Corporate Tax Reform in New Hampshire Friendlier to In-State, Mom-and-Pop Businesses


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Late last month, New Hampshire adopted legislation that could serve as a model for other states seeking to modernize their corporate income taxes. As part of their biennial budget process, Granite State lawmakers approved a change in the way they decide which multi-state companies are subject to the state's business enterprise tax, moving from a standard based on "physical presence" to one based on "economic presence." This change may sound esoteric, but it's important because the "physical presence" standard leads to all sort of strange outcomes, including advantages for huge out-of-state corporations that do business with state residents over the locally owned businesses that operate entirely within the state.

Changing this standard (also known as "nexus") to one based on economic presence will help New Hampshire ensure that corporations that take advantage of the economic market the state fosters - its transportation infrastructure, judicial system, and educated workforce - will pay their fair share in taxes, even if they don't have offices or factories in the state. In fact, as we previously noted in our Talking Taxes blog, the US Supreme Court earlier this year declined to hear two cases - Lanco and MBNA - in which New Jersey and West Virginia had subjected companies to business taxes because they had substantial economic presence in the state. For more information on the "physical presence" standard and how it can harm state residents, see the ITEP paper on this topic.

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