Did a municipal unemployment-benefits fund owe New Hampshire income tax or have to file a business profits tax return?

Plain-English summary

Q was a self-funded trust providing unemployment benefits for workers of New Hampshire municipalities and political subdivisions. Its petition reported an IRS ruling that the fund was an instrumentality of the participating governments and that its income was excluded from federal gross income under IRC § 115.

The Department ruled that the fund's income was not taxed under RSA 77 because a trustee received it for the benefit of municipalities or political subdivisions. For business profits tax (BPT), the fund was still a “business organization”: the Department said it was active for gain or profit and was not expressly exempt under IRC § 501. Its gross business income for the BPT filing test excluded income excludable under IRC § 115. If the remaining amount did not exceed $12,000, it did not have to file a New Hampshire BPT return under the law cited in the ruling.

What this means for you

The ruling distinguishes exemption from RSA 77 tax, BPT business-organization status, and BPT return filing. The reported federal § 115 exclusion reduced the filing-test income, but did not make the fund categorically exempt from BPT under the Department's analysis. The source does not state the fund's actual remaining gross income.

Common questions

Q: Was the fund's income subject to RSA 77?
A: No. The Department applied RSA 77:8 to income held for the municipalities' benefit.

Q: Was the fund a BPT business organization?
A: Yes. The Department found no express IRC § 501 exemption for the fund.

Q: When could it avoid filing a BPT return?
A: Under the ruling's historical threshold, when gross business income after the § 115 exclusion was no more than $12,000.

Q: May another municipal fund rely on this ruling?
A: No. The official archive limits declaratory rulings to the petitioner and represented facts.

Citations and source limits

The ruling applies RSA 77:8, RSA 77-A:1, I and VI, RSA 77-A:6, I, Rev 301.03(a)-(b), and IRC §§ 115 and 501. It refers to an IRS letter dated March 8, 1982, but the letter is not reproduced in the extracted ruling text. The PDF labels “DOC #2035, Effective May 14, 1982” but gives no separate issue date.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: DOC #2035

Original ruling text

In The Matter of the Petition of "Q" Company
for a Declaratory Ruling

DOC #2035, Effective May 14, 1982

Pursuant to RSA 541-A:8 and Rev 104.04, New Hampshire Code of Administrative Rules, the "Q" Company (hereinafter referred to as "The Fund"), a self-funded trust established to provide unemployment compensation benefits for employees of municipalities and other political subdivisions of the State of New Hampshire, has petitioned the Department of Revenue Administration for a declaratory ruling with respect to the taxability of income received by the Fund under Chapter 77, Taxation of Income and the determination of The Fund as a business organization under Chapter 77-A, the Business Profits Tax and its requirement to file tax returns under that Chapter. Through its counsel, the Petitioner represents the following:

1. The Fund is established to provide unemployment compensation benefits for employees of
   municipalities and other political subdivisions of the State of New Hampshire.

2. All contributions to the Fund and income of the Fund not needed to pay claims, excess
   insurance premiums and administrative expenses are returned to the participating employees.

3. The Internal Revenue Service has ruled (a copy of the ruling accompanied the petition) that
   the Fund is an instrumentality of the participating municipalities and political subdivisions and is exempt from FICA and FUTA taxes. Further, the ruling holds that, pursuant to Section 115 of the Internal Revenue Code, the income of the Fund is excludable from gross income for Federal Income Tax purposes.

In view of the foregoing representations, and specifically based upon them, the Department of Revenue Administration states the following:

1. Section 8 of RSA 77 provides, in part, that income or profits which is received by any
   trustee for the use of the state or any of its political subdivisions shall not be taxed directly or indirectly under RSA 77.

2. Section 1, subsection I of RSA 77-A, as amended by Ch. 445:1, Laws of 1981 defines a
   "business organization" as any enterprise, whether corporation, partnership, proprietorship, association, business trust, real estate trust or other form of organization, organized for gain or profit, carrying on any business activity within the state except such enterprises as are expressly made exempt from income taxation under The United States Internal Revenue Code (1954) as amended.

3. Under Rev 301.03 (a) New Hampshire Code of Administrative Rules, effective May 5, 1982,
   an exempt business organization is one which is made exempt from taxation under Internal Revenue Code Section 501. Rev 301.03 (b) provides that a business organization whose income is partially exempt from tax under various Internal Revenue Code Sections, shall be exempt from tax only to the extent of such income unless otherwise provided by New Hampshire statutes.

4. Section 1, subsection VI of RSA 77-A provides that "gross business income" means all
   income for federal income tax purposes from whatever source derived in the conduct of business activity. Section 6, subsection I of RSA 77-A provides that every business organization having ligross business income" in excess of $12,000 as defined by RSA 77-A:1, VI during the taxable period, shall as of a prescribed filing date, make a return to the commissioner.

5. As stated in the Internal Revenue Service ruling of March 8, 1982 the Fund is classified as a
   corporation subject to federal income taxation under subtitle A (except charitable and other

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organizations with unrelated business income and certain foreign corporations) and is required to file a federal income tax return regardless of whether it has taxable income or regardless of the amount of its gross income.

Wherefore, under the specific circumstances represented and in conformity with the statutes, rules and regulations cited herein, the Department of Revenue Administration hereby rules that:

(a) the income of the Fund will not be subject to tax under Chapter 77 of the Revised Statutes Annotated inasmuch as the income is received by a trustee for the benefit of a municipality or a political subdivision of the State of New Hampshire and as such is non-taxable income within the meaning of Section 8 of RSA 77.

(b) the Fund is deemed to be a "business organization" within the meaning of section 1, subsection I of RSA 77-A inasmuch as it is engaged in business activity within the state for gain or profit and is not expressly exempt from tax under Section 501 of the U.S. Internal Revenue Code.

(c) the Fund's gross business income, as defined in RSA 77-A:1, VI is to be determined net of any gross income excludable under Internal Revenue Code Sec. 115 and if the amount so determined is not in excess of $12,000, there will be no requirement to file a New Hampshire Business Profits Tax return as provided in RSA 77-A:6, I.

Lloyd M. Price, Commissioner