving grants do not have to include the money in their gross revenues for tax liabilities, but do in New Hampshire. Both the federal government and New Hampshire allow businesses to deduct qualifying expenses such as payroll or rent or utilities to offset gross revenue.
“The program did a good job of keeping the economy afloat during the pandemic when the state and the nation were facing great uncertainty,” said the bill’s prime sponsor, Senate Majority Leader Jeb Bradley, R-Wolfeboro. “It’s vitally important to protect the businesses that withstood the ravages of the pandemic, but also to send the (right) message to business contemplating moving to New Hampshire or staying in New Hampshire.”
He said the program not only helped businesses, but also workers, noting the unemployment rate went above 15 percent and is now back to about 3 percent.
The program was intended to help smaller businesses with less than 500 employees weather the economic devastation from the pandemic as part of the federal CARES Act.
Under the program, the loans may be forgiven and become grants if businesses used the money for its intended purpose to maintain payrolls and pay essential expenses like rent or mortgages and utilities.
According to DRA estimates, state businesses received about $2.4 billion in PPP loans to date.
Committee members had two main concerns: are the grants inflating current business tax returns and does the bill give businesses a double benefit at the expense of state revenue.
Business taxes have been producing more revenue than budget writers estimated for the current fiscal year. Through the first three-quarters of the fiscal year, business taxes were $100 million ahead of estimates and for April are about $71 million more than anticipated with two days left in the month.
Committee chair Rep. Norman Majors, R-Plaistow, said he spoke with an accountant who said many businesses included the PPP money in their New Hampshire tax liability and will seek refunds if the bill becomes law.
Another complicating factor is when the loan forgiveness is approved by the US Small Business Administration. Some were approved in the 2020 fiscal year and some in the 2021 fiscal year and some may not be approved for the grant until the 2022 fiscal year.
Lindsey Stepp, DRA Commissioner, said when businesses account for the federal money depends on how they file their returns.
They could assume it goes against 2020 liability she said, or wait until the loan is forgiven. And she said some could include it in their estimates and some may pay their taxes based on state law and then seek a refund.
Rep. Walter Spilsbury, R-Charlestown, suggested – as did Rep. Tom Schamberg, D-Wilmot – that forgiving the grant money may provide a double benefit for some businesses.
Spilsbury said if a company used all the grant money for qualifying expenses, that would offset the grant for gross revenues, so there would be no tax liability, but if the business does well enough to make a profit that would be forgiven under the bill.
“Can a business use it in two ways to get a double deduction,” he asked.
But bill supporters said it was intended to be a lifeline to a company to stay afloat and not as a means for the state to take a cut of the proceeds.
“The program replaced revenue a business would have lost as a result of the pandemic,” Bradley said. “It is not double counting.”
Michael Benton, owner of Executive Health and Sports Center, said a PPP loan kept his business afloat and allowed him to keep employees on his payroll so they were available when he reopened his business in July after it was closed for four months.
“It was not just lost revenue, it was lost profits from being shut down for four months,” he said. “It is not an accounting issue, it is money from the federal government to keep by business alive.”
He, like many other business owners, does not have the money to pay taxes on top of the money they received to stay alive.
Mike Somers of the NH Lodging and Restaurant Association, noted his industry has been ravaged by the pandemic, but many hotels were unable to obtain PPP loans.
He suggested the committee consider also exempting the state grants to businesses through the state’s Main Street Relief Program, which used federal CARES Act money to make grants up to $350,000 to state businesses, and exempt other state grants from the CARES Act money as well.
“Many are in dire straits,” he said. “It is very frustrating for a business to have fought and scrambled to get to this point, and have the state ask for a portion of the money paid to prop up their business.”
Rep. Susan Almy, D-Lebanon, said the exemption was not considered when the House adopted its budget plan, adding it is a sizable amount of money.
She asked Bradley if the Senate would make adjustments in its budget proposal due to the exemption, and Bradley said although he is not a member of Senate Finance, he understood it would account for the reduction in revenue.
The committee will hold several work sessions on the bill before making a recommendation and wait for the DRA to determine the impact of adding state aid programs to the exemption.
If New Hampshire approves the bill, it will be the 40th state to exempt the grants from tax liability.
Originally the DRA estimated the PPP exemption would cost the state between $80 million and $135 million in lost business tax revenue, but then recalculated and now believes it will be $91.7 million or a little more with additional loans.
The US Treasury did release guidelines exempting PPP
Forgiveness by states from a provision in the American Rescue Plan Act that prohibits states from using the federal money to replace lost revenue from state tax cuts. That could impact New Hampshire with proposed rate cuts for business taxes, the rooms and meals tax, and the interest and dividends tax currently in the state budget proposed for the next biennium.
Business Profits Tax Threshold Increase
The committee also heard a proposal to increase the threshold to pay the business profits tax from $50,000 to $75,000 that was approved by the Senate.
SB 101’s prime sponsor, Sen. Donna Soucy, D-Manchester, said the threshold has not been raised in 27 years so has not kept up with inflation.
She said the increase would help thousands of small companies who would no longer have to go through the expense of having to prepare business profits tax returns when they owe no money.
Committee members and others suggested the threshold be raised to $100,000 and to include an inflation index increase every two years.
The committee did not make an immediate recommendation on the bill.
Garry Rayno may be reached at email@example.com.