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Bill to end business tax exemption for N.H. hospitals, colleges to spark 2014 debate

A top House Republican has decided to move forward next year with legislation that would seek to end the exemption from New Hampshire’s Business Enterprise Tax now enjoyed by nonprofit hospitals, colleges and universities.

But Rep. David Hess’s proposal wouldn’t mean a windfall for the state treasury. The Hooksett Republican said his bill, which is still being drafted, would use the additional revenue to lower the rate of the BET for all taxpayers, and come out revenue-neutral for the state government.

The legislation will face resistance from nonprofit-sector advocates, who argue that the current tax exemption recognizes and facilitates those groups’ charitable missions, as well as from the hospitals and colleges themselves.

“At a time when we are trying to reduce the cost of health care, this proposal would have the exact opposite effect by increasing the cost of care,” wrote Steve Ahnen, president of the New Hampshire Hospital Association, in an email.

But Hess, the deputy House minority leader and a member of the tax-writing House Ways and Means Committee, said there is “no rational basis under tax policy” to exempt certain nonprofits from the BET and not others.

“The institutions that I’m referring to are some of the largest accumulators of wealth in our society today, and their executives, particularly at the hospitals, are among the highest paid in the state,” Hess said. “So it’s time to have the debate, I think.”

The BET, which was created in 1993, is a 0.75 percent tax on interest, dividends and compensation at businesses and nonprofits above a certain threshold. It’s one of the state’s largest single sources of revenue, and is expected to generate $225 million this fiscal year for the general and education funds.

The only groups exempt from the tax are nonprofits recognized by the Internal Revenue Service as 501(c)3 charitable organizations, a category that includes 24 of New Hampshire’s 26 acute-care hospitals and roughly a dozen private colleges and universities. Other nonprofits, if they meet the threshold requirement, pay the tax.

In September, Hess filed a drafting request with the Office of Legislative Services for a bill that would end the BET’s charitable exemption for hospitals and colleges for the largest of the tax’s three components – compensation.

At the time, Hess cautioned that he was exploring the issue and didn’t know if he would actually file the bill. But last week, Hess said he’s decided to sign off on the bill, and barring any drafting problems will introduce it in January.

The final text isn’t ready yet, but Hess said it’s being tweaked to avoid any conflict with the state Constitution’s requirement that taxes be “proportional and reasonable . . . upon all the inhabitants of, and residents within, the said state.”

That means a tax can’t distinguish among individual taxpayers. So Hess said the bill will extend the entire BET to nonprofit charities in general – though he said the goal is still to limit its effect to “large public nonprofits that utilize to a large extent local and state services,” and continue to exempt other charities such as family foundations and religious groups.

Hess said he’s spoken with other lawmakers about the bill, including Democrats, “and the reaction is universally, ‘Good, it’s about time we looked at this.’ ”

Opponents, like the Hospital Association, are preparing for a fight.

“Hospitals are focused on the need to find ways of creating a sustainable system of care in New Hampshire and we welcome the opportunity to do just that, but proposals that would increase the cost of care will not help us achieve that important goal,” Ahnen wrote.

Tax exemptions enjoyed by nonprofit charities reflect society’s long-standing commitment “to have organizations that are motivated and fully grounded in mission delivery over profit – profit isn’t the motive, community benefit is,” said Mary Ellen Jackson, executive director of the New Hampshire Center for Nonprofits.

Ending the BET exemption, she said, could make it harder for those groups to serve their communities.

“There’s a lot of good reasons for this tax exemption. . . . These are complex times, and for these large organizations, whether it be the Wentworth-Douglass Hospital or Southern New Hampshire University or the brain-injury hospital at Crotched Mountain, they need the resources to provide care to every income level,” Jackson said. “We would not be in favor of this.”

(Ben Leubsdorf can be reached at 369-3307 or bleubsdorf@cmonitor.com or on Twitter @BenLeubsdorf.)

Legacy Comments3

Great bill. "grounded in mission delivery over profit" some of the highest paid employees in the state and they call themselves "Charities" and "non-profits". Think about it, the "non-profits" are so well organized that they actually have a New Hampshire Center for Nonprofits. They have a full time lobbyist group there is so much at stake. Personally I have already stopped giving donations to these groups, I stick with the local youth groups like band, sports, dance where the kids are actually raising the money and it is not going to pay a $300K salary.......“proportional and reasonable . . . upon all the inhabitants of, and residents within, the said state.” Next go after the "current use" tax scam. I'll use the simple math example again - 2 wage earners with a combined income of $200K with $8K in property tax pays 4% of their income as tax; $100K income with same $8K tax they pay 8% of the income, $50K income with same $8K tax and they pay 16% of the income as tax. How is that ""proportional and reasonable"". The “less” you make in NH the higher percent of your income is paid in taxes. A property tax state where ~27,000 property owners have over 50% of the state in current use not paying their share. Only 4% of land in current is listed as farms land - 4%, so it is not a farms for food issue. Almost 50% are the small 10, 20, 30 acre plots owned by the highest income bracket people behind their personal homes so it is not about timber or forestry or the poor. Land in current use CAN be posted as “no trespassing” so it is not about open land for the public to use. How low would the tax rate per thousand be with the other half of the state added in – I'll say it again, the OTHER HALF of the ENTIRE state. Those ~~27,000 land owners are happy everyone else pays more so they can pay less when they own the most property in a property tax state..... Bring some common sense back to the state.

Although I agree with you on non-profits and giving to local groups like band, sports dance and scouts I do not agree with your $300K salary comments. It takes special talent to manage, lead and deliver effciient services in a hospital, charity or non-profit. I am sure that you and I don't have those skills in place but it is an awesome responsibility and a tough, tough job. People are paid for the value of what they produce, the responsibility they hold. I know that progressived don't get that. I might also agree with you on getting the property tax to a lower level. Here's the problem with that. Unless we can ensure that if we replace the property tax with another form of taxation that the property tax will go down and stay down, we ought not mess with it. The promise of an income tax to lower property taxes has never proven true in states where that story has been told. Property taxes go back up again. The answer may be a sales tax if food, clothing, prescriptions are exempted then those who spend the most pay the most. Your current use argument is silly and it is about stifling development and housing projects all over the state than it is about saving (in my case $400). You again, do not realize that if everyone was forced to sell their land on land use, you would see that either only the really wealthy would own land or developers would take over and build housing which would then mean more road improvements, more school needs, etc.

My "current use" argument is not about how "much" is spent it is about "how" revenue is raised. Controlling spending is a different fight. Low property taxes for everyone ensues "everyone" can keep their land and home, not just the wealthy. The wealthy like current use as they don't pay income tax on their income, they don't pay a sales tax and they don't pay the full property tax on their property. A Win - Win - Win. As my simple math problem shows, in NH the less one makes the higher the effective tax rate one pays. Yes I am for income tax - as you make more in life you pay a little more and conversely when ones earnings go down you pay a little less. Start it out at today's revenue amount, make 20% of that amount due in property tax and 80% due in income tax, not a cent more. No one has to sell land to the developers and no one is forced out of their homes in retirement or a period of job loss….. Next week can be the continuous argument about if more or less money is needed - Spending.

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