Businesses in New Hampshire request as much as $7 million in research and development credits on their state taxes every year, according to one group, but the fund that pays that credit has much less than that available.
The Business and Industry Association has asked lawmakers to increase the funding for the credit from $2 million this year to $7 million. The bill proposing the change has bipartisan sponsorship from eight senators, including Senate Majority Leader Jeb Bradley.
“The BIA came to me a couple months ago and said the reality is we really need, to keep up with demand, around $7 million,” Bradley said. “This is one of the key ingredients of retaining the kind of jobs we want to keep in New Hampshire. But whether we can move it forward from $2 (million) to $7 (million), that remains to be seen as we balance the needs of the state in the next budget.”
The credit has been on the books since 2007, when the Legislature set aside $1 million annually. In the 2013 session, the pool increased to $2 million.
By law, the credit is supposed to equal 10 percent of what an applicant business spent on manufacturing research and development, or $50,000, whichever is lower. If the total of all applications is more than the available pot of money, every qualified application is reduced proportionately.
That’s happened every year since it’s been in place, said David Jouvet of the BIA.
“Companies are getting, even at $2 million, far less than what they expect and far less than what the law calls for,” Jouvet said.
A lengthy delay is another side effect of the cap.
“Because the state needs to ensure it doesn’t go over $2 million, has to take in all the requests and sit on that information for a fiscal year, add up the total, and then pro-rate it back out to each company. Many larger companies have told us that though they appreciate it, the time, trouble and expense to apply is more than they are getting back,” Jouvet said.
At least 28 states offer a tax credit for research and development expenses, said Heather Morton of the National Conference of State Legislatures, but none that she is aware of holds such an explicit cap on how much an applicant can receive.
Increasing the cap to an amount in line with total applications from past years wouldn’t get companies their credits immediately, as the state would still need to make sure every qualified application is honored, but “it would guarantee the companies are all getting their full qualified credit,” Jouvet said.
But in a year with a projected $30 million budget shortfall and an unknown distance between revenues and expenses for the next biennium, research and development may not take top priority.
Two other bills coming out of the Senate propose lowering the business profits tax and the business enterprise tax, Bradley said.
“We’re going to have to take great care in the budget to look at meeting the needs of the state of New Hampshire, through the programs that protect people that are in need, while at the same time recognizing that our high business taxes are increasingly putting us in New Hampshire at an uncompetitive disadvantage,” he said.
