N.H. House declines to repeal LLC tax

The New Hampshire House yesterday voted to send a bill repealing the so-called LLC tax to interim study, rejecting Republican calls to pass the repeal bill immediately.

Gov. John Lynch and Democratic leaders recently joined Republicans in calling for a repeal of the extension of the interest and dividends tax to owners of limited liability companies. But Democrats are calling for a complete package that will both repeal the tax and create a balanced budget. The House, by a 190-150 vote, agreed to give a committee time to develop that package.

"This allows us to repeal it in a responsible, thoughtful manner," said Rep. William Hatch, a Gorham Democrat and vice-chairman of the House Ways and Means Committee.

Ways and Means Committee Chairwoman Susan Almy, a Lebanon Democrat, said sending the bill to interim study will give the committee a chance to have a public discussion, with accountants, about the language of the bill. She said the Senate and House will both work on balanced budget bills later this session, which will include an LLC tax repeal. Almy said there are also plans to take a comprehensive look at the state's business tax structure, which could be done by the end of the year.

"Passing this bill is irresponsible not only because . . . it doesn't address the budget issues it creates," Almy said, adding that language in the bill could open the state up to lawsuits challenging its fairness to different taxpayers. "We need a committee to look at the whole system, to create a revised budget bill that will bring us to the balanced budget we promised our state."

The Senate recently passed a bill that would repeal the LLC tax, though that bill is also going back to a Senate committee for further work. House Republicans called on the House to follow the Senate's lead.

Rep. David Hess, a Hooksett Republican, quoted President Obama about the importance of giving tax breaks to small businesses in order to create new jobs.

"By extending the interest and dividends tax, we are imposing a new tax on approximately 40,000 of our small businesses here in New Hampshire," Hess said. "That means fewer, if any, (new) jobs."

Hess called the tax discriminatory because it does not apply to sole proprietorships.

Rep. Frank Sapareto, a Derry Republican, added that the process was flawed, since the LLC tax was passed as a last-minute way to balance the budget with no public hearing or committee review.

"It's not the way to do a major tax policy," he said.

Sapareto said the state "shot ourselves in the foot" by ensuring that new businesses will not open in New Hampshire.

Almy, like Lynch, continued to defend the LLC tax as a way to close a loophole in which limited liability companies and corporations are treated differently for tax purposes. But Almy echoed Lynch's concerns that tax advisers were able to come up with ways for wealthier business owners to avoid paying the tax, making it unfair for smaller businesses.

Republican gubernatorial candidate John Stephen criticized the House vote.

"By voting against repealing Governor Lynch's job-killing LLC tax, the House is sending us on a path of higher unemployment, more businesses leaving the state and a weaker economy," Stephen said in a statement.

State Republican Chairman John Sununu said House Democrats "demonstrated a complete disregard for New Hampshire's small business community."