N.H. Rev. Stat. § 77-A:4

Current through Chapter 381 of the 2024 Legislative Session

Section 77-A:4 - [Effective until 1/1/2025] Additions and Deductions

The following adjustments shall be made to gross business profits in determining taxable business profits:

I. In the case of a business organization which is subject to taxation under RSA 77, a deduction of such amount of gross business profits as is attributable to income which is taxable or is specifically exempted from taxation under RSA 77.

II. A deduction of such amount of gross business profits as is attributable to income derived from interest on notes, bonds or other securities of the United States.

III.

(a) In the case of a proprietorship, partnership, or limited liability company filing a business profits tax return as a proprietorship or partnership, a deduction equal to a fair and reasonable compensation for the actual personal services of a natural person who is a proprietor, partner, or member provided to the business organization; provided, however, that the amount of such deduction shall not reduce such business organization's taxable business profits to less than zero. The purpose of this paragraph is to permit a deduction from gross business profits of such a proprietorship, partnership, or limited liability company of all amounts that are fairly attributable to the actual personal services of the proprietor, partner, or member. Such amounts shall not exceed the amount reported as earned income on the federal income tax returns of the proprietor, partner, or member, but may also include an amount not to exceed net rental income as compensation for operating rental property, and an amount not to exceed 15 percent of the gross selling price as commissions on the sale of business assets.

(b) Subject to the provisions of subparagraph (c) which establishes a record-keeping safe harbor, the method of determining the amount of the deduction available to the business organization allowed under this paragraph shall be by using the standards set forth in section 162(a)(1) of the United States Internal Revenue Code, as it may be amended from time to time, and the Treasury Regulations, administrative rulings, and judicial cases issued thereunder. The business organization shall keep such records as may be necessary to determine that the deduction is reasonable under these standards.

(c) In lieu of substantiating the value of the personal services of proprietors, partners, or members, a business organization or group of related business organizations may elect, as a record-keeping safe harbor, to deduct up to $75,000 as total compensation for the tax year;

(d)

(1) In this paragraph, "record-keeping safe harbor" means that amount of compensation for personal services claimed by a business organization which does not need to be substantiated by any evidence, records, or legal or regulatory authority, except as provided in subparagraph (e).

(2) Notwithstanding subparagraph III(d)(1), the record-keeping safe harbor shall not be relevant or admissible for any purpose in determining whether a compensation deduction claimed in an amount in excess of any such record-keeping safe harbor is fair and reasonable.

(e) A business organization or group of related business organizations may elect the record-keeping safe harbor option in subparagraph III(c) without a redetermination of the reasonableness of the deduction by the commissioner. Any such deduction claimed by the business organization or group of related business organizations shall not be subject to challenge; provided, that upon request, the business organization or group of related business organizations shall be required to substantiate that the proprietor or at least one partner or member performed actual personal services for the business organization or group of related business organizations.

(f) Related business organizations electing not to substantiate the extent of the actual personal services of their proprietors, partners, and members, shall be limited to the record-keeping safe harbor deduction, less any owners' compensation taken on the federal tax returns of corporate members of the group, allocated among the related business organizations. For the purposes of RSA 77-A:4, III, "related business organizations" are unitary business organizations and business organizations that would qualify as unitary but for the fact that they conduct business only within the state.

(g) A business organization claiming a deduction under this paragraph shall bear the burden of proving that all proprietors, partners, or members for whom a deduction is being claimed provided actual personal services to the business organization at any time during the taxable period. Once a business organization has satisfied this burden of proof, the amount claimed as a deduction shall be presumed to be reasonable, unless the commissioner proves by a preponderance of the evidence that the deduction claimed by the business organization is clearly unreasonable.

IV. [Repealed.]

V. [Repealed.]

VI. [Repealed.]

VII. In the case of a business organization which takes any deduction for a net income tax, a franchise tax measured by net income, or a capital stock tax assessed by any state or political subdivision, an addition to gross business profits for the amount of all such deductions.

VIII. In the case of a corporation, having adopted a plan of liquidation subsequent to June 30, 1981, which has a nonrecognized gain as a result of the application of the United States Internal Revenue Code (1954) section 337, as amended, or meets the exception requirements allowing the federal nonrecognition provisions of section 337 as provided in section 633 of the Tax Reform Act of 1986, an addition to gross business profits for the amount of such gain.

IX. In the case of a business organization required to adjust a portion of its wages under section 280C of the United States Internal Revenue Code as defined in RSA 77-A:1, XX, a deduction from gross business profits in the amount of such adjustment.

X. In the case of a business organization which excludes any portion of its gross business profits pursuant to federal constitutional law, an addition to gross business profits for the amount of any deducted expenses related to such excluded portion.

XI. A deduction of such amount of gross business profits as is attributable to foreign dividend gross-up as determined in accordance with section 78 of the United States Internal Revenue Code as defined in RSA 77-A:1, XX.

XII. In the case of a business organization which makes qualified charitable contributions as defined in RSA 77-A:1, IX, or qualified research contributions as defined in RSA 77-A:1, X, the gross business profits of the organization shall be adjusted by:

(a) Adding to gross business profits the amount deducted under section 170 of the United States Internal Revenue Code as defined in RSA 77-A:1, XX in arriving at federal taxable income; and

(b) Deducting from gross business profits an amount equal to the sum of the taxpayer's basis in the contributed property plus 50 percent of the unrealized appreciation, or twice the basis of the property, whichever is less.

