As budget writers craft a new spending plan for New Hampshire, one line item, which has been responsible for up to almost 9% of revenue for the General Fund, is disappearing altogether.
The repeal of the state’s Interest and Dividends Tax went into effect on Jan. 1. It was a 3% levy on New Hampshire residents receiving more than $2,400 of interest and dividend income if filing as an individual, or receiving more than $4,800 of interest and dividend income if filing a joint return.
Examples of interest and dividend income include interest earned on a savings account and dividend earnings from stock and mutual funds.
As a contributor to the general fund, while not the most significant source of revenue, it was enough to have consequences on the budget that Gov. Kelly Ayotte and the state Legislature have to have ready by the start of the new biennial budget on July 1.
“The revenue impacts will be relatively rapid and significant, particularly relative to the new state budget,” said Phil Sletten, research director at the New Hampshire Fiscal Policy Institute (NHFPI).
Legislation to repeal the tax was passed by the Legislature and signed into law by then Gov. Chris Sununu during the 2023 legislative session. Initially set for repeal in 2026, the repeal was accelerated during the 2023 session to become effective this year.
The state Department of Revenue Administration cautions that, despite the repeal, some taxpayers might still have obligations under the law. It notes that taxpayers who are required to file a 2024 Interest and Dividends Tax return (or a return for any earlier year) either on a fiscal- or calendar-year basis still need to do so by the statutory due date and will still need to include any required payment of tax, interest and penalty that may be due. The repeal does not provide amnesty for tax years prior to the repeal.
According to Sletten, whatever is collected during this tax season will be significantly less in future state fiscal years (SFY) as the repeal eventually means the line item will fade to zero.
“In SFYs 2026 and 2027, the Interest and Dividends Tax will not collect any significant revenue; the New Hampshire Department of Revenue Administration may resolve some tax returns from past years that collect a small amount of revenue, but the tax will not be collecting any revenue based on new activity,” he said.
New Hampshire has a two-year budget cycle, based on fiscal years. The current state budget expires on June 30. The new state budget starts on July 1 and runs until June 30, 2027.
State budget writers acknowledge it will be a difficult budget to craft, based on a number of factors, loss of revenue in several categories chief among them. Gov. Ayotte, in her budget address to the Legislature last month, called for a recalibration of spending priorities to compensate for lower revenue projections.
The governor’s office projects less revenue from a number of sources, including the insurance premium tax, tobacco tax, earnings on interest, and — at the top of the list in terms of dollar amounts — the Interest and Dividends Tax.
That money, which goes into the state’s General Fund, accounted for $147.3 million in FY 2023, equal to 7.2% of all revenue that went into the General Fund ($2.0335 billion). The next fiscal year in FY 2024 it was even more — $184.3 million, or about 8.8% of all total General Fund revenue ($2.0857 billion) that year.
Ayotte’s budget projections make up for revenue shortfalls with increases in such categories as the revenue from the addition of video lottery terminals at the state’s charity casinos. She’s also expecting more revenue from business taxes, real estate transfer tax, meals and rentals tax and from wine/liquor sales.
An NHFPI analysis of her projections raise questions about impacts from not only the loss of Interest and Dividend Tax revenue, but payouts from court cases and claims for past abuse at the Youth Development Center and construction of a new state prison for men. The NHFPI noted the bond payments for the $500-$600 million project “may be substantial.”
And there’s the looming court decision involving the adequacy and fairness of the state’s education funding. Noting that education funding is the state’s second-largest expenditure, NHFPI’s Sletten said, “small changes can lead to large funding commitments.”
“Economic modeling and other research suggests the state should not anticipate a significant increase in economic activity, or increases in other state revenue sources, due to the repeal of the Interest and Dividends Tax,” said Sletten.
It’s important to note that the governor’s revenue projections not only rely on a new source of casino revenue (swapping out horse racing machines with slot machines) but a strong rebound of the real estate transfer tax and the meals and rentals tax.
The FY 2024 revenue shows that the tax on real estate transfers was $183.7 million, 10.6% less than what was generated in FY 2023.
So far this year, according to the state, Real Estate Transfer Taxes for February were $15.1 million, which were above plan by $2.7 million (21.8%) and $3.6 million (31.3%) above the same month last year. Year-to-date collections were $6.2 million (4.1%) below plan and $12.2 million (9.3%) above the same period in the prior year.
February’s meals and rentals receipts came in above plan by $2 million (9.2%) and above prior year by $1.2 million (5.3%), according to the state. Year-to-date receipts were $8.9 million (3.9%) above plan and $8 million (3.5%) above prior year.
What will need to be taken into account is how the economy, and politics, might play out in the months and years ahead, given the unknown effects the tariffs imposed by the Trump Administration will have on neighboring Canada, an exporter and goods (like lumber and homebuilding material) — and tourists — to the Granite State.
Housing advocates worry that the governor’s budget priorities might have a discouraging, not encouraging, effect on the need to boost the state’s existing and future housing supply, which would have to happen if she intends to get more money from real estate transfer taxes.
