Analysis of Wages Reported in the Enterprise Value Tax Base and the New Hampshire Research and Development Tax Credit Framework

Wages reported in the Enterprise Value Tax Base represent the total compensation paid or accrued by a business for services rendered in New Hampshire, forming the primary component of the state’s Business Enterprise Tax and serving as the essential qualifying expenditure for the Research and Development tax credit. Under New Hampshire law, these wages must be included in the enterprise value tax base for a taxpayer to eligibility for the credit, creating a statutory link between an entity’s operational footprint and its entitlement to innovation-based tax incentives.1

The New Hampshire business tax landscape is uniquely structured around a dual-tax system comprised of the Business Profits Tax (BPT) and the Business Enterprise Tax (BET). Unlike traditional jurisdictions that rely on a net income tax alone, New Hampshire utilizes the BET to ensure a stable revenue stream that reflects the value added by a business within the state’s borders.3 The “enterprise value tax base” (EVTB) is the core mechanism of this system, functioning as a comprehensive valuation of the capital and labor resources a business utilizes.5 For businesses engaged in scientific or technological advancement, specifically within the manufacturing sector, the interpretation of what constitutes a wage in the EVTB is critical. The Department of Revenue Administration (DRA) provides specific guidance stating that only those wages subjected to the BET and reported within the EVTB may be leveraged to claim the Research and Development (R&D) tax credit.1 This requirement ensures that the state incentivizes the growth of high-value labor while maintaining the integrity of its primary tax base. As New Hampshire lacks a general sales tax or personal income tax on salaries, the interplay between the EVTB and the R&D credit serves as one of the state’s most significant levers for economic development and industrial modernization.3

The Statutory Architecture of the Enterprise Value Tax Base

To comprehend the meaning of wages in the context of the R&D credit, one must first analyze the statutory definition and purpose of the Business Enterprise Tax. Established under RSA 77-E, the BET is not a tax on profits but a tax on the enterprise’s economic presence.5

Components of the Enterprise Value Tax Base

The EVTB is defined as the sum of all compensation, interest, and dividends paid or accrued by a business enterprise during a taxable period, before any adjustments or apportionment.5 While the R&D credit specifically targets the compensation element, the presence of the other two components ensures that the tax captures a holistic view of the enterprise’s value.

The mathematical formula for the base is represented as:

$$EVTB = \text{Compensation} + \text{Interest} + \text{Dividends}$$

The BET is then calculated by applying the current rate—set at 0.55% for taxable periods ending on or after December 31, 2022—to the taxable portion of this base.6

Defining Compensation and Wages

Under RSA 77-E:1, V, “compensation” is defined broadly to include all forms of remuneration paid to employees, officers, or directors of the business enterprise.5 This definition is integral to the R&D credit because the credit is based solely on “qualified manufacturing research and development expenditures,” which the statute defines exclusively as wages.1

The scope of compensation for BET purposes includes:

1. Direct Remuneration: Standard wages, hourly pay, and annual salaries.5
2. Performance Incentives: Bonuses and commissions paid during the taxable period.8
3. Executive Payments: Fees paid to directors or officers for their services.8
4. Tax-Exempt Benefits: Payments made on behalf of employees that are specifically exempt from federal withholding under Section 3401 of the Internal Revenue Code (IRC), such as certain health or retirement benefits.5
5. Self-Employment Income: For non-corporate entities like partnerships or sole proprietorships, compensation includes net earnings from self-employment and any compensation for personal services deductions taken under the Business Profits Tax (BPT).4

The New Hampshire Research and Development Tax Credit Framework

The R&D tax credit was enacted to bolster the manufacturing sector by providing a permanent credit against business taxes.1 Unlike the federal R&D credit, which permits expenses related to supplies, contract research, and cloud computing costs, the New Hampshire credit is a “wages-only” incentive.13

Eligibility and “Qualified Manufacturing”

The credit is available to any business organization that has qualified manufacturing research and development expenditures within New Hampshire during the fiscal year.1 The term “qualified” is dual-gated:

1. Manufacturing Nexus: The research must be related to manufacturing activities, which typically involves the creation or improvement of a business component or manufacturing process.1
2. Federal Alignment: The wages must qualify as “qualified research expenses” (QREs) under Section 41(b) of the Internal Revenue Code.1

