Research & Commentary: New Hampshire Tax Reform

Published August 13, 2015

New Hampshire is one of nine states without an individual income tax, but it has several other broad-based taxes, including a 9 percent tax on restaurant meals and room rentals and a 5 percent income tax on dividends and interest. The state also has two major taxes on businesses: a business profits tax (BPT), which is a tax on business income, and a business enterprise tax (BET), which is a tax on a business’ enterprise value tax base. 

The business profits tax is a flat 8.5 percent tax on income from business activity in the state. The tax is applied before any federal deductions and after any state additions and deductions. Businesses with $50,000 or less in New Hampshire gross receipts are not required to file a BPT return. 

The business enterprise tax is based on a business’ enterprise value tax base, which the Department of Revenue Administration defines as “the sum of all compensation paid or accrued, interest paid or accrued, and dividends paid by the business enterprise, before special adjustments and apportionment.” The current BET rate is 0.75 percent. New Hampshire businesses are required to file a BET return if the enterprise value tax base is more than $100,000 or if they have more than $200,000 of gross business receipts. 

High corporate income taxes are a deterrent to economic development, discouraging new businesses and high-income earners from moving into a new market while encouraging current businesses to leave. High taxes also discourage new capital from coming to a state. Both of these taxes are applied to nearly every form of business in New Hampshire. 

Although New Hampshire’s tax system is better than those in many states, it has room for improvement. Gov. Maggie Hassan (D) recently announced a new tax proposal that would lower the business profits tax, increase the threshold on who has to file and pay the business enterprise tax, and dramatically increase the state’s tobacco tax. 

Hassan’s proposal would decrease the BPT from 8.5 to 7.9 percent by the end of 2015. The BET would not be decreased, but the thresholds to pay the tax would be increased to $250,000 in gross business receipts, with the enterprise value tax base threshold increasing to $150,000. 

To offset these tax cuts, the Hassan’s proposal would increase the state’s cigarette tax by 21 cents and impose the same tax on e-cigarettes and other tobacco products. Although sin taxes sometimes bring in increased revenue for a brief time, they often lead to an even greater increase in expenditures that cannot be supported by the tax over a long period, thereby contributing to budget shortfalls and subsequent tax increases. States should avoid sin taxes because they distort the market and encourage unsustainable increases in government spending while placing an unnecessary burden on lower-income taxpayers. 

Imposing excise taxes on e-cigarettes and other noncombustible products is not justified from a public health perspective, as it removes a prime economic incentive for smokers to improve their health by switching to e-cigarettes and other less harmful alternatives. 

New Hampshire should continue its focus on lowering all forms of income taxes, which would put dollars back into the pockets of taxpayers and create new, reasonable limits on government spending.

The following documents examine income taxes in greater detail.

Ten Principles of State Fiscal Policy
The Heartland Institute provides policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy principles. These range from “Above all else: Keep taxes low” to “Protect state employees from politics.” 

Policy Tip Sheet: Corporate Income Taxes
This Policy Tip Sheet examines corporate income taxes and their effects on economic development and suggests of how legislators can limit or eliminate their corporate taxes. 

Research & Commentary: The Best and Worst Ways to Eliminate a Budget Deficit
Heartland Institute Government Relations Director John Nothdurft identifies the most economically advisable ways states can trim their budget deficits. 

Rich States, Poor States
The sixth edition of this publication from the American Legislative Exchange Council and authors Laffer, Moore, and Williams offers both individual-state and comparative accounts of the negative effects of income taxes. 

States Profiting the Most from Sin
Using data from the Census Bureau and the American Gaming Association, Michael B. Sauter, Alexander E. M. Hess, and Thomas C. Frohlich of 24/7 Wall St. identify the states where the largest percentage of revenue is from alcohol, tobacco, and casino taxes, state lotteries, and state-regulated liquor stores. 

The Dirty Dozen: 12 States That Bet Big on Sin
Nikhil Hutheesing of Bloomberg News examines the dozen states with the greatest percentage of total tax revenue derived from “sin,” including tax revenue from tobacco, alcohol, and pari-mutuel betting, provided by the State Government Tax Collections survey of the U.S. Census Bureau. 

Personalizing the Corporate Income Tax
In a Fiscal Fact article, Gerald Prante and Scott Hodge discuss the effect of corporate income taxes on individual households. They write, “Examining income groups, Chamberlain and Prante found low-income households pay more in corporate income taxes than they pay in personal income taxes. Geographically, households in largely urban congressional districts and metropolitan areas bear a disproportionate share of corporate income taxes today and, thus, would receive a significant boost in living standards if the corporate tax burden were reduced.”

Tax Efficiency: Not All Taxes Are Created Equal
Jason Clements, Niels Veldhuis, and Milagros Palacios identify the least-costly and least-economically damaging ways governments can extract tax revenues, strategies the authors say will improve economic performance.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Budget & Tax News at, The Heartland Institute’s website at, and PolicyBot, Heartland’s free online research database at

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at [email protected] or 312/377-4000.