Appendix B: Tax Expenditures Fiscal Year 1996

Fiscal Affairs Division

The Tax Expenditure Budget

Appendix B: Tax Expenditures Fiscal Year 1996 - Fiscal Year 1998

The following table shows tax expenditure estimates for the three major taxes from Fiscal Year 1996 to Fiscal Year 1998. In general, the revenue estimate for a tax expenditure tends to follow the anticipated growth of tax collections. However, year-to-year changes in estimates may vary for four other principal reasons: we have new data sources; we have refined our methodology; we have relied on federal tax expenditure estimates which have changed; and we have revised estimates to account for changes in tax laws.

Where possible, we have recalculated past estimates based on revised data, improved methodologies, and changes in statute.

Fiscal Year Estimates (in $ millions)

Tax Expenditure Item Number FY96 FY97 FY98

PERSONAL INCOME TAX

Exclusions from Gross Income

Exemption of Premiums on Accident and Accidental Death Insurance 1.001 1.5 1.5 1.5

Exemption of Premiums on Group-Term Life Insurance 1.002 15.2 12.9 12.9

Exemption of Interest on Life Insurance Policy and Annuity Cash Value 1.003 101.3 237.4 245.6

Exemption of Employer Contributions for Medical Insurance Premiums and Medical Care 1.004 466.0 390.8 419.7

Exemption of Annuity or Pension Payments to Firemen and Policemen 1.005 N.A. N.A. N.A.

Exemption of Distributions from Certain Contributory Pension and Annuity Plans 1.006 N.A. N.A. N.A.

Exemption of Railroad Retirement Benefits 1.007 4.4 4.6 4.8

Exemption of Public Assistance Benefits 1.008 97.3 101.5 105.4

Exemption of Social Security Benefits 1.009 482.8 534.0 569.0

Exemption of Workers' Compensation Benefits 1.010 4.2 4.2 4.2

Exemption of Dependent Care Expenses 1.011 7.1 8.1 9.1

Exemption of Certain Foster Care Payments 1.012 4.2 3.9 3.9

Exemption of Payments Made to Coal Miners 1.013 N.A. N.A. N.A.

Exemption of Rental Value of Parsonages 1.014 N.A. N.A. N.A.

Exemption of Scholarships and Fellowships 1.015 9.3 9.3 10.4

Exclusion of Certain Prizes and Awards 1.016 N.A. N.A. N.A.

Exemption of Cost-Sharing Payments 1.017 N.A. N.A. N.A.

Exemption of Meals and Lodging Provided at Work 1.018 3.8 5.3 5.3

Treatment of Business-Related Entertainment Expenses 1.019 N.A. N.A. N.A.

Exemption of Income from the Sale, Lease or Transfer of Certain Patents 1.020 N.A. N.A. N.A.

Exemption of Capital Gains on Home Sales for Persons 55 and Over 1.021 39.4 38.2 39.8

Nontaxation of Capital Gains at Death 1.022 65.1 65.8 72.8

Exemption of Interest from Massachusetts Obligations 1.023 100.4 100.8 98.5

Exemption of Benefits and Allowances to Armed Forces Personnel 1.024 4.0 4.2 4.2

Exemption of Veterans' Pensions, Disability Compensation and G.I. Benefits 1.025 14.7 15.5 15.5

Exemption of Military Disability Pensions 1.026 0.3 0.3 0.3

Exemption of Compensation to Massachusetts-Based Nonresident Military Personnel 1.027 6.4 6.7 7.0

Exemption of Income Received by Persons Killed in Military Action or Terrorist Activity 1.028 N.A. N.A. N.A.

Deferrals of Gross Income

Net Exemption of Employer Contributions and Earnings of Private Pension Plans 1.101 528.2 535.0 558.5

Treatment of Incentive Stock Options 1.102 N.A. N.A. N.A.

Exemption of Earnings on Stock Bonus Plans or Profit Sharing Trusts 1.103 N.A. N.A. N.A.

Exemption of Earnings on IRA and Keogh Plans 1.104 N.A. N.A. N.A.

Deferral of Capital Gains on Home Sales 1.105 60.2 24.8 36.1

Nontaxation of Capital Gains at Time of Gift 1.106 --included in 1.022--

Deductions from Gross Income

Capital Gains Deduction 1.201 N.A. N.A. N.A.

Deduction of Capital Losses against Interest and Dividend Income 1.202 N.A. N.A. N.A.

Excess Natural Resource Depletion Allowance 1.203 0.6 0.7 1.4

Abandoned Building Renovation Deduction 1.204 N.A. N.A. N.A.

Accelerated Deductions from Gross Income

Accelerated Depreciation on Rental Housing 1.301 4.6 5.6 5.6

Accelerated Depreciation on Rehabilitation of Low Income Housing 1.302 N.A. N.A. N.A.

Accelerated Depreciation on Buildings (other than Rental Housing) 1.303 10.0 9.8 7.7

Accelerated Cost Recovery System (ACRS) for Equipment 1.304 39.3 41.4 42.8

Deduction for Excess First-Year Depreciation 1.305 2.3 2.3 1.7

Five-Year Amortization of Start-Up Cost 1.306 0.8 0.8 0.8

Five-Year Amortization of Certain Operating Rights 1.307 N.A. N.A. N.A.

Expensing of Exploration and Development Costs 1.308 0.8 0.6 0.6

Expensing of Research and Development Expenditures in One Year 1.309 1.3 N.A. N.A.

Five-Year Amortization of Pollution Control Facilities 1.310 N.A. N.A. N.A.

