The Strategic Intersection of the New Hampshire Business Enterprise Tax and the Research and Development Tax Credit: An Analytical Framework for Innovation-Driven Entities
The Business Enterprise Tax return is a state filing that assesses a 0.55% levy on a firm’s enterprise value tax base, including compensation, interest, and dividends paid. This tax acts as a foundational revenue source for New Hampshire and serves as a primary offset against the Business Profits Tax, especially when integrated with the state’s specialized Research and Development Tax Credit.
The Business Enterprise Tax (BET) represents a unique departure from traditional state corporate income taxation, functioning as a modified value-added tax that captures economic activity at the entity level, regardless of net profitability.1 Established in 1993 to modernize the state’s revenue structure, the BET targets the “enterprise value tax base,” which is the sum of all compensation, interest, and dividends paid or accrued by a business enterprise.1 In the specific context of the New Hampshire Research and Development (R&D) Tax Credit, the BET return becomes a crucial mechanism for tax relief for manufacturing firms.4 While the R&D credit is initially calculated to offset the Business Profits Tax (BPT), the statutory framework allows any excess credit to flow down and reduce the BET liability, thereby providing a comprehensive shield for companies investing heavily in New Hampshire-based innovation.6 This integrated approach ensures that companies with high payroll or debt-service costs—common in capital-intensive manufacturing research—can mitigate their tax burdens even if they have not yet reached a stage of taxable net profit.
Structural Foundations and Legislative Intent of the Business Enterprise Tax
The New Hampshire Business Enterprise Tax was enacted under RSA 77-E as a means to provide a more stable and predictable revenue stream for the state’s General Fund and Education Trust Fund.1 Unlike the Business Profits Tax, which fluctuates wildly with the economic cycles of corporate profitability, the BET captures the underlying value added by a business through its distributions to employees, creditors, and owners.2 This value-added nature ensures that every business organization engaged in activity within the state contributes to the infrastructure and services it utilizes, creating a broader and more equitable tax base.
The Enterprise Value Tax Base and its Core Elements
The tax is assessed at a rate of 0.55% for taxable periods ending on or after December 31, 2022.1 The calculation begins with the determination of the Enterprise Value Tax Base (EVTB), defined under RSA 77-E:1, IX as the sum of all compensation, interest, and dividends.11
| Element of the EVTB | Statutory Definition and Scope | Impact on the R&D Context |
| Compensation | Includes all wages, salaries, fees, bonuses, and commissions paid or accrued for the benefit of employees, officers, or directors.11 | Wages used for the R&D credit must be included in this base, creating a dual reporting requirement.7 |
| Interest | All amounts paid or accrued for the use or forbearance of money, including debt service for research facilities.1 | Firms financing R&D through debt will see their BET base increase alongside their interest payments. |
| Dividends | Distributions of money or property from accumulated revenues and profits to owners, including S-Corp distributions.11 | Ensures that capital-rich firms contribute regardless of their federal tax classification as pass-throughs. |
The “compensation” element is particularly sensitive for R&D-heavy firms. Under N.H. Admin. Code § Rev 2406.05, any wages included in the calculation of the R&D tax credit must also be included in the compensation element of the EVTB.7 This ensures that while a credit is granted to incentivize research, the underlying economic activity (the payment of wages) is still recognized within the value-added tax structure.
Filing Thresholds and Biennial Adjustments
The Commissioner of the Department of Revenue Administration (DRA) is mandated by RSA 77-E:5 to adjust the BET filing thresholds biennially based on inflation.1 This adjustment uses the Consumer Price Index (CPI) for All Urban Consumers in the Northeast Region.3 For companies focused on R&D, monitoring these thresholds is essential for determining compliance requirements as they scale their operations.
