New Hampshire State Business Income Tax

What kind of tax will you owe on New Hampshire business income?

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Most states tax at least some types of business income derived from the state. As a rule, the details of how income from a specific business is taxed depend in part on the business’s legal form. More particularly, in most states corporations are subject to a corporate income tax, while income from “pass-through entities” such as S corporations, limited liability companies (LLCs), partnerships, and sole proprietorships is subject to a state’s tax on personal income. Tax rates for both corporate income and personal income vary widely among states. Corporate rates, which more often are flat regardless of the amount of income, generally range from 4% to 9%, and personal rates, which generally vary depending on the amount of income, can range from 0% (for small amounts of taxable income) to around 9% or more in some states.

Currently, four states (Nevada, South Dakota, Washington, and Wyoming) do not have a corporate income tax, and the same four states, along with Alaska, New Hampshire, and Texas, have no personal income tax. Individuals in New Hampshire and Tennessee are only taxed on interest and dividend income.

Apart from taxing business income through a corporate income tax or a personal income tax, many states impose a separate tax on at least some businesses, sometimes called a “franchise tax” or “privilege tax.” This is frequently defined as a tax simply for the right or “privilege” of doing business in the state. As with state taxes on business income, the specifics of a state’s franchise tax often depend in part on the legal form of the business. Franchise taxes are generally either a flat fee or an amount based on a business’s net worth.

New Hampshire has both 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’s “enterprise value tax base.” Both of these taxes apply to essentially every form of New Hampshire business. At the same, and as mentioned above, in terms of personal income New Hampshire only taxes interest and dividend income. Thus, while your New Hampshire business itself may well be subject annually to two different types of state tax, any remaining income after those taxes that passes through to you personally, for example from an S corporation, LLC, or limited liability partnership (LLP), will not be subject to further taxation on your personal state tax return.

In general terms, New Hampshire’s business profits tax is a flat 8.5% tax on income from business activity in the state, applied before any federal net operating loss or special deductions, and with various state-specific additions and deductions. Businesses with $50,000 or less in New Hampshire gross receipts are not required to file a BPT return. BPT returns for corporations are due on the 15th day of the 3rd month following the end of the taxable period. BPT returns for other entities are due on the 15th day of the 4th month following the end of the taxable period.

The business enterprise tax is based on a business’s “enterprise value tax base.” This is defined by the Department of Revenue Administration 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 BET rate is 0.75%. For taxable periods ending before December 31, 2013, a business is required to file a BET return if either:

  • its enterprise value tax base is more than $75,000; or
  • it has more than $150,000 of gross business receipts.

For taxable periods ending on or after December 31, 2013, a business is required to file a BET return if either:

  • its enterprise value tax base is more than $100,000; or
  • it has more than $200,000 of gross business receipts.

BET returns for corporations are due on the 15th day of the 3rd month following the end of the taxable period; BET returns for other for-profit entities are due on the 15th day of the 4th month following the end of the taxable period.

Let’s briefly look at additional details for five of the most common forms of New Hampshire business: corporations (C corporations), S corporations, LLCs, partnerships, and sole proprietorships.

Corporations. New Hampshire corporations are subject to both the business profits tax and the business enterprise tax.

Example: For the 2012 tax year, your corporation had New Hampshire income of $500,000 and an enterprise value tax base of $200,000. The corporation will owe New Hampshire business profits tax in the amount of $42,500 (8.5% of $500,000). The corporation will also owe New Hampshire business enterprise tax in the amount of $1,500 (0.75% of $200,000).

S Corporations. An S corporation is created by first forming a traditional corporation, and then filing a special form with the IRS to elect “S” status. Unlike a traditional corporation, an S corporation is not subject to separate federal income tax. Furthermore, most states also do not subject S corporations to a separate income tax, and instead tax each individual shareholder on the portion of the corporation’s annual net income he or she receives. In other words, in most states, S corporations are pass-through entities. New Hampshire, however, is different: it does not recognize the federal “S” election, and instead treats S corporations like traditional corporations, including requiring them to pay the same taxes as traditional corporations. In short, like all other forms of business in New Hampshire, S corporations are subject to both the business profits tax and the business enterprise tax.