The Requirement for EVTB Reporting

A critical provision found in the New Hampshire Administrative Code Rev 2406.05(c) dictates that any wages included in the R&D credit calculation must also be included in the compensation element of the taxpayer’s enterprise value tax base.2 This creates an “inclusion-benefit” relationship: a business cannot claim a credit for labor costs unless it has simultaneously accounted for those costs as part of its economic footprint for BET purposes.1

This linkage serves several administrative purposes for the local state revenue office:

• Verification: It allows the DRA to audit R&D claims by cross-referencing them with the W-2 data and the compensation totals reported on the BET return.15
• Revenue Stability: It prevents companies from using the credit to offset taxes on value that was never reported in the state’s tax base.2
• Focus on State Labor: By requiring inclusion in the NH EVTB, the law ensures that only wages paid for services rendered within New Hampshire qualify for the incentive.10

Detailed Analysis of Local State Revenue Office Guidance

The New Hampshire Department of Revenue Administration (DRA) provides exhaustive guidance on the application and management of the R&D tax credit through Technical Information Releases (TIRs), Administrative Rules, and Frequently Asked Questions.

Administrative Rule Rev 2406.05

Rev 2406.05 is the primary regulatory document governing the credit’s interaction with the BET. It outlines the following requirements:

1. Form DP-165 Submission: A business enterprise must file Form DP-165, “Research & Development Tax Credit Application,” by June 30 following the taxable period.2
2. Application Priority: Any unused portion of the credit not applied against the BPT must be used against the BET.2
3. Wages Inclusion: This rule explicitly states that wages in the R&D calculation shall be included in the compensation element of the EVTB.2
4. Refunds: Taxpayers who overpay their quarterly estimated taxes due to the application of the R&D credit may request a refund on their BT-Summary form.2

Technical Information Release (TIR) 2007-007

This seminal TIR provided the initial interpretive framework for the credit after its enactment in 2007. It clarified that “qualified manufacturing research and development” expenditures are essentially the wage amounts attributable to New Hampshire that make up lines 5 or 24 (or line 49 for certain forms) of Federal Form 6765.10

Evolution of Credit Caps and Proration

The DRA monitors the statewide aggregate cap, which has expanded significantly over the years to accommodate increasing demand from the aerospace, life sciences, and electronics sectors.13

A unique feature of the New Hampshire system is that if the total amount of credits applied for by all businesses exceeds the aggregate cap ($7 million), all awarded credits are reduced proportionately.1 Historical data indicates that the approved ventures applying for the credit routinely exceed the available award value, sometimes by nearly $4 million, leading to “rationed” credit amounts for participants.18

Calculating the R&D Tax Credit in the BET Context

The calculation of the New Hampshire R&D credit is distinct from the federal methodology, particularly in its treatment of the “base amount.”

The Credit Formula

The credit is calculated as 10% of the excess of qualified manufacturing R&D expenditures (wages) for the taxable year over the “base amount”.13

$$Credit = 0.10 \times (\text{Qualified NH Wages} – \text{Base Amount})$$

However, the credit is subject to a hard cap of $50,000 per taxpayer per fiscal year.1

The “Base Amount” Nuance

In federal R&D tax credit calculations, a “floor” exists where the base amount cannot be less than 50% of the current year’s qualified research expenses. New Hampshire law deviates from this by allowing the base amount to be as low as zero.13 This is particularly advantageous for:

1. Startups: Businesses with no prior gross receipts or R&D expenditures may calculate a base of zero, making the entire current year’s R&D wage spend eligible for the 10% credit.13
2. Expanding Operations: High-growth companies that are aggressively hiring R&D personnel in New Hampshire can realize a much larger credit than would be possible if the federal 50% floor were applied.13

Multi-Step Practical Example

Consider “Aerospace Innovation NH,” a precision manufacturer that files as a C-corporation. For the 2024 tax year, the company’s internal records show the following:

• Total Compensation (all employees): $3,000,000
• Qualified R&D Wages (NH-based): $800,000
• Calculated Base Amount (historical average): $500,000
• Total Interest Paid: $100,000
• Total Dividends Paid: $50,000

Step 1: Determine Enterprise Value Tax Base (EVTB)

The EVTB includes all compensation, not just R&D wages.

$$EVTB = \$3,000,000 + \$100,000 + \$50,000 = \$3,150,000$$

Step 2: Calculate Business Enterprise Tax (BET)

$$BET = \$3,150,000 \times 0.0055 = \$17,325$$

Step 3: Calculate Tentative R&D Tax Credit

The company calculates 10% of the excess wages over the base.

