CONCORD, N.H. — New Hampshire revenue officials have simplified rules applying a 5 percent interest and dividends tax to some small business owners, allowing them to use federal forms and choose the time period to report their profits.
The rules were submitted to a legislative committee for review on Wednesday. The earliest the committee can approve the proposed rules is during a hearing scheduled for Feb. 19. That would give people about two months to determine what they need to pay, if anything.
Meanwhile, another committee heard testimony Wednesday on a bill to repeal the tax expansion, which some legislators say is unconstitutional, partly because it was passed at the last minute as part of the budget last year without any prior notice or hearing.
Revenue officials said the rules, which also clarified language on loans and repayment, have undergone many changes since they were introduced in November.
Kevin Clougherty, commissioner of the Department of Revenue and Administration, said providing records for long time frames was a big concern for the business owners.
“Some have great records going back to their inception; some really, not so great,” Clougherty said. “So what we’ve done is, we’ve offered an option. If it’s to the benefit of the filer to go back to the beginning of their inception and compile a return, we’re OK with that.”
If a business owner doesn’t have that information readily available, they can start with the beginning of 2009, he said.
The tax, which has existed since 1923, is paid by individuals on interests and dividends made from their investments. Last year, the Legislature extended the tax to earnings of some owners of limited liability companies and partnerships to generate more revenue and to more fairly share the tax burden. They had been exempt from the tax.
The tax expansion is expected to generate $30 million over two years. Limited liability companies have some characteristics of corporations, but all business losses, profits and expenses flow through to the individual members. LLCs offer greater flexibility in ownership than a corporation.
Department officials say they don’t have an estimate on how many small business owners would be subject to the tax. They said 80,000 individuals filed an interest and dividend return last year and of those, about 72,000 actually made a payment.
The department conducted four hearings on the rule gathering process since December. Clougherty said many small business owners who testified at those hearings said they had difficulty making a profit. In those cases, the tax wouldn’t apply to them, he said. “They just aren’t going to get to that level.”
Others are taking a compensation deduction and leaving some profit left in the business to grow.
“When you get to the point that after you’ve taken a reasonable salary and you’ve got profit and you take something out of that profit to give to yourself on top of that it, then you’re going to be taxed, because that’s the dividend,” Clougherty said.