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As economy improves, most areas of tax revenue are also on the rise

  • Ahmed, left, and Muhanad Ibraheem of the new Wow Fried Chicken and Subs on Depot Street are hoping the food industry keeps in growing in New Hampshire. GEOFF FORESTER—Monitor staff

  • Economic indicators show an uptick in the housing market in New Hampshire. GEOFF FORESTER—Monitor staff

  • Ahmed, left, and Muhanad Ibraheem of the new Wow Fried Chicken and Subs on Depot Street are hoping the food industry keeps in growing in New Hampshire. GEOFF FORESTER—Monitor staff

  • Ahmed Ibraheem of the new Wow Fried Chicken and Subs on Depot Street hopes the food industry keeps in growing in New Hampshire. GEOFF FORESTER—Monitor staff

  • Taxes from cigarette sales are projected to go down. GEOFF FORESTER—Monitor staff



Monitor staff
Tuesday, January 10, 2017

New Hampshire hopes that vacationers throughout New England don’t suddenly start eyeing the Caribbean or Paris, because tax venue on hotels and restaurant food has been a bright point in state income for years.

“Over 2011, (meals and rooms tax) increased by 28 percent through 2015, and by 40 percent above levels of 2005. . . . It’s one of our stars,” said John Shea, executive director of the New Hampshire Fiscal Policy Institute, in a Monday presentation to a number of House and Finance financial committees.

The presentation was among a number being given to legislators this week, providing background information as they start the 2017 session.

The news is mostly good. Three major sources of state income – the two business taxes, the real estate transfer tax, and the rooms and meals tax – all rose in the past two years as the economy shakes off the recession, although most are still below their previous highs in 2007.

The real estate transfer tax is typical: It was nearly halved during the recession after the 2007 high, but has risen about 40 percent since its low point, back up to nearly $120 million in fiscal year 2015.

The only major laggard is the tobacco tax, which has declined as people smoke fewer cigarettes, despite a rise in per-pack taxes.

A smaller straggler caused by changes in habits is the communications tax, which has slumped by one-quarter since 2011 to about $58 million, largely because people have switched away from landline telephones.

In contrast to other major income-producing taxes, on businesses, real estate and tobacco, rooms and meals tax receipts rose “even throughout the recession,” Shea said. This happened partly because of an increase in the tax rate in 2009, from 8 percent to 9 percent, but also a change in habits during lean times.

“I think there was a trend during the recession era for folks to spend their vacations closer to home – not to go to Europe or Hawaii but to stay in the United States, in the Northeast,” he said. “And I think the state of New Hampshire has done a great job of marketing itself as a tourist destination.”

Whether this trend will continue, especially in light of a strong dollar that has made foreign travel more affordable, is uncertain.

Among the major financial issues to be considered this session is whether to further the state’s two business taxes: the business enterprise tax – which is based on salaries, interest and other compensation – and the business profits tax – which is based on profits.

Gov. Chris Sununu supports the cuts, saying that decreasing business taxes last year led to an increase in state business tax revenue, apparently by spurring economic activity.

Shea was less sanguine about the effect of business tax cuts Monday, saying that they affect a relatively small number of the state’s businesses. About half of the state’s roughly 140,000 businesses pay no enterprise tax and three-quarters of them pay no business profits tax, mostly because they aren’t large enough, so they wouldn’t be helped or hurt.

“One-tenth of 1 percent of the businesses in New Hampshire pay about 30 percent of the (business profits tax). . . . It is a fairly narrow base,” he said.

He noted that these state taxes make up a much smaller share of virtually all businesses’ costs than does the local property tax.

Overall, property taxes in 2015 comprised 49 percent of all state and local taxes paid by businesses, more than twice the 22 percent paid for the state’s two business taxes together.

“It’s very difficult to analyze in isolation one particular tax . . . because there are all these other factors that play into it. . . . It’s not so easy just to look at the numbers and say we’re changing a tax X percent and anticipate that revenues will be the same, because of the interplay with all these pieces of legislation,” he said.

(David Brooks can be reached at 369-3313 or dbrooks@cmonitor.com or on Twitter @GraniteGeek.)