| Taxable Period Starting | Gross Business Receipts Threshold | Enterprise Value Tax Base Threshold |
| January 1, 2025 | $298,000 | $298,000 |
| January 1, 2023 | $281,000 | $281,000 |
| Prior to 2023 (Historical) | $250,000 | $250,000 |
| January 1, 2021 | $222,000 | $111,000 |
1
If a business enterprise exceeds either the gross receipts or the enterprise value tax base threshold, it is legally required to file a BET return.1 This applies to for-profit and non-profit organizations alike, though 501(c)(3) organizations are generally exempt unless they engage in unrelated business activity as defined by the IRC.13
The Business Profits Tax and the BET Credit Mechanism
The BET does not exist in isolation; it is designed to work in tandem with the Business Profits Tax (BPT). The BPT is a 7.5% tax (for periods ending on or after December 31, 2023) assessed on the taxable business profits of an organization.1 To avoid the economic burden of double taxation at the state level, New Hampshire allows the BET paid to be used as a credit against the BPT.1
This relationship is vital for R&D companies. Because these firms often have high payroll (increasing BET) but may be pre-revenue or in a low-profitability phase (decreasing BPT), the ability to carry forward unused BET credits is a critical liquidity feature.1 For credits attributable to taxable periods ending on or after December 31, 2014, the unused portion of the BET credit may be carried forward and allowed against the BPT for ten taxable periods.1
Multi-State Apportionment and Single Sales Factor
For manufacturing firms operating across state lines, the method of apportioning income to New Hampshire has evolved. For taxable periods ending on or after December 31, 2022, New Hampshire has transitioned to a single sales factor apportionment method.1 This shift is generally favorable for R&D and manufacturing companies with significant physical infrastructure (property) and workforces (payroll) in New Hampshire but whose primary markets are outside the state.1 By eliminating property and payroll from the apportionment formula, the state incentivizes the maintenance of high-value research and manufacturing hubs within its borders.
The New Hampshire Research and Development Tax Credit: RSA 77-A:5, XIII
The New Hampshire Research and Development Tax Credit program is a permanent incentive designed to support “qualified manufacturing research and development expenditures”.4 Established to keep the state competitive with its neighbors, the program provides a nonrefundable credit that directly offsets BPT and BET liabilities.4
Defining Qualified Manufacturing R&D Expenditures
The New Hampshire credit is narrower than the federal R&D credit provided under IRC Section 41. While the federal credit encompasses supplies, contract research, and cloud computing costs, the New Hampshire credit is restricted solely to wages paid to employees for services rendered within the state.4
To qualify, these wages must meet the following criteria:
- Manufacturing Nexus: The research must be related to the development or improvement of manufacturing processes or products.4
- Federal Qualification: The wages must qualify for the federal R&D credit under IRC Section 41 and be reported on Federal Form 6765.6
- New Hampshire Performance: Only the portion of wages attributable to services performed in New Hampshire is eligible.5
This “wages-only” restriction means that companies must be meticulous in their accounting. For instance, a software developer working on an automated manufacturing line’s control system might qualify, whereas the hardware components and third-party consulting fees for that same project would not.4
The Four-Part Test for Innovation
To ensure that the credit supports true innovation, New Hampshire follows the federal “Four-Part Test” to define qualified research 6:
- Permitted Purpose: The activity must relate to a new or improved function, performance, reliability, or quality of a business component.6
- Elimination of Uncertainty: The taxpayer must intend to discover information to eliminate uncertainty regarding the capability, method, or design for developing or improving the component.6
- Process of Experimentation: The taxpayer must engage in a systematic process to evaluate alternatives, such as modeling, simulation, or trial and error.6
- Technological in Nature: The research must fundamentally rely on the principles of physical science, biological science, engineering, or computer science.6
Administrative Guidance and Local Revenue Office Procedures
The New Hampshire Department of Revenue Administration (DRA) provides extensive guidance through Technical Information Releases (TIRs), administrative rules, and form instructions to assist taxpayers in navigating the R&D credit application process.
