NH BET: Another State Income Tax?
Well, I've said it: Income tax. New Hampshire may not have a broad based
income tax but certainly variations on a theme. The income tax has
been the Granite State's political poison pill and yet New Hampshire's
home-grown versions of taxation look, act and smell like income
Let's start our odyssey through the state's current taxes. I'll then introduce
you to the BET and judge for yourself if New Hampshire has an income
those who do not own a business or have substantial interest/dividends
you're not likely aware of New Hampshire's dark side. New Hampshire
not only has two existing income taxes, but has added a third on
July 1, 1993.
Interest and Dividends (I&D)
state will tag an individual for 5 percent of taxable interest and
dividends. The tax is straightforward with little opportunity for
Business Profits Tax (BPT)
If you operate a business and have profits, the state wants 8.5%
of the profit. Common and still good tax strategy is to eliminate
profits by paying profits as compensation to owners. For the small
business that pays out its profits avoiding tax, there is no guarantee
NH Department of Revenue Administration will agree the compensation
is reasonable. Reasonable compensation is like beauty... in the
eye of the beholder.
strategy has been so successful the BPT hits primarily publicly
held companies that cannot pay out their profits. Notably, several
years ago, Cabletron Systems of Rochester sued the state suggesting
the existing BPT was unconstitutional. Cabletron lost the court
battle but may have won the war. During negotiations, the company
announced a major expansion in Rhode Island. Subsequently, the company
settled with New Hampshire for $11 million. We'll probably never
know the full amount of the tax due the state. Jobs can be powerful
What about a BPT Audit?
With the state's quest for tax revenue and the need for statewide educational
funding, we can expect DRA to continue attacking compensation deductions.
The state spends its resources at the audit and appeal level. It's
no secret DRA knows the audit and appeal process is expensive and
taxpayers are reluctant to appeal. Do not despair. You have appeal
rights, but must prove compensation is fair based on the facts.
Business Enterprise Tax (BET)
Governor Merrill felt the heat from Cabletron but instead of fixing the existing
system, the Governor and Legislature added another separate tax
- the Business Enterprise Tax.
The BET is calculated separately from the Business Profits Tax. Most
businesses that plan their way out of the BPT will get caught by
The BET tax base is:
Compensation paid, plus
Interest paid, plus
Add these items and multiply by ¾ of 1 percent (.0075). Effective
for tax periods ending on or after 7/1/2001 the rate increases from
0.5% (.0050) to 0.75% (.0075).
If your gross receipts exceed $150,000, or the tax base above exceeds $75,000, you must file a BET tax return.
Let's assume you pay $500,000 compensation (salary), and $200,000 interest. Your taxable base is $700,000 with
a tax at ¾ percent or $5,250. Rule of thumb is $750 tax per $100,000 of BET tax base.
The BET is a credit against the BPT. The tax credit can be carried forward for 5 years.
BET - Income Tax by Another Name?
This tax looks and smells like an income tax ... except the employer is paying the tax, not the employee.
Imagine Governor Merrill campaigning on a platform where citizens pay an income tax of ¾ of 1 percent
of salaries? Political suicide. The key to passing an income tax in New Hampshire is to call the income tax a
Business Enterprise Tax ... ahem.
From: The Conway Daily Sun, Wednesday, October 20, 1993 - Page 5 [Updated to 12/28/2005]
© Robert L. Johnson, a CPA/PFS (Personal Financial Specialist), has been advising clients since
1970. His tax business and personal financial consulting firm is located in North Conway, NH and
Wells ME. Articles on this site are general information and not tax advice. Please see your
professional tax advisor.