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N.H. Senate may try to block state from taxing restaurants for tips to employees

The Senate may try to block New Hampshire’s tax collecting agency from requiring restaurants and other businesses to count tips as wages when calculating their tax bills under the Business Enterprise Tax.

“Some of us believe that . . . money should not be taxed with the BET,” said Sen. Bob Odell, a Lempster Republican.

Odell and other members of the Senate Ways and Means Committee, which he chairs, yesterday discussed a proposal to block the Department of Revenue Administration from requiring businesses to pay the BET on tips collected by their employees. But they didn’t take a vote – Odell indicated the language needs more work and could be attached as an amendment to a House bill, perhaps even the state budget, in the coming weeks.

The BET is a 0.75 percent levy on all compensation, interest and dividends paid or accrued by a business.

Since it was created in 1993, the BET has excluded noncash tips and cash tips of less than $20 a month from the definition of “compensation.” The New Hampshire Lodging & Restaurant Association says related administrative rules indicated employee tips didn’t count as compensation until a 2008 change that DRA officials say brought the rule back into line with the statute’s language.

The New Hampshire Business Review reported this month that the Department of Revenue Administration had contacted a number of restaurants to inform them that, going forward, the BET should be calculated based on employees’ gross income, which includes tips, instead of employees’ hourly wage rates.

Melinda Cyr, a Department of Revenue Administration tax policy analyst, said yesterday the agency noticed some businesses were paying the BET on all tips, some were paying it on some tips and many were paying nothing for tips on their BET bills.

The agency’s goal, she said, is consistent enforcement of the law. Tips totaling more than $20 a month, she said, do count as compensation.

“It’s not a new tax,” Cyr said. “It’s something that, when we look for compliance, we want to make sure everybody’s paying their fair tax across the board.”

But Chris McDonough, who owns several restaurants throughout the state, told the committee that his businesses have never included tips when calculating the BET since customers, not the restaurant, pay the tips.

“They should not be included because they are not compensation paid by the employer to the employee. They’re paid directly from the customer to the employee,” McDonough said. “Therefore, we have no control over that compensation.”

The New Hampshire Republican Party and two conservative groups, Citizens for a Strong New Hampshire and Americans for Prosperity, also expressed support for barring the revenue agency from applying the BET to tips, as did House Minority Leader Gene Chandler, a Bartlett Republican.

“This stunning and new interpretation of a five year old regulation represents a major new tax increase on the backs of many New Hampshire small businesses,” said Greg Moore, Americans for Prosperity’s state director, in a statement.

A draft amendment discussed yesterday, which would limit the BET to compensation “paid directly or accrued by the business enterprise,” had bipartisan support. It was sponsored by Odell, fellow Republican and Senate Majority Leader Jeb Bradley of Wolfeboro and the Ways and Means Committee’s two Democrats, Sens. Lou D’Allesandro of Manchester and Andrew Hosmer of Laconia.

Cyr said the Legislature has the prerogative to set policy, and Department of Revenue Administration officials could work with Odell on the amendment’s language. But she said the agency can’t offer an estimate of how much revenue the state might lose by excluding tips from compensation calculations under the BET.

Jeff McLynch, executive director of the liberal-leaning New Hampshire Fiscal Policy Institute, asked the Ways and Means Committee to not offer such a carve-out.

“The amendment would undermine the basic purpose of the BET, eating away at its base and potentially beginning to compromise the stability that it brings to the tax system,” he said.

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

Legacy Comments7

democrats in charge...... unbalanced budgets and more taxes .....who saw that coming?

I do remember. Why should an employer have to pay taxes on money they didn't pay their employee? This whole concept is another example of the so called "New Hampshire advantage", which too often translates in to strange, bizarre voodoo taxes on a certain group of people but not others. Fair and equal taxation? I don't think so.months. Hidden income tax? Ya think?

Since the employer doesn't have to pay minimum wage then that difference is profit to the employer and therefore should be taxed as income and profits.

I think I understand what is happening here but on the federal level tips are added to the hourly wage and the total is taxed. It is incumbent on the employer to provide a reporting system but it is the employees responsibility to report those tips. However, I don't think that the small business should be required to pay a BET on money earned other than through direct payroll emanating from the hourly wage. To say

So I pay a waitress a tip, and the DRA wants her employer to pay taxes on it? Sort of like requiring your mortgage holder to pay your property tax bill for you. Wouldn't that be nice? What a ponzi scheme.

Rember the employer is not paying minimum wage to tipped employees. Their income/pay is their tips.

It's not all that unthinkable for your mortgage lender to pay your property tax. Your contract with your lender always requires you to keep the property tax payments up to date. It is (for blatantly obvious reasons) in the lender's interest to avoid having your property seized by the government for nonpayment of taxes. Many lenders choose to set up an escrow account to make sure the property tax is in fact paid: you would pay the tax along with the debt service and then the mortgage lender would pay the tax for you.

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