To Understand Downshifting, Follow the Money
- Daniel Veilleux
- Jun 27
- 17 min read
Updated: Jun 27
How New Hampshire’s tax system shifts costs, hides choices, and puts pressure on local property taxes
New Hampshire is known as a low-tax state.
We have no broad-based income tax or sales tax. That is part of the New Hampshire brand, and it is one of the reasons many people choose to live here, work here, retire here, or start a business here.
Maintaining this unique tax structure, however, comes with choices.
Over the years, New Hampshire’s tax system has evolved into a complicated patchwork, shaped by design and by history. Some revenue sources are broad. Some are narrow. Some are stable. Some are volatile. Some are counted as state support even though they are raised locally. Some have been reduced or repealed. Others have been frozen for years while costs keep rising.
During the Great Recession, when revenue fell dramatically, New Hampshire shifted a great deal
of responsibility for funding local programs and services it once supported from the State to property taxpayers. The State also froze highway funding, reduced or eliminated support for the University System and health services, and limited funding for other programs.
The years that followed were not simple. The economy recovered from the Great Recession, then faced another major disruption during the pandemic. But after each period of strain, the State had opportunities to rebuild support for towns, schools, infrastructure, and public services.
It largely chose a different path.
Instead of restoring lost support, the State reduced or eliminated taxes for businesses and wealthy households, cut support further in some areas, and allowed other funding sources to remain stagnant even as costs continued to rise. [S11] [S15] [S20] [S21]
To understand how state revenue choices affect affordability, it is important to understand those revenue sources and how they are configured.
That is the purpose of this section: to look at the revenue structure itself, the choices embedded in it, and how those choices affect towns, schools, local taxpayers, and others.
SWEPT: The “State” Tax That Never Really Leaves Town
The Statewide Education Property Tax may be the strangest revenue source in New Hampshire.
It is called a state tax. It is counted as part of the State’s contribution to education. It appears in the state budget. It helps support the Education Trust Fund structure.
In practice, it is a property tax raised locally and generally retained locally.
That is why SWEPT is sometimes described as a “phantom” tax. The money does not really travel from Amherst to Concord and then back to Amherst. It is raised through local property tax bills and used locally for education. Yet the State counts it as part of state education funding. [S2]
SWEPT was created after the Claremont school funding decisions, when New Hampshire had to build a more uniform system for funding an adequate education. The concept of a statewide property tax made sense. In theory. A statewide tax could help equalize school funding. If a uniform tax rate raised more than one community needed for its own adequacy obligation, the excess could help support communities with less taxable property wealth.
That is not how the system has functioned for most of its life.
Instead, SWEPT has largely become a locally raised, locally retained tax. Property-wealthy communities can raise more with a lower tax rate. Property-poor communities must work harder to raise the same amount of money. The State counts SWEPT as a state contribution, but the underlying capacity remains tied to local property wealth.
That undermines the purpose of state education funding, which should reduce the gap between property-rich and property-poor communities.
SWEPT is a state tax in name, a local property tax in practice, and an accounting mechanism in the state budget.
It is local property tax revenue wearing a state label.
That is why education funding debates can become so confusing. When people hear that the State is contributing to education, they may not realize that part of what is being counted as “state” support is a property tax local taxpayers are already paying.
Meals and Rooms Tax: The 8.5% Tax That Does Not All Stay With the State
New Hampshire does not have a general sales tax. But it does tax prepared meals, hotel rooms, short-term room rentals, and certain motor vehicle rentals. The Meals and Rooms Tax rate was reduced from 9% to its current rate of 8.5% effective October 1, 2021. The tax is paid by consumers and collected by restaurants, hotels, rental operators, and other businesses that remit the tax to the State. [S3]
Most people probably assume that when they pay the 8.5% Meals and Rooms Tax, the full amount goes to the State.
It does not.
The Meals and Rooms Tax has most of the characteristics of a typical tax: It is paid by consumers, collected by private operators, partly shared with municipalities, and partly retained by the State.