The Application Lifecycle: Form DP-165
The R&D credit is not automatically granted; it requires a proactive application. Taxpayers must file Form DP-165, the Research and Development Tax Credit Application, no later than June 30 following the taxable period during which the expenditures were incurred.5
The application process follows a strict calendar:
- June 30: Deadline for postmarking or electronically submitting Form DP-165 through the Granite Tax Connect (GTC) portal.5
- July 31: The DRA sends acknowledgment letters to all applicants confirming receipt.5
- September 30: The DRA notifies applicants of their final award amount by mail.5
Crucially, the application must be accompanied by a copy of the firm’s Federal Form 6765.5 If the federal return has not yet been filed due to an extension, the DRA accepts a “pro-forma” or draft copy of the 6765 to meet the state’s June 30 deadline.5
The Proration Mechanism and the $7 Million Cap
New Hampshire limits the total aggregate of R&D tax credits issued to all taxpayers to $7 million per fiscal year.4 Because the program is highly popular among the state’s manufacturing base, the total requested credits often exceed this $7 million pool.4
When the aggregate requests exceed the limit, the DRA is required by RSA 77-A:5, XIII(a) to reduce all awards proportionately.6 This proration means that a company might calculate a potential credit of $50,000 (the individual taxpayer cap), but only receive an award of $35,000 if the pool is oversubscribed by 30%.4
| Fiscal Year | Total Available Pool | Individual Taxpayer Cap |
| FY 2017 – Present | $7,000,000 | $50,000 |
| FY 2014 – FY 2016 | $2,000,000 | $50,000 |
| FY 2008 – FY 2013 | $1,000,000 | $50,000 |
5
Reporting the Credit on the BET Return: Form DP-160
Once an award is granted, the business must report it on its tax returns for the year in which the award was received. This is primarily handled through Form DP-160, the Schedule of Credits.8
The Statutory Hierarchy of Credit Application
The law establishes a specific sequence for how the R&D credit must be used to offset tax liabilities.4 This hierarchy is reflected in the line-by-line instructions of Form DP-160:
- Business Profits Tax (BPT) First: The credit must first be applied against the BPT liability.4
- Business Enterprise Tax (BET) Second: Any unused portion of the credit after the BPT has been reduced to zero may then be applied against the BET.4
- Carryforward: Any remaining unused credit can be carried forward for up to five subsequent taxable periods.4
On the 2024 Form DP-160, Section C is dedicated to the R&D credit.26 Line 1 requires the entry of the available credit, Line 2 captures the amount used against the BPT, and Line 3 reflects the amount applied to the BET.8 The total used is summed on Line 4 and reported on the corresponding line of the BET return (Line 6) or the BPT return.8
The BET Credit Worksheet
It is important to distinguish between the “BET Credit” (the credit of the BET against the BPT) and the “R&D Credit” (a credit applied to the BET). The BET return includes a specific “BET Credit Worksheet” to calculate the former.1 The R&D credit, once applied to the BET, effectively reduces the “BET Paid” amount that would otherwise be available as a credit against the BPT in future years, necessitating careful coordination of these two incentive streams.8
Practical Example: Integrated Tax Calculation for a Manufacturer
To understand the flow of these forms and the impact of the R&D credit, consider “Precision Aerospace NH,” a manufacturer with the following 2024 financial profile:
- Gross Receipts: $10,000,000
- W-2 Wages (Compensation): $4,000,000 (including $800,000 in NH manufacturing R&D wages)
- Interest Paid: $500,000
- Dividends Paid: $500,000
- Taxable Business Profits (BPT base): $1,000,000
Step 1: Initial BET and BPT Calculation
The Enterprise Value Tax Base (EVTB) is $\$4,000,000 + \$500,000 + \$500,000 = \$5,000,000$.11
BET Liability: $\$5,000,000 \times 0.0055 = \$27,500$.1
BPT Liability: $\$1,000,000 \times 0.075 = \$75,000$.1
Initial Total Tax (before any credits): $\$102,500$.
Step 2: Applying the BET Credit against BPT
The BET paid ($27,500) is a credit against the BPT ($75,000).1
Revised BPT: $\$75,000 – \$27,500 = \$47,500$.
Total Tax (after standard BET credit): $\$27,500 \text{ (BET)} + \$47,500 \text{ (BPT)} = \$75,000$.
Step 3: Calculating and Applying the R&D Credit
Precision Aerospace NH calculates its potential R&D credit based on $800,000 in NH wages. Assuming a base amount of $500,000, the excess is $300,000.4
Calculated Credit: $300,000 \times 10\% = \$30,000$.6
This is below the $50,000 individual cap.4
They apply via Form DP-165 by June 30. In September, the DRA awards them the full $\$30,000$ (assuming no proration for this example).5
Step 4: Final Flow to Returns
Using Form DP-160:
- Part B, Line 1: The credit is applied to BPT first: $\$47,500 – \$30,000 = \$17,500$.4
- Part A, Line 5: Since the BPT absorbed the entire $\$30,000$, there is $0 remaining to apply to the BET.8
Final Tax Position:
- BET Return: $\$27,500$
- BPT Return: $\$17,500$
- Total Paid: $\$45,000$
- Total Tax Savings from R&D Credit: $\$30,000$.
