With over 55,000 people unemployed and hundreds of thousands underemployed, the current leaders of our State are trying to institute a new, Personal Income Tax on 30,000 small business owners in New Hampshire. At a time when even the ultra spending President Obama is suggesting creating small business incentives to spur job growth, our current State Government is trying to institute new taxes in an all out assault against an economic recovery. If passed, these new tax rules will be the most crushing in decades.<\/p>\n
Our State is based on small business. It is who we are and how we live, grow and feed our families. <\/p>\n
At issue is an attack on New Hampshire small business owners, which, if approved, will send our great State to the back of the pack in its ability to come out of the recession by creating jobs and economic opportunities. The State is now enforcing legislation that allows the Department of Revenue Administration to come into any New Hampshire business and determine whether the owner is making too much money. If so, they will enact additional taxation, that will result in a new 13.5% tax to their personal income. It is the DRA’s sole discretion to determine how much is too much.<\/p>\n
The State is trying to impose this new 13.5% tax (through a 5% \u201cDividends” Tax combined with a 8.5% “Business Profit\u2019s” Tax) on all individuals who own LLC\u2019s and Partnerships in New Hampshire. LLC\u2019s or Limited Liability Corporations, the foundation of New Hampshire small Businesses, are small neighborhood operations that have some legal liability protections similar to \u201cReal\u201d corporations, while being taxed as individual operators. Think of your local convenience store, roofer, car mechanic or restaurant. The \u201cNet Profit\u201d of LLC\u2019s and Partnerships are actually the personal incomes of these operators, and already taxed through the K1 portion of the Federal Tax Return. It is the State\u2019s intent to \u201cclaim\u201d business owners are making too much money and impose taxing the personal income of the estimated 30,000 New Hampshire residents operating these small businesses around our State. <\/p>\n
In addition, the State is trying to impose a 5% Personal Income tax on the owners of LLCs or Partnerships that borrow money to grow or expand their business. How will that act help to encourage economic growth and adding employees? As a business owner, if I borrow money or remortgage my property to start a new operation or expand my business, the State feels that it is now entitled to 5% of that mortgage as a tax, claiming that it is actually income and not an investment in my company. <\/p>\n
This new Tax isn\u2019t closing a loophole; it\u2019s squeezing the remaining blood from the stone. Our current State Legislators fail to understand that money does not grow on trees. Like a teen with an open hand to their parents\u2019 wallet, they obviously have no understanding where money comes from. They are in fact trying to take the money that should be being used to stop layoffs and to provide raises, health insurance and other benefits. <\/p>\n
The Federal Government is not going to pull us out of the recession. We are. Our ability to kick start the New Hampshire economy will come directly from small businesses in New Hampshire who create opportunities that will lead to job growth. Now, more than ever, the State should be doing all in its power to encourage economic growth and job creation, not inhibit it.<\/p>\n
If you are concerned about getting a job, or keeping the one you have, please contact your legislator, the Governor or better yet, show up to the public hearing on December 16th in Concord.
\n###<\/p>\n
Andy Sanborn is a resident of NH and small business owner. He owns and operates The Draft Sports Bar and BBQ in Concord, NH<\/em><\/p>\n Related: Petition to Stop the LLC Tax<\/a> Maneuver on state tax shakes real estate industry Ronald Gosselin sold a shopping plaza in Manchester for $2.3 million and then reinvested that money, under three different limited liability companies in three separate projects around the country. The entire transaction was done without having to pay any tax on capital gains under federal law and \u2014 so he thought \u2014 under New Hampshire law.<\/p>\n But last December the state Department of Revenue Administration sent Gosselin a tax bill for $165,000 \u2014 money the 72-year-old snowbird said he simply doesn\u2019t have. The properties are no longer producing income and worth less than the mortgage, according to Gosselin.<\/p>\n Gosselin sold his business to undertake these passive investments \u201cbecause I wanted to retire completely without having any headaches. Now I have more headaches then I ever had to deal with. I never expected the state to go after me.\u201d<\/p>\n It isn\u2019t just Gosselin who the state is \u201cgoing after.\u201d The DRA thus far has notified 30 investors that they owe a total of $5 million under the state\u2019s unique interpretation of what is known as a Section 1031 exchange. The agency has begun auditing returns as far back as 2005.