But it is also partly retained by operators as a “commission” for complying with filing and payment requirements.
The operator commission is one of the odder features of the tax. Operators who collect and remit the tax are allowed to retain a 3% reward if they keep required records, file on time, pay on time, have no outstanding balance, and meet other filing requirements. [S5]
The administrative logic is understandable. Businesses collect the tax on behalf of the State. They maintain records, file returns, and remit revenue.
Still, most taxpayers do not get to keep a percentage of their taxes for paying correctly.
The tax also has a long connection to local government. When the Meals and Rooms Tax was first enacted in 1967, the policy was to share revenue with municipalities. More recently, the municipal distribution has been set at 30% of Meals and Rooms revenue.
That local share is important. Cities and towns use it to support services and reduce pressure on property taxes. For communities that host restaurants, hotels, short-term rentals, tourist destinations, and regional business activity, the argument is especially strong. Local governments help support the roads, police, fire, public works, and services that make that activity possible.
The 2025 budget debate showed how vulnerable that local share can be.
During the budget process, the House proposed replacing the traditional 30% municipal share with a fixed appropriation for fiscal years 2026 and 2027. That proposal would have capped the local share even if total Meals and Rooms revenue grew. It did not survive the final budget, and the 30% municipal share remained intact. [S4]
But the proposal showed how local revenue can be reduced without fanfare. The State can hold back money that would otherwise flow to municipalities, leaving taxpayers to wonder what happened. If the revenue does not arrive, towns must adjust through spending cuts, service reductions, or property taxes.
The Meals and Rooms Tax looks simple on a receipt. It is not simple in the budget.
It is a targeted consumption tax paid by customers, collected by businesses, partly retained by operators, partly shared with municipalities, and partly controlled by the State.
Lottery Revenue: The Myth of Paying for Education
Many Granite Staters believe the lottery pays for a large share of public education.
It does not.
That belief is understandable. The lottery has been marketed for decades as a source of education funding. New Hampshire was the first state in the nation to create a modern state lottery, and lottery revenue is dedicated to education.
The scale is often misunderstood.
The New Hampshire Lottery reported that it has contributed more than $3 billion to public education since 1964. In fiscal year 2024, it generated about $207 million for public education, and in fiscal year 2025 it generated nearly $209 million according to unaudited figures. [S6]
That sounds enormous until it is compared with the full cost of K-12 education.
New Hampshire public school expenditures now exceed $4 billion annually. The Department of Education reported that total expenditures for the 2023-2024 school year approached a new record of more than $4 billion. Other analyses using Department of Education data estimate district public school spending at about $4.06 billion for the 2023-2024 school year. [S7]
Against that backdrop, $207 million or $209 million is helpful, but it is not the foundation of school funding.
The lottery helps fund education. It does not come close to paying for most of it.
That misconception is politically useful. People hear that lottery money goes to schools and assume education is being funded by voluntary gambling rather than property taxes. In reality, most school funding in New Hampshire still comes from local property taxes. [S1]
Lottery revenue has also grown as New Hampshire has expanded gambling opportunities, including sports betting, Keno, historic horse racing, and other gaming-related activity. [S23]
That raises a practical question: how much should the State rely on gambling revenue to support core public services?
Gaming revenue can help pay bills. It can draw money from visitors. It can reduce pressure on other revenue sources.
But it is not magic money. It comes from people. It can fluctuate. It can create social costs. And it should not be mistaken for a stable solution to school funding.
A state cannot responsibly fund education through wishful thinking, scratch tickets, and slogans.
Interest and Dividends Tax: A Repealed Tax on Investment Income
For many years, New Hampshire did not tax wages, but it did tax certain investment income.
The Interest and Dividends Tax applied to income from interest, dividends, and certain distributions. It was not a broad income tax on wages or salaries. It was a narrower tax on income generated from ownership of financial assets.
