The House will take up the budget fresh off approving a $1.1 billion tax relief package last week that proposes a number of important changes to the tax landscape in MA.  H.3770, An Act to improve the Commonwealth’s competitiveness, affordability, and equity, passed the House by a vote of 150-3.  The items of interest to the retail industry included:

 

Estate Tax -- MA is a national outlier on the estate tax, as one of only 12 states that impose this tax, sharing the lowest estate tax exemption threshold in the country, with Oregon. The bill proposes increasing the estate tax threshold from $1 million to $2 million, and eliminates the “cliff” effect, taxing the value of the estate that exceeds $2 million, and not the entire estate as the law currently requires. RAM strongly supports a reform of the estate tax but we also think that we can afford to go further on the threshold, or eliminate the tax altogether.

 

Short-term Capital Gains Tax -- MA is again an outlier among the states with the highest short-term capital gains tax rate (12%), and that we tax short-term capital gains at a higher rate than long-term capital gains (5%).  The bill lowers the short-term capital gains tax rate to 5% phased in over two years, dropping first to 8% before dropping to 5% the following year.  RAM supports this change.

 

Single Sales Factor (SSF) Apportionment -- Currently, most businesses in MA are subject to a three-factor tax apportionment based on location, payroll, and receipts.  To attract more multi-state companies, many states started moving toward SSF apportionment over the years, including MA, which previously adopted it for manufacturing and the mutual fund industry.  Now, most states (39) have moved away from three factor apportionment to SSF apportionment, based solely on receipts.  The House bill proposes to move MA to SSF apportionment, at a cost of $115 million in year one, and $79 million annually.  RAM has largely remained neutral on this issue over the years, as we will have both winners and losers in making this switch. 

 

Changes to Chapter 62F – Chapter 62F was a forgotten provision in the General Laws which was triggered last year when revenue collections exceeded wage growth by a certain percentage, sending more than $3 billion in refunds back to taxpayers.  The tax refund was applied proportionally to the personal income tax liability of all taxpayers.  With an eye toward making the provision more “progressive,” the House bill proposes to change any potential refund distribution to a flat/equal dollar amount per taxpayer. 

 

The bill also includes an increase in the Earned Income Tax Credit (EITC), the creation of a $600 Child and Dependent Tax Credit, and a doubling of the Senior Circuit Breaker Tax Credit to $2,400.