Drisko says the process was fundamentally flawed since it was passed at the 11th hour to solve the Legislature’s failure to balance its budget in prior years. He quotes from a constituent who says the LLC tax is small compared to the state’s budget hole, but it will have a far-reaching and pernicious effect on New Hampshire’s small businesses.

Tom Boucher owns T-Bones and Cactus Jack’s restaurants. He says rather than pass a new tax to create “fairness”, he would have rather spent his day creating jobs. He says by opening his 5th and 6th restaurants in the state, he is creating jobs. But he says the Legislature has made it harder by increasing the tip wage, increasing the Meals and Rooms Tax, increasing Unemployment Taxes, on top of the rising costs of health care and advertising. He says the hospitality industry is the top tax payer in New Hampshire, despite being dominated by small businesses with small profit margins. Boucher argues the LLC Tax will stop growth in the hospitality industry, and that his company is forced to reconsider its expansion plans, and put them on hold. He says “small business is getting smaller by the minute.”

Boucher says he is frightened by Clougherty’s statement that he will “go after everybody”. Clougherty says that in the passion of the hearing, he meant to say that he would not show favoritism towards larger corporations against smaller businesses. He says “going after everyone” was “probably the worst choice of words” he could have used.

Fenton Groen of Rochester says the LLC Tax is a thinly disguised income tax on income already taxed under the Business Enterprise Tax and Business Profits Tax. He’s set up a pair of LLC’s, taking the equity from the first to pay to set up the second. He says under the proposed rules, he would have to pay taxes on the capital that he wanted to use to start a new business. He says the second business hasn’t started making money yet, and will continue to lose money until the market turns around. But he says he gets no credit for making that investment in his business, and must pay the full 8.5% percent tax on his first LLC.

Check for updates at the New Hampshire Watchdog blog page.

Fred Brownson from Wentworth says he wants to speak for the 40,000 entities and hundreds of thousands of owners, investors, and employees who will be hit by the new tax, most of whom don’t know what it going to happen to them. He says his experience helping limited partnerships and LLC’s leads him to ask four questions.

1) Does the DRA address taxes paid by the LLC, and again taxed when dividends are distributed? Do LLC’s get a deduction from federal taxes?
2) How will the DRA determine “reasonable compensation”, anything beyond which will be taxed? He says business owners have never had to define how much of their pay or profits is “reasonable”.
3) How will the new LLC tax hit out of state LLC’s, which aren’t taxed the same way in the 49 other states?
4) What will be the compliance cost to LLC’s affected by the new tax?

Brownson says the LLC tax is a “silly income tax” on thousands of New Hampshire business owners.

Former State Representative Carolyn Virtue says as an LLC owner she is concerned that the DRA rules don’t allow business owners to account for the time, energy, and effort they’ve put into their business through the years, and instead taxes any profits as a windfall.

She says she and her sister worked more than 50 hours a week, in addition to weekend jobs elsewhere, and each earning just $10,000 per year from their LLC. She says that the business then has to pay extra taxes on that $20,000. She says if she had the resources or assets to form a C-Corporation, she would, but that the DRA shouldn’t treat LLC’s as if they were larger corporations.

Check for updates at the New Hampshire Watchdog blog page.

Bradley argues that the hastily imposed tax will cause massive confusion when business try to pay their taxes in April. He urges the DRA to waive any interests and penalties in the first year of the LLC tax so that businesses won’t be punished for the DRA’s inability to clearly define their tax liability.

He also took issue with Clougherty’s pledge to “go after everyone.” He says that adversarial approach is not how we do business in New Hampshire, or in America. He says if the LLC tax goes into effect as proposed by the DRA, New Hampshire will end up with one of the largest tax burdens on small businesses in the nation. He says changes in New Hampshire’s tax code have been closed, businesses are paying their fair share, and the LLC tax is nothing more than a tax increase. He argues that if they continue down this road, the New Hampshire Advantage will be lost.

Check for updates at the New Hampshire Watchdog blog page.

Clegg is worried that the new tax is targeting those businesses that can’t afford attorneys and accountants to defend themselves from the DRA. He says if the DRA wants to collect more revenue, it should “leave the little guy alone”. Clougherty says as Commissioner, “I’m going to be fair and I’m going to go after everybody.”

Check for updates at the New Hampshire Watchdog blog page.

He also argues that by targeting New Hampshire’s smallest businesses, the DRA will be implementing a tax that it can not administer, aside from the compliance burden placed on the businesses themselves. He says the LLC tax hasn’t been thought out, and that no one yet knows how it will apply to capital gains or other types of businesses. Blatsos says no one knows how this sort of tax on active income will effect investment in those small businesses. The marginal increase in taxes on LLC’s will make them less attractive, and make it harder for them to attract capital for start-up or expansion.

He says that he respects the people at DRA who we worked with for 30 years, and says the fault may lie with the Legislature and the Governor for passing such a poorly thought out tax in the first place.

Check for updates at the New Hampshire Watchdog blog page.

Lovejoy says the tax changes come from the need to pay for ever-increasing spending. He says while the DRA’s public hearing is limited to the rules implementing the new tax, but he was puzzled by DRA Commissioner Kevin Clougherty’s effort to justify the new tax as a way to pay for spending. Lovejoy says the public has shown up for the rules hearing because it never had the chance to speak up against the LLC tax when the Legislature passed it in the dark of night. He says the DRA has the power to delay implementation of the new tax until the public has the chance to give its input that was denied during the Legislative process.

Lovejoy concludes by urging the DRA to delay any new taxes that haven’t had public hearings and public input.

Check for updates at the New Hampshire Watchdog blog page.

Check for updates at the New Hampshire Watchdog blog page.

Heathfield is addressing technical concerns with the rules. He says they would impose a heavier record keeping burden on LLC’s than on large corporations. He recommends a default threshold for companies with little or no earnings to avoid these paperwork requirements. He also says the complicated formula used to determine debt finance distribution don’t adequately define the tax liability of LLC’s.

Check for updates at the New Hampshire Watchdog blog page.

DRA Commissioner Kevin Clougherty responded to Thomson’s call for public hearings around the state by arguing that rules changes generally draw a limited audience of accountants and tax professionals, but that the overwhelming public response to this issue had him looking to hold a broader schedule of public hearings.

Thomson is asking for a firm commitment to five public hearings in the evening after January 3rd. Clougherty says he is currently looking at three additional hearings after today.

Check for updates at the New Hampshire Watchdog blog page.

Restaurant owner Andy Sanborn just received a prolonged standing ovation from the crowd for his remarks. Sanborn says the DRA has failed to give consideration to the 55,000 New Hampshire residents who are currently unemployed, and the thousands of New Hampshire small business owners who worked for years without taking any money out of their businesses, only to be taxed now for their success.

“The small business community defines us. It’s how we live. It’s who we are,” Sanborn added.

Representative David Hess argues that any change in the tax treatment of LLC’s can not take effect until after July 1, 2009, when the law was passed. The DRA is seeking to tax dividends from LLC’s going back to the beginning of the year, and possibly for past year. Hess argues that would be a retroactive tax increase in violation of good practice and the law.

Check for updates at the New Hampshire Watchdog blog page.