The tax had existed since 1923. It had a 5% rate for many years, then was reduced to 4% in 2023 and 3% in 2024 as part of a phaseout plan. The tax was repealed beginning January 1, 2025. [S11]
The repeal removed one of the few state taxes paid directly by individuals based on income from wealth. It also reduced state revenue capacity and disproportionately benefited households with substantial taxable interest and dividend income.
The fiscal impact was significant.
NHFPI reported that the phased repeal was projected to reduce State General Fund revenue by about $67.8 million over the upcoming budget biennium based on Governor and DRA estimates. NHFPI also reported that in tax year 2021, filers with more than $200,000 in taxable interest, dividend, and distribution income paid $79.2 million, or 57.3% of total Interest and Dividends Tax revenue. [S12]
For many households, repeal meant little or nothing. For households with substantial taxable investment income, it meant a lot.
Repealing the tax may make New Hampshire more attractive to some wealthy households and investors. But it also gives up revenue that could otherwise support public services, restore local aid, or reduce pressure elsewhere in the tax system.
That is the tradeoff.
The State eliminated a tax that fell mostly on investment income. If that revenue is needed later, the question becomes who pays instead.
Business Taxes: BPT, BET, and One-Way Triggers
New Hampshire has two major business taxes: the Business Profits Tax and the Business Enterprise Tax.
The Business Profits Tax is essentially a tax on business profits. It applies to business organizations with gross business income above the filing threshold. For taxable periods beginning on or after January 1, 2025, DRA guidance says business organizations with gross business income from all business activities of more than $109,000 must file a BPT return. The current BPT rate is 7.5%. [S14]
The Business Enterprise Tax is different. It is based on a business enterprise value tax base, which includes compensation, interest, and dividends paid or accrued. In simple terms, the BET taxes the economic activity of a business enterprise, including payroll-related components, even when profit is low or absent. For taxable periods beginning on or after January 1, 2025, the BET filing thresholds are more than $298,000 of gross receipts or more than $298,000 of enterprise value tax base. The current BET rate is 0.55%. [S16]
These taxes are broader than many people realize.
When people hear “business tax,” they often picture large corporations. But New Hampshire business taxes can also reach small businesses, partnerships, LLCs, sole proprietors, independent contractors, and 1099 workers who cross the filing thresholds.
Business tax policy is central to the state budget. Combined business taxes have become a major share of New Hampshire’s unrestricted state revenue. NHFPI reported that combined business tax receipts were about 39% of General and Education Trust Fund revenue in State Fiscal Year 2023, falling to about 35% in State Fiscal Year 2025 after dropping $156 million since SFY 2023. [S17]
The rates have also been reduced over time. In 2015, the BPT rate was 8.5%. Today, it is 7.5%. The BET rate has also been reduced. NHFPI estimates that reductions in New Hampshire’s business tax rates likely resulted in between $795 million and $1.17 billion less in State revenue from tax years 2016 through 2024. [S15]
Supporters argue that lower business taxes make New Hampshire more competitive. That argument deserves to be tested, not simply assumed.
Did the cuts produce measurable growth? Did they increase wages? Did they create jobs that would not otherwise have existed? Did they broaden the tax base enough to offset the rate reduction? Did the benefits reach small businesses, or did the largest benefits flow to larger firms?
Those are legitimate policy questions that have not been answered.
HB 155 adds another layer.
As passed by the Legislature in 2026, HB 155 would raise the BET filing threshold to $400,000 and create future automatic BET rate-cut triggers if several conditions are met, including at least $100 million of surplus business tax revenue. [S18]
The threshold increase and the automatic trigger are two different policy choices.
Raising the filing threshold may reduce administrative burdens for smaller businesses. That is a legitimate policy argument.
The automatic rate-cut trigger is more concerning.
A one-way trigger does not simply respond to strong revenue. It decides in advance what strong revenue should be used for. Under HB 155, if the trigger is met, the priority is another BET rate cut.
