Section 77-A:4 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 or partnership, a deduction equal to a fair and reasonable compensation for the personal services of the proprietor or partners actually devoting time and effort in the operation of the business organization. The purpose of this paragraph is to permit deduction from gross business profits of a proprietorship or partnership only of such amounts as are fairly attributable to the personal services of the proprietor or partners who are natural persons, but not to permit deduction of any amounts as are fairly attributable to a return on business assets or the labor of non-owner employees of the business organization. The burden shall be upon the business organization filing the return to demonstrate the reasonableness of a deduction claimed under this paragraph, by a preponderance of the evidence. In considering the reasonableness of a deduction claimed under this paragraph, the commissioner shall consider the claimed deduction in light of compensation for personal services of employees in positions requiring similar responsibility, devotion of time, education and experience in business organizations of similar size, volume and complexity. In addition, the commissioner shall take into account the value to the business organization of the labor of its non-owner employees, and the use of the business assets of the business organization and any other factor which may reasonably assist the commissioner in making a determination as to the reasonableness of the claimed deduction.
(b) The amount of any deduction claimed under subparagraph (a) shall not exceed the amount reported as earned income from the activities of the business organization as reflected on the federal income tax returns of the proprietor or partner rendering such personal services, 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. Provided, however, a minimum deduction of $6,000 shall be allowed on account of the proprietor or each partner who is a natural person actually devoting time and effort in the operation of the business organization.
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 in effect on December 31, 1996. A net operating loss shall be apportioned in the year incurred according to RSA 77-A:3. 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.
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 in effect on December 31, 1996 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. In the case of a business organization where an interest or beneficial interest in the organization has been sold or exchanged, an addition to gross business profits of an amount equal to the net increase in the basis of all underlying assets transferred or sold through the sale or exchange of the interest. The increase in the basis of the assets shall be determined in accordance with the provisions of the Internal Revenue Code as defined by RSA 77-A:1, XX.
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.]
Source. 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.