<\/p>\n The state, without promulgating any rules or passing any laws, retroactively has started to tax something that no other state taxes: capital gains that are reinvested through LLCs under rules spelled out by the Internal Revenue Service.<\/p>\n \u201cThey swept 30 taxpayers into a black hole,\u201d said George Foss III, a Littleton escrow agent who facilitates such exchanges. \u201cIt\u2019s not a rule \u2014 it\u2019s a tactic to raise more money. There is nothing in writing about this. Nobody was warned, no notices to accountants or attorneys. This is what gets me mad. It\u2019s just sticking it to these people.\u201d<\/p>\n IRS interpretation<\/p>\n Foss isn\u2019t the only one who is upset. The New Hampshire Association of Realtors has met with Governor Lynch. Legislation has been introduced in the House and the Senate. Administrative appeals are flying. And lawsuits \u2013 perhaps even class actions \u2014 appear to be next.<\/p>\n According to Revenue Commissioner Kevin A. Clougherty, the department isn\u2019t doing anything new. It is simply closing an existing loophole that ironically was brought to the agency\u2019s attention by an IRS ruling saying that such an interpretation is permissible.<\/p>\n \u201cThe intention isn\u2019t to approach these things as revenue-driven. This is the law and we have to enforce it,\u201d he said.<\/p>\n Section 1031 is part of the IRS code governing the reinvestment of capital gains. Just like homeowners, who don\u2019t have to pay capital gains on a property they sell as long as they buy another house in a certain amount of time, real estate investors can use the same method in deferring taxes on such gains.<\/p>\n However, real estate investors often have to buy and sell property under different entities. They sometimes must satisfy lenders that those entities are free from various liens and encumbrances, or they sometimes want to limit liability against the owner personally, as well as to protect his or her other business holdings.<\/p>\n The IRS ruled that it would \u201cdisregard\u201d the different names of an entity selling the property and the entity buying a property as long as the ownership of those entities are basically the same.<\/p>\n However, explained Clougherty, New Hampshire is different, because it doesn\u2019t have a personal income tax, and its business profit tax is imposed on entities only. So when an investor buys a property under one entity and sells it under another, the money isn\u2019t reinvested as far as the state is concerned. Instead, it is a capital gain that should be reflected in the company\u2019s profits for that year.<\/p>\n \u201cOur rules didn\u2019t change,\u201d said Santo Presti, director of auditing at the DRA. \u201cThe federal government made a ruling of how disregarded entities were to be treated, and a lot of companies made a business decision to proceed. They all got extensive (and expensive) advice but nobody asked us.\u201d<\/p>\n Legislative remedy<\/p>\n But Foss, and many others involved in 1031 exchanges are not buying it. Foss said that the IRS has allowed them since 1996, and the state has been going along with them as well, until the budget crunch of last June, when the department hinted that it was looking into them, along with other loopholes it was trying to close.<\/p>\n Some other states have tried to tax exchanges when the first sale originated out of state, but those states have reversed themselves when they understood what a chilling effect it has had on business investments, said Foss. In any case, Foss said, those states all made such changes by law. They didn\u2019t just start assessing taxpayers.<\/p>\n \u201cThe department has no authority to deviate from a taxpayer\u2019s gross business profits as reported for federal income tax purposes without a statutory adjustment,\u201d wrote Christopher J. Sullivan, an attorney who represents several investors appealing the DRA assessments in an article he wrote about the issue.<\/p>\n But thus far, the statutory adjustment proposed is aimed at reversing what DRA is doing. On the Senate side, Sen. Lou D\u2019Allesandro, D-Manchester, has submitted a bill that would require the state to recognize the federal 1031 rule, retroactively effective until 2005.<\/p>\n \u201cWhat we are asking for is the treatment they have always received from the IRS and the state,\u201d D\u2019Alessandro said. \u201cWe ought to be consistent in how we treat these people.\u201d<\/p>\n A similar bill was proposed in the House by Rep. Carol McGuire, R-Epsom.<\/p>\n \u201cPeople are being assessed for back taxes for following federal rules. That seems ridiculous to me,\u201d said McGuire.<\/p>\n Foss said he gave a presentation about the situation on Sept. 17 to Governor Lynch. According to Foss, the governor said he would talk to the commissioner and get back to him and others following the matter. Foss said he hasn\u2019t heard anything since.<\/p>\n Clougherty said Lynch did talk to him.<\/p>\n \u201cHe just told us to enforce the tax law. We got no specific direction about this. He doesn\u2019t work that way.