That means the Legislature has already put a future business tax cut ahead of restoring support for schools, municipalities, infrastructure, higher education, health services, or property tax relief.
If revenue later falls below expectations, there is no automatic mechanism to restore the rate, replace the revenue, or protect the programs and communities that depend on state funding.
The 2026 Tax Amnesty Program makes the concern more concrete. The program generated far more money than expected. DRA reported $103.8 million in recovered tax revenue. NHFPI reported that $96.7 million, or 93.2% of the total, came from combined business taxes. [S19]
That helped the State’s short-term revenue picture.
But amnesty revenue is not the same thing as recurring growth. Some of it may represent taxes that would have been collected later through audits, collections, or compliance activity. Some of it represents overdue obligations, not a stronger long-term tax base.
Using temporary collections or one-time revenue spikes to justify permanent tax cuts is not sound budgeting.
It turns a short-term surplus into a long-term policy choice — and once again, the choice is to cut state revenue rather than rebuild state support.
Transportation Revenue: Frozen Rates and Deferred Costs
New Hampshire funds transportation through two distinct revenue systems. The Road Toll supports the Highway Fund. Turnpike tolls support the Turnpike System. They are not the same pot of money.
But they share the same problem.
Both depend on revenue tools that have been kept flat while transportation costs have continued to rise.
New Hampshire’s gas tax is officially called the Road Toll. It is a flat per-gallon tax on motor fuels. The tax had been 18 cents per gallon since 1991 before being increased to 22.2 cents per gallon in 2014. The 2014 increase was tied to transportation infrastructure needs, including I-93 expansion and critical road and bridge work. [S20]
A flat per-gallon tax has an obvious weakness. It does not automatically keep up with inflation, construction costs, vehicle miles traveled, vehicle weight, or road wear. It only tracks gallons of fuel sold.
That worked better when vehicles were less fuel-efficient and nearly every vehicle bought gasoline or diesel in predictable quantities.
Now, vehicles are more efficient. Hybrid vehicles use less fuel. Electric vehicles use little or no taxable motor fuel. Meanwhile, the roads still need maintenance. A more efficient vehicle still uses the road. Roads still experience wear and tear. Travelers still depend on plowed, maintained, safe roads.
The revenue mechanism no longer matches the cost driver.
That helps explain why transportation funding has become strained. The unrestricted portion of the Highway Fund loses value when tax rates do not adjust for inflation, while transportation construction costs often rise faster than ordinary inflation. NHFPI warned years ago that the real value of the unrestricted motor fuels tax had been eroded by inflation. [S21]
Turnpike tolls have the same basic problem. Turnpike revenue supports turnpike operations, maintenance, debt service, and capital projects. New Hampshire has not raised tolls since 2007. During that same period, construction costs have risen, traffic patterns have changed, congestion has increased in some corridors, and major projects have become more expensive.
That is why Senate Bill 627 became important.
In 2026, SB 627 proposed increasing toll rates for drivers who pay cash or use non-New Hampshire E-ZPass systems, while keeping rates fixed for New Hampshire E-ZPass users. The bill was designed to support the 2027-2036 Ten-Year Transportation Improvement Plan. NHPR reported that the bill would approximately double some cash tolls for standard two-axle vehicles while leaving New Hampshire E-ZPass rates unchanged. It also reported that DOT receives little to no state funding and relies heavily on federal funds and turnpike revenue. [S22]
The policy questions are fair. Should out-of-state drivers pay more? Should New Hampshire residents be protected through E-ZPass discounts? Should tolls be indexed to construction inflation? Should transportation revenue be based more directly on road use, vehicle weight, or miles traveled?
But the underlying problem is straightforward.
New Hampshire cannot maintain a transportation system with revenue tools that stay frozen while costs rise.
Opposition to every transportation revenue increase may be politically understandable. Nobody likes higher tolls or fuel costs. But refusing to update the revenue system does not solve the infrastructure problem.
