Lawmaker’s proposal would send business-tax bills to nonprofit N.H. hospitals, universities
A senior House Republican is considering legislation for next year that would end the exemption from a major state business tax now enjoyed by New Hampshire’s nonprofit hospitals, colleges and universities.
“The nonprofit sector of the economy represents approximately 12 percent of the state’s gross domestic product, and for some reason the Business Enterprise Tax exempts 12 percent of the state’s economy from its applicability,” said Rep. David Hess of Hooksett, the deputy Republican leader in the Democratic-controlled House. “And it’s funny: When you look at the highest-paid employees in the state . . . a hefty percentage are hospital executives and college presidents.”
The BET, which was created in 1993, is a 0.75 percent levy on interest, dividends and compensation at any business or nonprofit above a certain size – except groups recognized by the federal Internal Revenue Service as 501(c)3 charitable organizations.
That exempt category includes 24 of New Hampshire’s 26 acute-care hospitals and about a dozen private colleges and universities.
Hess has filed a legislative service request, a request for the Office of Legislative Services to draft a bill “including compensation paid by nonprofit hospitals and universities under the Business Enterprise Tax base.”
But Hess said last week he’s not sure he will actually file the bill for the Legislature’s 2014 session. Under House rules, he has until Nov. 15 to sign off on the bill once it’s actually drafted
“I’m looking into it,” said Hess, a longtime lawmaker and member of the tax-writing House Ways and Means Committee. “I filed the LSR, doesn’t mean I’m going to sign off on it. I don’t know what the problems might be with this, but I filed it so I could take a look at it.”
Hard numbers weren’t available last week. But if Hess’s bill became law, it would likely mean millions in additional revenue for the state government – paid by hospitals and universities that officially are charitable organizations, not businesses, despite numbering among the state’s major employers.
The New Hampshire College & University Council, an advocacy group with 22 private and public members, was unhappy with the idea.
“They are federally recognized as not-for-profit organizations that have a charitable purpose. They provide a public good, which is why they’re exempt from the Business Enterprise Tax and generally exempt from taxes,” said Tom Horgan, the council’s president. “It would be a direct challenge to their tax-exempt status.”
The New Hampshire Hospital Association declined to comment, “not having seen anything regarding the content of the bill,” said spokesman John Clayton.
‘See what the options are’
New Hampshire has two major business taxes, the BET and the Business Profits Tax. Together they’re expected to generate $561.1 million for the state government in fiscal 2014, a quarter of all revenue for the general and education funds. The BET alone is expected to bring in $225 million.
“I think, by its very nature, the BPT wouldn’t apply to nonprofits because they don’t make profits, quote-unquote,” Hess said. “But there’s no reason to grant the same exemption under the Business Enterprise Tax, which is essentially a tax on compensation.”
New Hampshire’s two for-profit acute-care hospitals, Portsmouth Regional Hospital and Parkland Medical Center, and for-profit colleges such as Mount Washington College aren’t exempt from state and local taxes. But, for the most part, nonprofit colleges and hospitals are.
“They have a charitable public mission and they provide services to the public and they provide a public good,” Horgan said. “I think we want to encourage people to be both healthy and educated.”
He added, “We should be encouraging our colleges and universities to do more. Taxing them certainly does not do that.”
There are some exceptions. Hospitals since 1991 have paid a tax on services revenue called the Medicaid Enhancement Tax, which is linked to the state’s payments back to them for uncompensated care. Some groups have agreed to pay money to municipal governments under Payment in Lieu of Taxes, or PILOT, agreements. And some nonprofit-owned buildings, such as hospital offices and college dormitories and dining halls, are not exempt from property taxes, the industry groups said.
But in general, they’re considered off-limits. Groups exclusively dedicated to religious, educational and other charitable aims get tax benefits not available to corporations motivated by profit – as well as greater scrutiny, such as legal oversight by the New Hampshire attorney general’s office.
Hess’s bill would likely spark debate over that balance.
“I just want to see what the options are out there,” he said.
(Ben Leubsdorf can be reached at 369-3307 or firstname.lastname@example.org or on Twitter @BenLeubsdorf.)