Planet Fitness wants changes to a New Hampshire tax law before its initial public offering (IPO), or it might move its Newington-based headquarters out of the state.
Planet Fitness CEO Chris Rondeau and former New Hampshire Governor Craig Benson supported an amendment before the state's Senate Finance Committee on Wednesday that passed on a 4-2 vote. The amendment would allow Planet Fitness to issue its IPO and not pay the state's business profits taxes on the company's increased value when shares are sold.
"We want to stay here," Rondeau told the committee. "This tax is just to the point where it's hard as the CEO of the company with my partners and shareholders to say it's a good idea to stay. The tax liability is too great. It'd be cheaper for us to pay everyone a raise to cover income tax and move it over the border."
Rondeau said Planet Fitness has nearly 200 employees at the headquarters making an average salary between $80,000 and $100,000. Lawmakers see a potential loss of 500 jobs, according to a report from The Associated Press.
“This isn’t an idle threat,” Planet Fitness General Counsel Richard Moore told The Associated Press. “We’ve had conversations with other states.”
On Tuesday, Planet Fitness submitted to the Securities and Exchange Commission a draft registration statement for a proposed IPO. The number of shares to be offered and the price range for the proposed offering have not yet been determined. The IPO date has not been determined yet.
At issue is a provision in New Hampshire's business profits tax that adjusts gross business profits in determining taxable business profits. When a business organization sells or exchanges an interest in an organization, the provision adds to gross business profits an amount equal to the net increase in the basis of all underlying assets transferred or sold through the sale or exchange of the interest.
Benson said this 'step up basis' is triggered when a business goes from a limited liability company (LLC) to a C-corporation through an exchange of company shares to public shares. The step up that occurs as a result of shares sold to the public in a public offering and subsequent offerings are based on the company's value as it trades.
Planet Fitness is an LLC and reported $211 million in 2013 revenue.
Benson used his former business, Cabletron, to illustrate his point of what he called an "unfair tax" instead of Planet Fitness citing Securities and Exchange Commission regulations.
"My company went public at a value of a billion dollars," Benson said. "A step up in basis if all of the shares were sold would be a billion dollars, which would be applicable to the business profits tax. Yet, my business that year earned $17 million."
Benson said Cabletron paid $480,000 based on apportionment under the business profits tax. Under the step up basis, Cabletron would have paid $28.3 million.
The amendment would alter the step up provision enacted in 1989, the same year Cabeltron went public.
New Hampshire Department of Revenue Administration Commissioner John Beardmore testified in opposition.
"It is our belief, at this point, that this amendment and the narrow exemption to an important provision within the business profits tax, in fact, would not serve the purposes of fairness as it relates to other businesses and the overall structure of this tax," Beardmore said.
Under questioning, Beardmore said it is his understanding Planet Fitness is pursuing the formation of an Up-C structure for IPO purposes.
In an Up-C structure, a newly formed corporation undertakes the IPO and can shift IPO proceeds to the LLC level.
"If this is a policy problem, we're more than happy to look at the policy," Senate Minority Leader Jeff Woodburn told WMUR. "To come in and look for a carve-out for one particular company that has political connections to the top, you know, begs the question of cronyism."
The Finance Committee is expected to work with the New Hampshire House of Representatives, the governor's office and other officials on the proposal before the session ends on June 30, according to The Union Leader.
"It's truly about the 500 jobs in New Hampshire, and I think we need to debate that issue," Senate Majority Leader Chuck Morse told WMUR.