However, an individual shareholder does not owe state tax on whatever portion of the corporation’s net income he or she ultimately receives.

Example: For the 2012 tax year, your S corporation had New Hampshire income of $500,000 and an enterprise value tax base of $200,000. The S corporation will owe New Hampshire business profits tax in the amount of $42,500 (8.5% of $500,000). The S corporation will also owe New Hampshire business enterprise tax in the amount of $1,500 (0.75% of $200,000). Individual shareholders will not owe tax to the state on their respective, allocated portions of the corporation’s net income.

Limited Liability Companies (LLCs). In most states, standard LLCs are pass-through entities that are not required to pay either federal or state income tax. Instead, income from the business is distributed to individual LLC members, who then pay federal and state taxes on the amount distributed to them. New Hampshire, however, is different: It does not treat LLCs as pass-through entities, and instead requires them to pay both the business profits tax and the business enterprise tax. An individual member, however, does not owe state tax on whatever portion of the company’s net income he or she ultimately receives.

(While by default LLCs are classified for federal tax purposes as either partnerships or disregarded entities, it is possible to elect to have your LLC classified as a corporation. In that case, the LLC would be subject to federal corporate income tax; however, this change in classification would not affect the LLC’s New Hampshire tax obligations.)

Example: For the 2012 tax year, your multi-member LLC, which has the default tax classification of partnership, had New Hampshire income of $500,000 and an enterprise value tax base of $200,000. The company will owe New Hampshire business profits tax in the amount of $42,500 (8.5% of $500,000). The company will also owe New Hampshire business enterprise tax in the amount of $1,500 (0.75% of $200,000). Individual members will not owe tax to the state on their respective shares of the company’s net income.

Partnerships. In most states, partnerships are pass-through entities that are not required to pay either federal or state income tax. Instead, income from the business is distributed to individual partners, who then pay federal and state taxes on the amount distributed to them. New Hampshire, however, is different: it does not treat partnerships as pass-through entities, and instead requires them to pay both the business profits tax and the business enterprise tax. An individual partner, however, does not owe state tax on whatever portion of the partnership’s net income he or she ultimately receives.

Example: For the 2012 tax year, your partnership had New Hampshire income of $500,000 and an enterprise value tax base of $200,000. The partnership will owe New Hampshire business profits tax in the amount of $42,500 (8.5% of $500,000). The partnership will also owe New Hampshire business enterprise tax in the amount of $1,500 (0.75% of $200,000). Individual partners will not owe tax to the state on their respective shares of the partnership’s net income.

Sole Proprietorships. In most states, sole proprietorships are not required to pay either federal or state income tax. Instead, income from the business is distributed to the sole proprietor, who then pays federal and state taxes on the amount distributed to him or her. New Hampshire, however, is different: It does require sole proprietorships to pay both the business profits tax and the business enterprise tax. The sole proprietor, however, does not owe state tax on the income he or she ultimately receives from the business.

Example: For the 2012 tax year, your sole proprietorship had New Hampshire income of $500,000 and an enterprise value tax base of $200,000. The business will owe New Hampshire business profits tax in the amount of $42,500 (8.5% of $500,000). The business will also owe New Hampshire business enterprise tax in the amount of $1,500 (0.75% of $200,000). You, the sole proprietor, will not owe tax to the state on the income you receive from the business.

Note on Multistate Businesses and “Nexus”

Our primary focus here is on businesses operating solely in New Hampshire. However, if you’re doing business in several states, you should be aware that your business may be considered to have “nexus” with those states, and therefore may be obligated to pay taxes in those states. Also, if your business was formed or is located in another state, but generates income in New Hampshire, it may be subject to New Hampshire taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated; if you run such a business, you should consult with a tax professional.

Additional Information

For further guidance on New Hampshire’s corporation net income tax, check the Department of Revenue Administration website. For information on business-related taxes in other states, check Nolo’s 50-State Guide to Business Income Tax. And, if you’re looking for detailed guidance on federal income tax issues, check Tax Savvy for Small Business, by Federick Daily (Nolo).

February 2013

by: , Contributing Author

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