$$Excess = \$800,000 – \$500,000 = \$300,000$$

$$Tentative Credit = \$300,000 \times 0.10 = \$30,000$$

Note: This is below the $50,000 individual cap..13

Step 4: Apply Proration

Assuming the state’s total applications reached $10 million against the $7 million cap, a proration factor of 0.70 is applied.

$$Final Awarded Credit = \$30,000 \times 0.70 = \$21,000$$

Step 5: Tax Application

The credit is first applied against the Business Profits Tax (BPT). If the company’s BPT liability is $15,000:

1. BPT Offset: $15,000 – $15,000 = $0 (Liability cleared)
2. BET Offset: The remaining $6,000 of the credit is applied to the BET liability of $17,325.
3. Final BET Due: $17,325 – $6,000 = $11,325.

The total business tax paid is $11,325, rather than the initial $32,325 ($15k BPT + $17,325 BET), demonstrating the high impact of the credit.12

Regulatory Compliance and Administrative Procedures

For business organizations to successfully claim and maintain the credit, they must adhere to strict administrative timelines and record-keeping standards established by the DRA.

Filing the Application (Form DP-165)

The application for the R&D credit is distinct from the filing of the annual tax return. Form DP-165 must be submitted or postmarked by June 30 following the taxable period in which the expenditures were made.10

A crucial requirement for the application is the attachment of Federal Form 6765.10 If the federal return is not yet due or the company is filing on extension, the DRA requires a “pro-forma” or draft copy of Form 6765 to be included with the June 30 application.10 Failure to include this documentation will result in the application being considered incomplete and potentially denied.

Notification and Use (Form DP-160)

After the proration calculations are finalized, the Department notifies applicants of their award amounts by mail by September 30.1 The taxpayer then uses the award letter to claim the credit on their next business tax filing using Form DP-160, “Schedule of Credits”.15

Record Retention and Audit Exposure

Because the New Hampshire R&D credit is based on the federal Section 41 definition of wages, businesses must maintain documentation that would withstand a federal-level audit.13 The DRA generally audits for a “manufacturing nexus,” ensuring the research was genuinely directed at manufacturing processes within the state.13

Recommended documentation includes:

• Payroll Records: Allocations of individual wages to specific R&D projects.13
• Project Documentation: Lab notes, prototypes, and testing results that substantiate the experimentation process.21
• Time Tracking: Detailed logs for employees who split their time between R&D and standard production or administration.21

Interplay Between the R&D Credit and Other State Incentives

New Hampshire provides several other tax credits, and the order in which they are applied can significantly affect a business’s final tax liability.

The BET Credit Against the BPT

A foundational element of New Hampshire taxation is that the BET paid is allowed as a credit against the BPT.4 This effectively makes the BET a minimum tax; the business pays the higher of the two levies. The R&D credit is unique because it can reduce both the BPT and the BET liabilities.10

Economic Revitalization Zone Tax Credit (ERZTC)

Under RSA 162-N:7, wages used to claim the R&D credit are strictly prohibited from also being used to claim the Economic Revitalization Zone Tax Credit.13 This “anti-stacking” provision requires businesses to strategically evaluate which credit provides a higher value for their specific circumstances.

The Education Tax Credit (ETC)

Businesses that contribute to scholarship organizations may claim a credit equal to 85% of their contribution.15 This credit can be applied against the BPT, BET, or the Interest and Dividends (I&D) tax (though the I&D tax was repealed for periods beginning after December 31, 2024).15 The R&D credit is typically applied before the ETC on the BPT summary but after certain other job-creation credits.15

Historical and Economic Context of the Business Enterprise Tax

The BET was enacted in 1993 as a replacement for the municipal property tax on “stock-in-trade,” such as inventory and machinery.25 Its introduction marked a shift toward a value-added style of taxation, designed to be more equitable than a pure profits tax which often penalized highly successful firms while exempting struggling ones that still utilized significant state resources.3

Filing Thresholds and Small Business Protection

To ensure that the BET does not unduly burden small enterprises, the DRA biennially adjusts filing thresholds based on the Consumer Price Index (CPI).6

The trend shows a steady increase in thresholds, exempting a larger number of micro-enterprises from the filing requirement. The harmonization of the gross receipts and EVTB thresholds in 2022 further simplified the compliance landscape.6

