For most states, the highest percentage of revenue comes from income and sales taxes.
Since New Hampshire has neither, most of the state’s revenue comes from taxes on businesses, namely the Business Profits Tax (BPT) and the Business Enterprise Tax (BET). Together, they can represent up to 40% of the state’s revenue.
A new report argues that the notion of reducing these taxes to help kick-start business activity — and thus raise more tax revenue — actually hurts the state in the long run.
According to the New Hampshire Fiscal Policy Institute (NHFPI), policymakers have shortchanged the state between $795 million and $1.17 billion in what it called “forgone revenue” since 2015. It argues the money that was left on the table meant “fewer resources for critical services like education and infrastructure.“
“The research clearly shows that business tax rate reductions did not generate enough economic activity to offset the revenue shortfalls they generated,” said Phil Sletten, research director at NHFPI and the study’s lead author.
“New Hampshire’s business tax revenue growth lagged behind Maine and Vermont, as well as average growth nationwide, indicating New Hampshire’s tax policy changes did not cause the state’s increase in revenue,” he added.
According to the state Department of Revenue Administration, the Business Profits Tax (BPT), originally enacted in 1970, has historically been one of the largest sources of general fund revenue.
The BPT rate, originally set at 6%, peaked at 9.56% in fiscal year 1983. After a series of reductions, it currently stands at 7.5%.
The Business Enterprise Tax (BET) was enacted in 1993 at a rate of 0.25%. It peaked at 0.75% in 2001 and currently stands at 0.55%.
BET and BPT tax rates were reduced in Tax Years 2016, 2018, 2019 and 2022, with a BPT-only reduction in 2023.
The BPT taxes corporate income after certain expenses and adjustments, while the BET is based largely on compensation paid to employees by businesses, as well as interest and dividends paid by businesses.
“There is no clear historical pattern that could provide evidence of a direct and overriding causal relationship between BPT rate levels, either higher or lower, and job growth or growth in the state’s economy,” the report states.
As the governor and state budget writers wrangle over how much money to put into the new state budget — and how to fund it — NHFPI argues the state left money on the table with a succession of cuts to the business taxes.
While total business tax revenues rose over the last decade, the new study finds no evidence that those increases were driven by the rate reductions.
The new study builds on a similar study the institute did in August 2023 when it said the state “has forgone a substantial amount of revenue for public services by reducing the BPT and BET rates. Business tax rate reductions are estimated to have reduced revenues from these taxes by between $496 million and $729 million from the 2016 to 2022 taxable periods.”
While there was revenue growth in those two categories, the Institute says other factors were at play.
Those factors include an uptick in economic growth that was delayed after the end of the Great Recession, federal tax policy changes spurring business repatriation of corporate profits from other countries, and a surge in national corporate profits paired with increases in wages during and after the COVID-19 pandemic.
With the tax cuts, according to Sletten, New Hampshire’s business tax revenue growth was behind other New England states, which did not change their rates.
New Hampshire’s 124% increase in business tax revenues from 2015 to 2023 fell behind the 166% increase in Vermont and 167% increase in Maine during the same period. The top corporate tax rates in Maine and Vermont did not change during this period, according to the Institute. It noted the state lagged behind the country as a whole, which tallied a 192% growth in business tax revenues.
“Budget decisions involve trade-offs, and policymakers need good information to understand those trade-offs. This research provides insights into which policies are most effective at strengthening our economy and improving the lives of Granite Staters,” said Sletten.
The state’s fiscal year runs from July 1 to June 30 of the next year. The state’s current fiscal year wraps up on June 30, 2025. It also represents the end of the state’s biennial budget, which runs for two consecutive fiscal years.
The state’s various revenues are critical to formation of the new state biennial budget, which goes into effect July 1, 2025 and runs until June 30, 2027.
The BPT and BET are major players in how the budget is ultimately configured, and, to date, the numbers are lagging.
For the eight-month period of July 2024 to February 2025, the BPT and BET combined are running $114.3 million behind what was projected for the period and $106.8 million behind what was generated the previous year.
Compared to other revenue sources, the two business taxes represent the largest hole in the state budget.
“While state corporate tax receipts are often volatile, recent trends in business tax revenues do not suggest March and April revenues will be robust,” said Sletten, in a separate report focused on February revenues. “On average this fiscal year so far, business tax receipts have been about 19.8% lower each month than they were in the same month last year.”
Of the two taxes, the BPT produces far more revenue than the BET.
The state generated $1 billion from the business profits tax, according to revenue department data, just under half of the state’s overall $2.2 billion revenue in FY 2024. The state took in $209.5 million from the business enterprise tax in FY24.
Gov. Kelly Ayotte is basing her fairly lean biennial budget on a significant rebound for those business taxes, even though House Majority Leader Jason Osborne, R-Auburn, with the backing of other House Republicans, has offered legislation to reduce the BET from 0.55% tot to 0.5%.
Ayotte has told the media that she is moving ahead with a budget that assumes no reductions in the current business tax structure.
Republicans historically have argued that business tax cuts attract more business to the Granite State.
The NHFPI analysis counters that notion.
“The available evidence, including both sophisticated multi-state modeling and simple quantitative relationships based on New Hampshire data, cannot conclusively quantify the effects of tax rate reductions on the economy. However, recent changes in the rate of the Business Profits Tax, the State government’s largest tax revenue source, do not appear to have an impact on the economy that is definitively distinguishable from underlying economic activity or national trends,” it said.
“Both NHFPI’s August 2023 analysis and this update show that New Hampshire’s business tax rate reductions do not appear to have resulted in more revenue,” it added.