It shifts the cost into delayed maintenance, worse roads, higher future reconstruction costs, pressure on local road budgets, vehicle damage, and postponed safety improvements.
Those safety delays have consequences. When the State fails to improve known dangerous roadways, the cost is borne by the motorists who crash there, the emergency responders who answer the calls, and the families of people who never make it home.
Other Sources
New Hampshire also relies on other smaller revenue sources, including liquor profits, tobacco taxes, and gambling revenue. The State raises money from activities it also regulates, limits, or, in the case of liquor, directly manages through the Liquor Commission. These sources are significant, but we should be honest about the tradeoffs. A state that depends more heavily on liquor, tobacco, and gambling revenue has a financial interest in behavior it also has a responsibility to regulate carefully. [S8] [S9] [S23]
The Bottom Line
New Hampshire should be a low-tax state.
The honest question, however, is whether tax cuts at the state level are being used to stimulate broad-based economic growth or simply to justify reduced support for government services and infrastructure. At a certain point, cutting services, deferring maintenance, and underinvesting in infrastructure can undermine economic growth by making it harder for businesses to attract workers and operate efficiently.
If the State cuts or freezes revenue while public responsibilities remain, someone still has to pay. Sometimes that means reduced services. Sometimes it means delayed infrastructure investment. Sometimes it means higher fees. Often, it means more pressure on local property taxes.
It is not always a line item labeled “downshifting.” It can appear as a frozen gas tax, a repealed revenue source, a capped municipal distribution, a phantom education tax, a misunderstood lottery contribution, or a one-way business tax trigger.
Each piece can sound technical on its own.
Together, they tell a simple story.
And when the State hides the bill, local taxpayers often find it.
Source Notes
[S1] Education funding and property tax share. NHFPI reports that in the 2023-2024 school year, locally raised property taxes accounted for 61% of public school district revenue, SWEPT raised $363.8 million or about 9%, and property taxes raised locally totaled about 70% of local public education funding.
[S2] SWEPT as a “phantom” state tax. Reaching Higher NH explains that SWEPT appears as part of the state budget even though the money never really moves from towns to Concord and back. NHFPI also describes SWEPT as raised and retained locally.
Sources: Reaching Higher NH — State Education Property Tax and NHFPI — New Hampshire Policy Points 2025: Funding Public Services
[S3] Meals and Rooms Tax basics and rate reduction. NH DRA describes the Meals and Rooms/Rentals Tax as applying to patrons of hotels, restaurants, and motor vehicle rentals. DRA says the tax is paid by consumers and collected and remitted to the State by operators. DRA also announced that the rate was reduced from 9% to 8.5% effective October 1, 2021. Citizens Count provides a plain-language overview of the current 8.5% tax and what it applies to.
Sources: NH DRA — Meals & Rooms/Rentals Tax; NH DRA — Meals and Rooms Tax Rate Reduction; Citizens Count — Meals and Rooms Tax
[S4] Meals and Rooms municipal share and cap proposal. NHFPI and NHMA reported on the House budget proposal and later outcome regarding the municipal share of Meals and Rooms revenue. The Nashua Ink Link article provides a clear account of the proposed cap.
Sources: NHFPI — House Budget Proposal for FY 2026-2027, NHMA — State Budget: What’s In It for Municipalities, and Nashua Ink Link — State budget move cuts towns, cities out of rooms and meals revenue rise
[S5] Operator commission. NH DRA’s Meals and Rooms materials explain that operators may take the 3% commission only if they keep prescribed records, file timely, pay timely, and meet other compliance requirements.