\u201d<\/p>\n As for the legislation, Clougherty said he would provide information but not take a position. \u201cBureaucrats don\u2019t make the laws. We just explain them and enforce them.\u201d<\/p>\n When asked for comment, Lynch\u2019s spokesperson Colin Manning said, \u201cWe strive to make sure that our tax system is fair to everyone, and this is an issue that we will continue to look at.\u201d<\/p>\n \u2018Fishing for money\u2019<\/p>\n Meanwhile, Ronald Gosselin, former owner of the 40,000-square-foot Gosselin Plaza on Manchester\u2019s West Side, awaits the outcome from his Arizona winter residence.<\/p>\n The Manchester property had been in Gosselin\u2019s family since 1952, but he expanded it over the years and was involved in numerous family businesses there, such as Gosselin Hardware, as well as the Mother Goose restaurant.<\/p>\n But as he got older, the long hours took their toll, so he sold off the Manchester holdings one by one, to avoid being \u201cthe richest man in the graveyard.\u201d<\/p>\n The plaza was sold in 2007, and he used the $2.3 million in proceeds to invest in three projects \u2014 a shopping mall in Georgia, a Comfort Inn in New York and some college apartments in Iowa. Each investment was under a different LLC, but all were owned by Gosselin Plaza, the same company that owned the shopping plaza, of which Gosselin was the principal.<\/p>\n \u201cYou didn\u2019t want to put all my eggs in the same basket,\u201d he said.<\/p>\n Foss was the \u201cqualified intermediary\u201d for the deal \u2014 a legal requirement to make sure that the funds from the sale were not intermingled with other funds and went directly to another investment.<\/p>\n For Gosselin, however, the deals turned sour, along with the economy. Gosselin said that he was told they were worth more than they actually were, and when distributions stopped said he lodged a complaint with the U.S. Securities and Exchange Commission against the broker involved.<\/p>\n On top of this, Gosselin is spending thousands of his shrinking retirement pool fighting the New Hampshire Department of Revenue Administration. Gosselin was the first to be audited, so there was no way, he said, that he could have known this would be a problem.<\/p>\n \u201cThe state has no grounds to be coming after me,\u201d he said. \u201cThey are just creating something. They are fishing for money. It hasn\u2019t been a relaxing retirement. Everything is falling apart.\u201d<\/em><\/p>\n Update:<\/p>\n Further, the new rules being proposed by the DRA intend to:<\/p>\n * Conduct Reasonable Compensation Audits. The State of New Hampshire (through the Department of Revenue Administration) is now auditing New Hampshire businesses and determining if a business owner is making more than \u201creasonable compensation\u201d, as determined solely by the DRA, and if so are taxing excess amounts.<\/strong><\/p>\n * Levy a Refinance Tax: The State plans to tax bank borrowing or refinancing at a 5% rate, if you as a business owner borrow money to expand through a new or different entity. This tax will be applied as a \u201cPersonal Income Tax.\u201d<\/p>\n This could mean (up to) a 13.5% Personal Income Tax on all owners of LLC\u2019s and Partnerships. An estimate of up to 30,000 businesses\/individuals will be directly affected in New Hampshire.<\/p>\n If you own an LLC or receive financial benefits from one, you need to attend this hearing on Wednesday, December 16th at 10:00 AM in Concord. In order to have your voice heard at this hearing, you need to pre-register at FormsCmte@rev.state.nh.us. Further, call the Governor at 271-2121.<\/p>\n","protected":false},"excerpt":{"rendered":" With over 55,000 people unemployed and hundreds of thousands underemployed, the current leaders of our State are trying to institute a new, Personal Income Tax on 30,000 small business owners in New Hampshire. At a time when even the ultra spending President Obama is suggesting creating small business incentives to spur job growth, our current […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[11,50],"tags":[],"class_list":["post-899","post","type-post","status-publish","format-standard","hentry","category-legislation","category-taxes"],"_links":{"self":[{"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/posts\/899","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/comments?post=899"}],"version-history":[{"count":3,"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/posts\/899\/revisions"}],"predecessor-version":[{"id":6923,"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/posts\/899\/revisions\/6923"}],"wp:attachment":[{"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/media?parent=899"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/categories?post=899"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cnht.org\/news\/wp-json\/wp\/v2\/tags?post=899"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nNHBR Article: Maneuver on state tax shakes real estate industry<\/a><\/p>\n
\nTuesday, December 8, 2009
\nBy Bob Sanders<\/strong><\/p>\n