Audit Risks and Compliance Best Practices
The New Hampshire DRA maintains an active audit presence, particularly for manufacturing companies claiming significant credits.4 Success in an audit depends on the quality of contemporaneous documentation.
The Manufacturing Nexus Audit
A common area of dispute is whether the research activity truly qualifies as “manufacturing” under RSA 77-A:5, XIII.4 While the statute does not provide an exhaustive list of activities, the DRA generally looks for activities that involve a physical transformation of materials into a new product.17 Companies in the aerospace, machinery, and electronics sectors are frequently targeted for review to ensure that “innovation” is tied to the production floor and not just back-office software or general business improvements.4
Record-Keeping Requirements
Pursuant to N.H. Admin. Code § Rev 2406.05, companies should retain all documentation used to calculate the credit for at least 3-4 years, mirroring the statute of limitations.4 Recommended records include:
- Federal Form 6765 and Workpapers: Documentation showing how wages were allocated to R&D projects.4
- NH-Specific Wage Allocations: Payroll records identifying employees’ primary work locations in New Hampshire.5
- Technical Proof: Lab notebooks, prototypes, testing protocols, and patent applications that satisfy the Four-Part Test.17
Failure to provide this documentation can result in the rejection of the credit application or a post-filing assessment of taxes, interest, and penalties.5
Legislative Trends and Future Outlook
The landscape of New Hampshire business taxation is currently undergoing significant transformation, influenced by both internal policy shifts and legislative attempts to expand innovation incentives.
Attempted Expansion: SB 276 and HB 1102
In 2025, the New Hampshire legislature considered SB 276 and HB 1102, which aimed to modernize the R&D credit program.22 The bills proposed:
- Increasing the annual statewide pool from $7 million to $10 million.22
- Doubling the individual taxpayer cap from $50,000 to $100,000.22
Although these bills received significant bipartisan support and a 6-0 “Ought to Pass” vote from the Senate Ways and Means committee, they were ultimately tabled or declared “Inexpedient to Legislate” in late 2025 due to concerns over the indeterminable long-term impact on state revenue funds.29 However, the continued introduction of such legislation indicates a strong political will to eventually expand these caps to keep pace with inflation and the state’s growing tech sector.22
The Repeal of the Interest and Dividends Tax
Simultaneously, New Hampshire has fully repealed its Interest and Dividends (I&D) Tax for taxable periods beginning on or after January 1, 2025.9 While this is a personal income tax change, it has significant implications for business owners who previously faced a 3-5% tax on distributions from their companies.32 By removing this layer of taxation, New Hampshire enhances the overall attractiveness of its business climate, potentially leading to more capital investment in local manufacturing firms that utilize the R&D credit.9
Conclusion: Strategic Value of the BET and R&D Credit Integration
The New Hampshire Business Enterprise Tax return, when viewed through the lens of the R&D Tax Credit, is a powerful tool for economic development. The state’s unique value-added tax structure ensures a stable revenue base while simultaneously providing a flexible mechanism for rewarding high-value manufacturing research.1
For the modern business organization, the key to maximizing these benefits lies in administrative diligence. The requirement to file Form DP-165 by the June 30 deadline—often months before a federal return is finalized—demands a proactive approach to tax compliance.5 Furthermore, the statutory hierarchy that allows R&D credits to flow from the BPT to the BET provides a vital safety net for companies in various stages of their lifecycle, from pre-profit startups to established industrial leaders.4 As the state continues to refine its tax code and potentially expand its innovation pools, companies that master the integration of these filings will be best positioned to thrive in the “Granite State’s” competitive economic environment. By maintaining rigorous documentation, monitoring biennial threshold changes, and understanding the nuances of manufacturing-specific wage allocations, businesses can transform their state tax filings from a mere requirement into a strategic asset that supports long-term technological advancement.
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What is the R&D Tax Credit?
The Research & Experimentation Tax Credit (or R&D Tax Credit), is a general business tax credit under Internal Revenue Code section 41 for companies that incur research and development (R&D) costs in the United States. The credits are a tax incentive for performing qualified research in the United States, resulting in a credit to a tax return. For the first three years of R&D claims, 6% of the total qualified research expenses (QRE) form the gross credit. In the 4th year of claims and beyond, a base amount is calculated, and an adjusted expense line is multiplied times 14%. Click here to learn more.
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