Tax Expenditure Budget

Part VI: Appendix A

REVISED

Over the last year the following tax expenditures have been revised:

Corporate Excise:

Unequal Weighting of Sales, Payroll, and Property in the Apportionment Formula (this year's budget item 2.401). Formerly, this item was referred to as Double Weighting of Sales. Effective January 1, 1996, eligible defense corporations may apportion income to Massachusetts based solely on their sales in the Commonwealth, creating a 100% sales weighted formula. Other qualified manufacturers will be required to apportion income using the following formulas:

Tax Year Sales Weight Property Weight Payroll Weight

1996 60% 20% 20%

1997 70% 15% 15%

1998 80% 10% 10%

1999 90% 5% 5%

2000 100% 0% 0%

Non-manufacturers will continue to be required to apportion income to Massachusetts using a formula that weights sales 50%, property 25%, and payroll 25%.

Research Credit (this year's budget item 2.604). Effective January 1, 1995, qualified defense corporations will be allowed to calculate the research credit separately for qualified defense related research expenses and non-defense related research expenses. This change in calculation allows a corporation with previously high levels of defense research expenditure to claim a credit if the corporation's non-defense research has increased over the base period.

ENACTED
Over the last year the following tax expenditures have been enacted:

The Personal Income Tax :

Credit for Employing Former Full-Employment Program Participants (this year's budget item 1.604). Employers who continue to employ former participants of the §110(1) full employment program in non-subsidized positions are eligible to receive a tax credit equal to $100 per month for each month of non-subsidized employment, up to a maximum of $1,200 per employee, per year.

Corporate Excise:

Credit for Employing Former Full-Employment Program Participants(this year's budget item 2.606). Employers who continue to employ former participants of the §110(1) full employment program in non-subsidized positions are eligible to receive a tax credit equal to $100 per month for each month of non-subsidized employment, up to a maximum of $1,200 per employee, per year.

Sales Tax:

Exemption for Materials, Tools, Fuels, and Machinery Used in Commercial Radio and TV Broadcasting (this year's budget item 3.310). Effective January 1, 1996, materials, tools, fuels, and machinery used in commercial radio and TV broadcasting will be exempt from the sales tax.

OTHER RELATED LAW CHANGES
The Personal Income Tax :

Capital Gains Deduction (this year's budget item 1.201). Effective January 1, 1996, only long-term capital gains realized from the sale of collectibles ( as defined by sec. 408 (m) of the IRC) will be eligible for a 50% deduction from the 12% capital gains tax. Capital gains from the sale of assets other than collectibles will no longer be eligible for a 50% deduction from the 12% capital gains tax, but will be subject to the following tax rates on how long the assets are held:

Holding Period Tax Rate

up to one year 12%

more than one, but less than two years 5%

more than two, but less than three years 4%

more than three, but less than four years 3%

more than four, but less than five years 2%

more than five, but less than six years 1%

more than six years 0%

Assets acquired prior to January 1, 1996 will be deemed to have been acquired on the later of January 1, 1995 or the actual date of acquisition.

The Head of Household Filing Status. Beginning in tax year 1994, individuals who are eligible to file as heads of household for federal tax purposes are eligible to file as heads of household for Massachusetts individual income tax purposes. A head of household is entitled to a personal exemption of $3,400 and an additional exemption of $2,200 if blind and $700 if age 65 or older.

No Tax Status for Heads of Household. Beginning in tax year 1995, individuals who are eligible to file as heads of household for Massachusetts income tax purposes qualify for no tax status if their gross income is less than $11,000 plus $1,000 per dependent. Individuals may qualify for the limited income credit if their gross income is less than $19,250 plus $1,750 per dependent.

Estate Tax and Generation-Skipping Tax:

In 1993, Massachusetts began to phase out the estate tax by means of annual increases in the exemption, elimination of the $1,500 credit, and expansion of the marital deduction. The phase-out is occurring on the following schedule:

Year of Death Exemption Credit Marital Deduction

1986-1992 $200,000 $1,500 50%

1993 $300,000 $0 50%

1994 $400,000 $0 100% (7/1/1994)

1995 $500,000 $0 100%

1996 $600,000 $0 100%

In 1997, Massachusetts will adopt a "sponge" tax. Under a "sponge" tax, Massachusetts estate tax liability will be equal to the maximum credit for state death taxes allowed under the federal estate tax.

Click here to go to: APPENDIX B for the Tax Expenditure Budget Click here for the Tax Expenditure table of contents Click here for the Main table of contents Click here to go to the next section: Capital Outlay

Please send your comments or suggestions regarding this WWW page to Valerie.Mahoney@state.ma.us

Tax Year	Sales Weight	Property Weight	Payroll Weight
1996	60%	20%	20%
1997	70%	15%	15%
1998	80%	10%	10%
1999	90%	5%	5%
2000	100%	0%	0%

Holding Period	Tax Rate
up to one year	12%
more than one, but less than two years	5%
more than two, but less than three years	4%
more than three, but less than four years	3%
more than four, but less than five years	2%
more than five, but less than six years	1%
more than six years	0%

Year of Death	Exemption	Credit	Marital Deduction
1986-1992	$200,000	$1,500	50%
1993	$300,000	$0	50%
1994	$400,000	$0	100% (7/1/1994)
1995	$500,000	$0	100%
1996	$600,000	$0	100%