Newly raised cap gives firms a much bigger piece of the pie
By Bob Sanders
Gov. Chris Sununu said the expanded R&D tax credit works to ‘bolster the state’s small business economy.’
Associated Press photo
Not too many more businesses applied for New Hampshire’s research and development tax credit this year than last, and they didn’t ask for that much more, but they sure are getting more – about three times as much.
Thanks to the state’s lifting of the R&D credit cap from $2 million to $7 million, some 200 businesses will share $7 million, or 92.4 percent of the total $7.6 million that they asked for. Compare that to 2016, when 193 businesses applied for $7.4 million in credits and got back $2 million, or 27.14 percent.
Gov. Chris Sununu, in a release, thanked “the Republican leadership in the Legislature” for voting to increase the cap, which he said helps “bolster the state’s small business economy,” particularly high-tech sector and contributes to “sending a message to out-of-state companies that New Hampshire is open for business.”
But it’s not the current Legislature or governor that should get the credit for the cap.
Though the law expanding the cap became effective July 1, the Republican-controlled Legislature passed it as part of the infamous budget of 2015, which also included reductions in the business profits and business enterprises taxes. Then-Gov. Maggie Hassan vetoed that budget, saying it was unbalanced because of the corporate tax cuts, though it is unclear whether that criticism also encompassed the R&D tax credit expansion.
Eventually Hassan agreed to support the budget, as long as the business tax rate cuts were contingent on the state’s fiscal health, but no such caveats were added for the R&D tax credit.
In the most recent session, lawmakers did cut business taxes still further and increased the amount businesses can deduct up-front for major expenses (the Section 179 deduction), but they didn’t increase the R&D tax credit cap, though business advocates would like to see the cap lifted altogether.
The provision allows business to get a credit for 10 percent of what it spends on R&D, up to a maximum of a $50,000 credit. In other words, a business would have to spend more than $500,000 on R&D to get the maximum. But nobody has ever gotten that maximum anyway, because demand for the credit has always outstripped supply.
In the credit’s very first year, 2008 – when it was capped at $1 million – 71 business applied for $2.4 million worth of credits and received 41 percent of what they asked for. When lawmakers doubled the cap to $2 million in 2013, 155 businesses applied, requesting $5.7 million, getting 35 back percent back.
This year, however, those spending $500,000 will get $46,202 of the $50,000 credit they are entitled to. In 2016, they would have received $13,572.