The Role of Multi-State Apportionment

For businesses operating both inside and outside of New Hampshire, the EVTB must be apportioned.6 Historically, New Hampshire utilized a three-factor apportionment formula. However, for taxable periods ending on or after December 31, 2022, the state transitioned to a “single sales factor” for income apportionment.9 This change is significant for manufacturers: it rewards businesses that have a large physical footprint (wages and property) in New Hampshire but sell their products to a national or global market.4

In the context of the R&D credit, apportionment is vital. Only those wages “attributable to New Hampshire” (i.e., for services rendered within the state) are included in the qualified expenditure calculation.10 If a researcher works 50% in NH and 50% in Massachusetts, only the NH-apportioned wages would qualify for the credit.10

Future Outlook: Legislative Expansion and SB 276

The New Hampshire Research and Development Tax Credit is currently the subject of significant legislative focus. Senate Bill 276 (SB 276), introduced in the 2025 session, proposes substantial increases to both the individual and aggregate credit caps.23

Proposed Enhancements

If passed, SB 276 would amend RSA 77-A:5, XIII to:

1. Raise the Individual Cap: Increase the maximum credit an entity can claim from $50,000 to $100,000 per year.18
2. Raise the Aggregate Cap: Increase the total statewide credit pool from $7,000,000 to $10,000,000.23

The bill is supported by industry groups who argue that the current $50,000 cap—which has not been adjusted in years—no longer provides a sufficient incentive for major R&D operations, especially given the high cost of scientific labor.18 By doubling the individual cap, the state hopes to remain competitive with neighboring jurisdictions that offer more aggressive R&D incentives.

Fiscal Impact on State Revenues

The Department of Revenue Administration assumes that the full amount of any increase in the cap will be awarded each year, given that current demand already exceeds the $7 million limit.23 The estimated impact is a decrease in business tax revenue by approximately $3,000,000 annually.23 However, because the credit can be carried forward for five years, the exact timing of the revenue impact is considered “indeterminable”.23

Strategic Implications for Business Organizations

The “meaning of wages in the enterprise value tax base” is ultimately a question of strategic classification. For a company to maximize its New Hampshire R&D tax credit, it must ensure that its payroll and accounting systems are aligned with the state’s definitions.

Employee Leasing and the 2015 Election

A critical nuance for manufacturers using temporary or leased labor is the 2015 change to RSA 77-E.6 Historically, the leasing company was responsible for reporting the wages in its EVTB. Effective July 1, 2015, the leasing and client companies can elect to make the client company responsible for the wages.6 This election is paramount for R&D purposes: if the client company (the manufacturer) wants to claim the R&D credit, it should consider making this election so the wages are reported in its own EVTB, satisfying the requirement of Rev 2406.05(c).2

Managing Proration Risk

Because the credit is prorated based on total statewide applications, businesses cannot precisely predict their credit award until the DRA notification in September.12 Financial controllers should conservatively estimate the credit value in their tax provisions, recognizing that a “qualified” credit of $50,000 may ultimately result in an award of significantly less depending on the year’s total applicant volume.18

Unitary Business Considerations

For conglomerates or unitary business groups, the $50,000 (or proposed $100,000) cap is applied to the group as a whole.11 This prevents businesses from fragmenting their R&D operations into multiple smaller LLCs to multiply the $50,000 cap.11 Proper combined reporting is required to ensure compliance and avoid penalties for over-claiming credits.9

Conclusion

The reporting of wages in the Enterprise Value Tax Base is the cornerstone of New Hampshire’s approach to incentivizing manufacturing research and development. By requiring that qualifying R&D expenditures be included in the compensation element of the Business Enterprise Tax, the state ensures that the incentive is anchored in genuine, state-based economic activity. This statutory linkage creates a transparent and auditable framework that benefits both the state’s revenue stability and the business’s long-term planning.

As the state moves toward a potential expansion of the credit caps through Senate Bill 276, the importance of accurate wage reporting and adherence to Department of Revenue Administration guidance will only increase. For business enterprises in the Granite State, the R&D credit remains a vital tool for reducing the overall tax burden, allowing them to reinvest in the human capital that drives technological innovation. Success in claiming these credits requires more than just innovative research; it demands a deep understanding of the unique interplay between the Business Enterprise Tax and the Research and Development statutory framework. By meticulously documenting qualified wages and ensuring their proper inclusion in the enterprise value tax base, New Hampshire businesses can continue to lead in the global manufacturing economy while maximizing their state-level tax efficiency.

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