Former state revenue chief slams small business tax as 'Insidious' job killer Could cost 600 jobs a year, Blatsos says

Former state revenue chief slams small business tax as 'Insidious' job killer
Could cost 600 jobs a year, Blatsos says

By Nate Giarnese
Reporter
nate@conwaydailysun.com
—
The former chief of the state Department of Revenue Administration said a controversial tax hike on limited liability corporations could wipe away 450 to 600 jobs a year in the Granite State, striking sharply at the heart of the state's historic small business advantage.
“Forty-two percent of of all jobs in the state come from small business,” said Philip Blatsos, who worked 30 years for the revenue department and was commissioner from 2001 to 2007.
He said a 5 percent interest and dividends tax being tacked onto distributions made by LLCs and other small businesses forces the owners of mom and pop operations to cut back on hiring as they face troubling uncertainty about the future of tax bills.
Small businesses file as sole proprietorship or LLCs to gain shelter from certain tax and insurance regulations imposed on larger corporations. LLCs, including shop owners and loggers, are prevalent in the North Country.
“They mortgage their house to make payroll for God sakes,” Blatsos told The Conway Daily Sun.
The addition of a dividends tax in many cases triggers an additional 8.5 percent state profits tax to kick in, fueling in reality a much larger and unexpected hike for small business owners, Republicans complain.
Blatsos, representing a pro-business group, attended a final of four public hearings on the tax, during which about 100 came out at Kennett High on Saturday.
It is the result of a legislatively-set DRA administrative rule change last year. It's now under fire by Republicans and business groups as a bid to insert the hikes without a legislative hearing. The rule is expected to be posted in coming days and the tax could take affect in April and be retroactive to January 2009, state Rep. Gene Chandler, R-Bartlett, said.
Blatsos said an increasing New Hampshire tax burden coupled with a sudden uncertainty in the future of the state's commercial tax code threaten to curb economic growth. Small businesses may pull back on expansion while prospective business owners may think twice before moving to New Hampshire, Blatsos said.
“New Hampshire was always very stable as far as taxes,” he said. “We're the best. This is insidious, this is a real danger.”
But an area Democrat said the change simply alters how an existing tax on larger corporations is applied. It was framed by revenue officials as spreading tax equity across small and large businesses, the latter of which already pay an interest and dividends tax, state Rep Tom Buco, D-Conway, said.
Moreover, he said the tax was critical to help the governor close a huge budget gap last year after a slew of other unpopular tax hikes were scrapped.
“The only way to increase revenue is to have these small increases every couple of years in the sources of revenue that we have,” Buco said. “It was presented as a way to close a loophole in the interest and dividends tax.”
The tax targets distributions made by LLCs. That includes payments made to owners or partners beyond what the state decides is beyond reasonable compensation, Republicans complain.
“A large portion of businesses are going to be taxed at 13.5 percent,” state Sen. Jeb Bradley, R-Wolfeboro, said. “In reality it is an income tax on business owners.”
Others insist it is not.
“Most people who have LLCs are not even going to be affected by this,” said Buco. “You don't have to pay tax on your compensation.”
Buco noted other unpopular tax proposals, such as an entertainment tax, were stripped out of the 2010 budget.
“I was quite relieved that some of the other taxes proposed were not included in the budget,” he said.
Many of those proposals, however, brought a rain of public outrage as Republicans slammed them amidst legislative wrangling sessions. But the LLC tax was inserted in a broad budget package at the last minute before the budget passed, allowing it to duck the usual vetting in legislative hearings, critics said.
“It was late at night in some back room. There was no morning. There was no hearing. There was no other side,” Blatsos said. “I've closed a lot of loopholes, I wouldn't have closed this one.”
Chandler said while he expected the tax will be implemented, a repeal bid is “gaining steam.” The matter will be hashed out amidst slew of committee review sessions in coming months.
“At least the department realizes what a problem it is,” he said.
Buco chastised critics for turning rule-making hearings in Concord, Plymouth, Berlin and Conway into political forums he said were fraught with “misinformation.”
Blatsos and Chandler said they don't blame the office of DRA commissioner Kevin Clougherty, who they said is just following rules set by lawmakers.
“They didn't pass this law, they're just trying to take something that's very poorly written and make it work,” Blatsos said. “The bad people are the ones who passed it.”