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 email@example.com or on Twitter @BenLeubsdorf.)