Appendix A: Recent Law Changes Affecting Tax Expenditures

REVISED Over the last year the following tax expenditures have been revised due to law changes: 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%. Effective January 1, 1997 mutual fund corporations will be allowed to attribute mutual fund sales to Massachusetts based on the domicile of shareholders in the mutual funds. Effective July 1, 1997, mutual fund corporations will be allowed to apportion their income to Massachusetts based solely on the percentage of sales attributed to Massachusetts. 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 : Tuition Tax Deduction (this year's budget item 1.414) Effective January 1, 1997, a deduction is allowed for tuition payments to a two or four year college in which a taxpayer or taxpayer's dependent is enrolled. The deduction is equal to the amount by which the tuition payment, less any scholarships, grants or financial aid received, exceeds 25% of the taxpayer's Massachusetts adjusted gross income, exclusive of this deduction. Corporate Excise: Harbor Maintenance Tax Credit (this year's budget item number 2.607) Effective July 1, 1996, a credit against the corporate excise is provided for federal harbor maintenance taxes paid. Investment Tax Credit (this year's budget item number 2.602) The expiration date of the 3% investment tax credit rate was extended from December 31, 1997 to July 1, 1999. 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 depending upon 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 Tax Expenditure Budget: Table of Contents
[  Part I |  Part II |  Part III |  Part IV |  Appendix A |  Appendix B |  Glossary  ]

Executive Office for Administration & Finance
Budget Bureau
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Boston, MA 02133
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Last updated on January 22, 1997

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