MA Legislature Looks to Give Governor Options on State Budget Issues:

Employer Health Care Tax, "Real Time" Sales Tax Remittance, Sales Tax Prepayment

After the Massachusetts Senate completed debate on its version of the FY18 state budget late last month, a Conference Committee was appointed consisting of three members of the Senate and three members of the House of Representatives.  The Conference Committee is tasked with taking both the House and Senate budgets and creating one final compromise plan to send to the Governor for his review and approval.  Major budget proposals of interest to the retail industry – the Employer Health Care Tax, "Real Time" Sales Tax Remittance, and proposed Sales Tax Prepayment – all remain active and on the table for discussion in conference.
Both branches included in their budgets some form of an Employer Health Care Tax, meant to close a budget gap in the state’s ballooning Medicaid program, MassHealth.  The health care assessment, originally introduced in Governor Baker’s budget, began as a $300 million proposal, funded by a $2,000 penalty, per full time equivalent employee, on employers that didn’t achieve an 80% participation rate in an employer sponsored health plan.  RAM and our members lobbied the Legislature aggressively on this proposal, arguing that employers were being unfairly singled out and asked to solve a problem that they did not create.  We also argued that employers should not be penalized for decisions that their employees were making with regard to their health insurance needs, particularly when the employee was electing to go on a spouse’s or a parent’s plan.
The House responded in its budget plan with a modified version of the proposed employer assessment that was similar to the Governor’s plan, but avoided spelling out the specifics.  The House instead directed the Baker Administration to further study the issue and hold public hearings on the plan before determining things like the contribution rate, the threshold for a minimum qualified offer and the participation rate, after taking into consideration a wide range of issues that have been raised by RAM and others in the employer community.  The House called for the assessment to generate $180 million.
The Senate plan gives the Administration two options moving forward to implement a program to generate $180 million in revenue in FY18 from a temporary employer contribution to health care.  The two options are:
1) Increase the Employer Medical Assistance Contribution (EMAC), an existing tax that most employers now pay as part of their unemployment insurance taxes.  The EMAC is currently $51 per employee annually.  The Senate plan would allow the Administration to raise it to not more than $112.50 per employee.  EMAC funds are used to pay for subsidized health care for low-income residents.  All employers of six or more employees contribute to EMAC.  This proposal would spread the cost more evenly across all employers. 
2) Establish a tax similar in structure to what the Governor had initially proposed.  The plan, like what passed the House, leaves the specifics up to the Administration to sort out through regulation.  Employers with less than 25 full time equivalent employees (FTEs) would be exempt. The tax assessment rate would be tiered at two or three levels based on number of employees.  The tax assessment on all employers with between 25 and 50 FTEs would effectively be capped at a total of $18 million, leaving employers with more than 50 FTEs liable for the remaining $162 million.   Non-profits may be exempted.
RAM has continued to raise concerns about a tax or assessment at any level, but it is clear that something will pass.  We remain at the table, discussing all options with the Legislature and the Governor, advocating that any increased assessment or tax be temporary, and be packaged with real Medicaid reforms going forward.     
On the “Real Time” sales tax remittance issue, the House plan defers to the Governor, while the Senate plan again gives the Administration a choice between options.  The Department of Revenue (DOR) must, if cost effective, implement either “real time” sales tax remittance, or establish a sales tax prepayment system for vendors that collect more than $750,000 in sales tax annually.  Prior to making a determination, the DOR has to conduct a cost benefit analysis comparing the two options, and weighing a number of factors, including established industry practices, technological feasibility, financial impacts on consumers and businesses and others.  If the DOR certifies that neither option is cost effective, then the Comptroller is directed to essentially credit $125 million in sales tax collections from FY19 back into FY18.  RAM continues to actively oppose “real time” and does not support a prepayment requirement.  However, if prepayment is to be considered, it should be at a higher threshold - $1 million or more – and come with protections in place to prevent overpayments and credits. 
The Conference Committee seeks to complete its work by the start of the new fiscal year, July 1.  RAM will continue to actively engage on both the employer health care tax and the sales tax remittance issues.