Legislators Must Pass Tax Reform Quickly to Strengthen the Commonwealth’s Quality of Life and Economy
Massachusetts Chambers Policy Network Urges the Legislature to agree on tax reform legislation that includes important policies for businesses and residents
The Massachusetts Chambers Policy Network urges the Commonwealth’s legislators to finalize tax relief, ensuring that businesses and employees are recognized as pillars of a strong economy.
Small businesses, large employers, and residents support essential tax reforms that will improve Massachusetts’s competitiveness and help retain local talent. As the House and Senate conference committee continues to negotiate, 9 Chambers of Commerce from across the state urge the Legislature to pass a bill that includes important policy reforms for individuals and businesses.
A strong economy is important for the present and future of every community, downtown, and economic hub in Massachusetts. Outlier tax policies that drive employers and workers out of state are threats to a vibrant economy. We are already seeing the results: between April 2020 through July 2022, 110,000 people moved from Massachusetts to other states. Several tax policies subject to conference negotiations address outlier policies that position Massachusetts as uncompetitive, including the estate tax, short-term capital gains, and single sales factor apportionment. These reforms are essential to ensure employees and employers view Massachusetts as a desirable place to live, work, and do business.
The
Estate Tax
Massachusetts is one of only 12 states that impose an estate tax. The Commonwealth also has the lowest exemption in the country along with Oregon, currently set at $1 million. Additionally, the Commonwealth applies the tax to the full value of the estate once the valuation threshold is triggered.
Reforms that increase the exemption and eliminate the “cliff effect” are critical to retaining talent and supporting small businesses. Family businesses in particular already face significant challenges when a founding family member passes away, resulting in the closure of the business in nearly half of such circumstances. When the value of a family or small business exceeds the $1 million estate tax threshold, families are faced with difficult choices about whether they can afford to continue operating or are forced to sell or close the business rather than pay the assessed tax. Raising the exemption threshold to $2 million and applying the tax only to the value above that threshold will create a less punitive tax structure and ensure more small businesses stay open and continue to operate through generations.
Short-Term
Capital Gains
Massachusetts has the 2nd highest short-term capital gains rate in the nation. The federal government and many states treat short-term capital gains as ordinary income. Phasing in a more competitive tax rate for this outlier tax policy improves our competitiveness and helps retain jobs in Massachusetts.
Single
Sales Factor Apportionment
A large majority of states now use the single sales factor when apportioning taxable income for multi-state businesses, making Massachusetts a clear outlier. The state’s current apportionment system penalizes employers that choose to establish large operations or a headquarters in the state and employ Massachusetts residents. Adopting a version of single sales factor apportionment that eliminates this penalty to in-state businesses and conforms to most of the nation will help keep our local employers here while removing a disincentive to locate in Massachusetts. Single sales factor is not a new concept for the Commonwealth; this method of apportionment already applies to the manufacturing, defense, and qualifying financial services industries. While not every employer benefits from this policy change, a nuanced legislative compromise adopting single sales factor apportionment can balance the impacts on various industries while ensuring a level playing field for our businesses. We encourage the conferees to adopt a thoughtful approach towards this tax policy.
Housing
and Family Tax Deductions and Credits
Massachusetts has record-setting housing costs in the country and very low housing stock, and several reforms proposed by either the House or Senate will encourage residents to stay in Massachusetts, including increasing rental deduction, the child and dependent tax credit, and the earned income tax credit. Each of these measures will provide relief to individual taxpayers.
Importantly, the combined impact of all of these proposals would be well within the means of the state budget and will favorably promote more economic growth and future state revenue. Massachusetts experienced explosive growth in revenue in recent years. Between FY 2019 and FY 2024, state budget spending increased by $14 billion from $42 billion to $56 billion, a 33% increase. In comparison, the impact of the first year of the tax relief package is less than $600 million for both packages. With record reserves, these tax reforms are well within the Commonwealth’s ability to pursue without significant impacts on the overall budget. It will send a strong signal to workers and businesses that Massachusetts prioritizes the economy and business climate.
“As Presidents of Chambers of Commerce, we continue to hear from employees and employers that other states are trying to incentivize them to leave Massachusetts with competitive tax policies. We must ensure a successful economic future for the people of Massachusetts. Strategic tax reform will remove the Commonwealth as an outlier while encouraging people – and their skills and businesses – to stay and grow in the region,” said James E. Rooney, President and CEO of the Greater Boston Chamber of Commerce.
“The business community in the north of Boston region urges legislators to approve a tax relief package that improves the Commonwealth’s competitiveness. The state must provide employers and employees with affordable means to stay in the state, while encouraging new growth for our economic viability. Comprehensive tax relief is a must for the health of our state, region and its employers,” said Karen E. Andreas, President and Chief Executive Officer, North Shore Chamber of Commerce.
“Comprehensive tax relief is essential to the health of our South Coast businesses. The burden of the current tax structure, along with other mandates that have added cost to our businesses, creates a powerful disincentive to starting or growing a business in the Commonwealth. We strongly urge the administration and the legislature adopt a substantial tax relief package that will provide our businesses a more level playing field and a greater ability to retain their employees and grow to provide more good jobs for our residents,” said Mike O’Sullivan, CEO of One SouthCoast Chamber.
“Two
governors and both legislative chambers have twice voiced support for tax
reforms designed to make Massachusetts more affordable, equitable and
competitive. We need Beacon Hill to act with urgency and finally advance a
package that aims to keep other states from stealing our workers and our
companies and provides relief to parents, renters, seniors and our small
business owners,” said Greg Reibman, President, Charles River Regional Chamber.
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