A NEW STATE VAT - LESSONS FROM NEW-HAMPSHIRE

In 1993, New Hampshire became the second state in the United States to levy a form of valve-added tax (VAT). This business enterprise tax (B ET) is levied on firms' wages and other compensation, interest, and di vidends, at a 0.25 percent rate. The BET contributes about one-fifth o f total business tax revenues to the state; most of the rest is contri buted by the business profits tax (BPT). The BET compares favorably to the BPT in terms of perceived equity, stability, efficiency, simplici ty growth, and competitiveness. The author concludes that a VAT can us efully serve as a complementary business tax instead of as a state's p rimary business tax.