[S6] Lottery revenue. NH Lottery reported lifetime education contributions exceeding $3 billion, FY 2024 education revenue of about $207 million, and nearly $209 million for FY 2025 in unaudited figures.Sources: NH Lottery — Surpasses $3 Billion in Contributions to Public Education and NH Lottery — Nearly $209 Million for Schools in FY 2025
[S7] K-12 cost contrast. NH DOE reported that 2023-2024 total school expenditures exceeded $4 billion. The Josiah Bartlett Center, using DOE data, estimated district public school spending at about $4.06 billion for 154,080 students.Sources: NH Department of Education — Cost per pupil continues upward trend and Josiah Bartlett Center — Per-pupil spending in NH nearly doubles
[S8] Liquor Commission structure. A control-state profile says NHLC regulates the manufacture, importation, warehousing, and sale of alcoholic beverages; is wholesaler and retailer for wine and spirits; and is the sole retailer of spirits in New Hampshire.
[S9] Alcohol and tobacco licensing/enforcement. NHLC’s Enforcement and Licensing division describes its liquor licensing and enforcement role, and NHLC has separate tobacco retailer resources.
[S10] Deleted
[S11] Interest and Dividends Tax repeal. DRA says the I&D Tax was repealed for tax periods beginning on or after January 1, 2025. DRA materials also describe the rate phaseout before repeal.
Sources: NH DRA — Repeal of NH Interest and Dividends Tax Now in Effect and NH DRA — Transparency: Interest and Dividends Tax
[S12] I&D revenue impact and incidence. NHFPI reported projected biennial revenue reductions of about $67.8 million and that filers with more than $200,000 in taxable interest, dividend, and distribution income paid 57.3% of tax revenue in tax year 2021.
Sources: NHFPI — Households with High Incomes Disproportionately Benefit from I&D Tax Repeal and NHFPI — Testimony Related to the Interest and Dividends Tax
[S13] Deleted.
[S14] BPT basics. DRA states the BPT filing threshold and lists the current BPT rate.
Sources: NH DRA — Business Taxes and NH DRA — Business Profits Tax FAQ
[S15] Business tax reductions. NHFPI estimates that BPT/BET rate reductions likely resulted in between $795 million and $1.17 billion less in State revenue from tax years 2016 through 2024.
[S16] BET basics. DRA lists the current BET thresholds and rate, and explains the business tax structure.
Source: NH DRA — Business Taxes
[S17] Business taxes as a major revenue source. NHFPI reported combined business tax receipts were about 39.1% of General and Education Trust Fund revenue in SFY 2023 and about 35.3% in SFY 2025, dropping $156 million since SFY 2023.
[S18] HB 155. Citizens Count summarizes HB 155 as raising the BET filing threshold and creating automatic future BET cuts if conditions are met, including at least $100 million of surplus business tax revenue. The Josiah Bartlett Center also explains the BET threshold and trigger structure.
[S19] Tax Amnesty Program. DRA reported the 2026 Tax Amnesty Program generated $103.8 million. NHFPI reported that $96.7 million, or 93.2%, came from combined business taxes.
Sources: NH DRA — Tax Amnesty Program Exceeds Goal and NHFPI — Business Tax Receipts Dominate Tax Amnesty Program
[S20] Road Toll/gas tax. Citizens Count reports the Road Toll was 18 cents per gallon from 1991 until the 2014 increase to 22.2 cents. NHDOT describes the 2014 SB 367 increase and its dedication to I-93 expansion and critical road and bridge needs.
Sources: Citizens Count — Gas Tax and NHDOT — Road Toll/SB 367
[S21] Highway Fund pressure. NHFPI reported that inflation reduced the real value of the unrestricted motor fuels tax, with construction costs also rising.
[S22] SB 627/tolls. NHPR reported SB 627 would raise toll rates for cash and non-NH E-ZPass users while keeping New Hampshire E-ZPass rates fixed, and quoted DOT testimony that the department receives little to no state funding and relies on federal funds and turnpike revenue.
[S23] Other Sources. NHFPI’s long-term revenue analysis reports increases in lottery revenue, reliance on business taxes, and shifts among tobacco, liquor, gambling, insurance-related revenue, and other major sources.
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