XIII. A deduction for the amount of the net operating loss carryover determined under section 172 of the United States Internal Revenue Code apportioned in the year incurred according to RSA 77-A:3. A net operating loss shall only be apportioned in the year incurred and not in the subsequent years it adjusts gross business profits. Net operating losses may only be carried forward for the 10 years following the loss year. For taxable periods ending:

(a) On or before June 30, 2003, the amount of net operating loss generated in a tax year that may be carried forward may not exceed $250,000.

(b) On or after July 1, 2003 and on or before June 30, 2004, the amount of net operating loss generated in a tax year that may be carried forward may not exceed $500,000.

(c) On or after July 1, 2004 and on or before June 30, 2005, the amount of net operating loss generated in a tax year that may be carried forward may not exceed $750,000.

(d) On or after July 1, 2005, the amount of net operating loss generated in a tax year that may be carried forward may not exceed $1,000,000.

(e) On or after January 1, 2013, the amount of net operating loss generated in a tax year that may be carried forward may not exceed $10,000,000.

In the case of a business organization not qualifying for treatment as a subchapter C corporation under the United States Internal Revenue Code, such deduction shall be the amount that would be determined under section 172 of the United States Internal Revenue Code if the business organization were a subchapter C corporation and as limited by this section. A deduction for the amount of the net operating loss carryover shall be limited to losses incurred on or after July 1, 1997.

XIV.

(a) In the case of a business organization where an ownership interest in the business organization is sold or exchanged and the transaction, for federal income tax purposes results in an increase in the basis of the assets for one or more of the parties to the transaction, the business organization shall:

(1) Add to the gross business profits of the business organization, for each taxable period, an amount equal to the annual depreciation or amortization attributable to the increase in the basis of the assets recognized by the parties to the transaction for federal income tax purposes; and

(2) Calculate the gain or loss on the sale or other disposition of an asset without regard to the basis increase recognized by any party to the transaction for federal income tax purposes, from the sale or exchange of the ownership interest in the business organization.

(b) A business organization may, for a particular sale or exchange, make an irrevocable election on a timely filed return including any extension period, to recognize the basis increase of the assets for one or more of the parties to the transaction for federal income tax purposes. Such business organization for the purposes of the business profits tax shall:

(1) Be required to make an addition to gross business profits of the business organization equal to the net increase in the basis of all assets transferred or sold in the tax period in which the sale or exchange of the ownership interest occurs;

(2) Be allowed a deduction against its gross business profits for annual depreciation or amortization attributable to the increase in the basis of the assets recognized by the parties to the transaction for federal income tax purposes; and

(3) Calculate the gain or loss on the sale or other disposition of an asset with regard to the basis increase recognized by any party to the transaction for federal income tax purposes, from the sale or exchange of the ownership interest in the business organization.

XV. In the case of a business organization that is a holder of an ownership interest in a qualified investment company as defined in RSA 77-A:1, XXI, an addition to gross business profits of an amount equal to the holder's proportional share of profits of the qualified investment company, computed as if the qualified investment company were a business organization subject to tax under RSA 77-A. No portion of any actual distributions made to such holder by such qualified investment company that would otherwise be part of taxable business profits shall be included in such holder's gross business profits.

XVI. In the case of a business organization that receives assistance payments under 12 U.S.C. section 1823, a deduction from gross business profits of an amount equal to the sum of such assistance.

XVII, XVIII. [Repealed.]

XIX. A deduction of such amount of gross business profits as is attributable to global intangible low-taxed income under section 951A of the United States Internal Revenue Code as defined in RSA 77-A:1, XX, as determined in accordance with section 250(a) of the United States Internal Revenue Code as defined in RSA 77-A:1, XX.

XX. For tax years commencing on or after January 1, 2024, a deduction equal to the amount disallowed as a deduction under section 163(j) of the Internal Revenue Code. For tax years commencing on or after January 1, 2024, an addition equal to the amount deducted by reason of a carry forward of disallowed business interest under section 163(j) of the Internal Revenue Code generated in tax years commencing after January 1, 2024. The amount of the carry forward of disallowed business interest under section 163(j) of the Internal Revenue Code as of the tax year ending before January 1, 2024 shall be allowed as a deduction in 3 equal parts over 3 consecutive years, beginning with the first tax year commencing on or after January 1, 2024.

RSA 77-A:4

Amended by 2023, 169:1, eff. 1/1/2024.

Amended by 2022 , 241: 2, eff. 7/1/2022, app. to business organizations' tax years ending on or after 12/31/2022.

Amended by 2019 , 346: 204, eff. 1/1/2020 and applicable to taxable periods beginning on or after 1/1/2020.

Amended by 2016 , 300: 1, eff. 6/21/2016 for sales or exchanges of interests in business organizations that occur on and after 1/1/2016.

Amended by 2013 , 71: 1, eff. 7/1/2013.

Amended by 2012 , 71: §§1, 3eff. 5/23/2012.

Amended by 2011 , 224: 363, eff. 1/1/2013.

Amended by 2011 , 207: 2, eff. 6/25/2011.

1970, 5:1. 1971, 360:1; 515:4, 15. 1972, 63:25. 1973, 403:1; 544:9. 1975, 439:37; 503:1. 1977, 593:2. 1981, 445:5-7. 1983, 318:3; 444:2. 1987, 407:1, 5, 6. 1988, 199:1, 2. 1989, 168:2. 1991, 67:12; 354:8. 1992, 13:6. 1993, 350:13, 14. 1998, 105:3; 163:5. 2002, 211:1. 2003, 203:1, eff. July 1, 2005. 2004, 143:4, 8, IV, eff. May 24, 2004. 2007, 146:1, I-III, eff. Aug. 17, 2007. 2010, 324:2, eff. July 20, 2010.