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Issue Summary - LLC Tax

Should LLCs be subject to the state's interest and dividends tax?

Issue Facts

By: LFDA Editor

In June 2009 the Legislature passed a short-lived tax on LLC owners.

The tax was repealed in June 2010 following a public uproar.

Under the law, LLC owners became subject to the state’s 5% interest and dividends tax. LLCs are already subject to the Business Enterprise Tax (BET) and Business Profits Tax (BPT).

The tax was proposed as a measure to help close the state's budget gap. The Department of Revenue estimated the tax would generated $15 million annually.

Opponents claimed the tax law would drive small businesses out of the state. They were also upset because the law was passed without a public hearing.

The LLC tax was repealed in SS HB 1, a bill aimed at reducing the state's budget deficit. It was passed during a special legislative session on June 9, 2010.

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Pros

Pro Issue Opinion by LFDA Editor:

 

Additional Tax Revenue

  • The Department of Revenue Administration estimates the LLC tax will generate $15 million annually. Without the LLC tax, legislators will need to make other cuts or impose additional taxes/fees to close the budget shortfall.

Closes Tax "Loophole"

  • With this change, corporations, partnerships and LLCs will be treated equally under the state’s interest and dividends tax. Prior to the change, the money an LLC owner paid to himself was not taxed. Now, LLC owners will only be able to take reasonable compensation. Any amount above that will be taxed at 5 % as a dividend.
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Cons

Con Issue Opinion By LFDA Editor:

 

Higher Tax Burden on Small Business Owners

  • Historically, New Hampshire residents have not been subject to the interest and dividend tax for distributions from LLCs. The change in tax law results in a double tax, once by the LLC when monies are earned, and again to the owners when earnings are distributed. This additional tax will prevent small business owners from growing and adding jobs.

Lack of Public Debate

  • The LLC tax was included as part of the June budget process and did not allow ample time for public debate. Once the public and mainstream media became aware of the law, only a handful of public hearings was scheduled by the Department of Revenue Administration. Critics are upset none of those meetings was scheduled in southern New Hampshire.
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Take Action

If you are interested in the LLC tax and want to take action here are some choices:

  • If you are new to contacting your government, please visit our page on How to Take Action.
  • Contact one of the organizations listed in Learn More.
  • Contact a government official as follows:

1. Contact members of the New Hampshire House of Representatives or the New Hampshire Senate.

2. Contact the Committee chairperson or members of the: House Way and Means Committee or the Senate Ways and Means Committee – these are the committees that oversee this issue.


3. Contact the head of the New Hampshire Lottery Commission.

4. Give your opinion to Governor John Lynch.
 

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Issue Status

The LLC tax repeal was passed during a special legislative session on June 9, 2010. 

Learn More/Take Action

Have an opinion on the LLC tax? Whatever your thoughts are, we urge you to make your voice heard. See the "Learn More/Take Action" section on this page for more information.

LLC Tax News

June 3, 2010
Foster's Daily Democrat: Legislature approves changes to "reasonable compensation"

May 26, 2010
Union Leader: Compromise on LLC tax falls apart