Seven Year Amortization for Reforestation 1.311 N.A. N.A. N.A.

Expensing of Certain Capital Outlays of Farmers 1.312 0.3 N.A. N.A.

Deductions from Adjusted Gross Income

Deduction for Employee Social Security and Railroad Retirement Payments 1.401 264.0 273.0 273.1

Deduction for Employee Contributions to Public Pension Plans 1.402 --included in 1.401--

Additional Exemption for the Elderly 1.403 11.0 12.0 12.0

Additional Exemption for the Blind 1.404 0.5 0.5 0.5

Dependents Exemption where the Child Earns Income 1.405 N.A. N.A. N.A.

Deduction for Dependent Under 12 1.406 14.0 14.0 14.0

Personal Exemption for Students Aged 19 or Over 1.407 5.1 5.1 5.1

Deduction for Adoption Fees 1.408 1.0 1.0 1.0

Deduction for Business-Related Child Care Expenses 1.409 15.0 16.0 16.0

Exemption of Medical Expenses 1.410 27.4 28.0 28.0

Rent Deduction 1.411 92.0 96.0 96.0

Nontaxation of Charitable Purpose Income of Trustees, Executors or Administrators 1.412 N.A. N.A. N.A.

Exemption of Interest on Savings in Massachusetts Banks 1.413 13.0 13.0 12.9

Tuition Tax Deduction 1.414 N.A. N.A. 13.0

Preferential Rate of Taxation

Preferential Treatment of Interest on Savings in Massachusetts Banks 1.501 169.6 184.9 191.7

Credits Against Tax

Renewable Energy Source Credit 1.601 N.A. N.A. N.A.

Credit for Removal of Lead Paint 1.602 7.7 8.6 10.2

Economic Opportunity Area Credit 1.603 N.A. N.A. N.A.

Credit for Employing Former Full-EmploymentProgram Participants 1.604 N.A. N.A. N.A.

PROPOSED HOUSE 1 CHANGES

Exempt Military Retirement Pay From the Income Tax * N.A. N.A. 7.0

Reduce Part A ("unearned income" - interest, dividends, and capital gains) tax rate from 12% to 5.95% * N.A. N.A. 27.0

Increase the Under 12 Deduction From $600 to $1,600 to adjust for inflation * N.A. N.A. 12.0

SUBTOTAL 2,691.9 2,814.0 2,955.2

Fiscal Year Estimates (in $ millions)

Tax Expenditure Item Number FY96 FY97 FY98

CORPORATE EXCISE

Exclusions from Gross Income

Small Business Corporations 2.001 4.4 4.6 4.8

Exemption of Income from the Sale, Lease or Transfer of Certain Patents 2.002 N.A. N.A. N.A.

Deferrals of Gross Income

Deferral of Tax on Certain Shipping Companies 2.101 0.1 0.1 0.1

Deductions from Gross Income

Charitable Deduction 2.201 9.8 6.3 6.3

Additional Deduction for Certain Businesses in a Poverty Area (UJIP) 2.202 0.2 0.2 0.2

Net Operating Loss (NOL) Carryover 2.203 91.9 93.6 96.6

Excess Natural Resource Depletion Allowance 2.204 0.1 0.1 0.1

Deduction for Certain Dividends of Cooperatives 2.205 N.A. N.A. N.A.

Abandoned Building Renovation Deduction 2.206 N.A. N.A. N.A.

Accelerated Deductions from Gross Income

Accelerated Depreciation on Rental Housing 2.301 8.0 8.7 8.0

Accelerated Depreciation for Rehabilitation of Low-Income Housing 2.302 N.A. N.A. N.A.

Expensing for Removal of Barriers to the Handicapped 2.303 0.3 0.3 0.3

Five-Year Amortization of Start-Up Cost 2.304 0.3 0.3 0.3

Accelerated Cost Recovery System (ACRS) for Equipment 2.305 117.3 166.0 168.9

Deduction for Excess First-Year Depreciation 2.306 6.1 4.6 4.6

Accelerated Depreciation on Buildings (other than Rental Housing) 2.307 37.6 22.8 18.5

Expensing Research and Development Expenditures in One Year 2.308 41.0 39.4 42.7

Expensing of Exploration and Development Costs 2.309 0.2 N.A. N.A.

Five-Year Amortization of Certain Operating Rights 2.310 N.A. N.A. N.A.

Five-Year Amortization of Pollution Control Facilities 2.311 N.A. N.A. N.A.

Expensing of Certain Expenditures for Alternative Energy Sources 2.312 0.6 0.7 0.7

Seven-Year Amortization for Reforestation 2.313 N.A. N.A. N.A.

Adjustments to Apportionment Formula

Unequal Weighting of Sales, Payroll, and Property in
Apportionment Formula 2.401 77.3 126.8 150.7

Exclusions from Property Component

Nontaxation of Certain Energy Property 2.501 N.A. N.A. N.A.

Exemption for Property Subject to Local Taxation 2.502 81.9 85.6 89.0

Credits Against Tax

Tax Credit for Building in a Poverty Area (UJIP) 2.601 0.4 0.4 0.4

Investment Tax Credit3 2.602 30.0 35.0 32.0

Vanpool Credit 2.603 1.3 1.4 1.4

Research Credit 2.604 51.6 54.4 55.4

Economic Opportunity Area Credit 2.605 N.A. N.A. N.A.

Credit for Employing Former Full-Employment Program Participants 2.606 N.A. N.A. N.A.

Credit for Harbor Maintenance Taxes Paid 2.607 N.A. N.A. 0.0

Entity Exempt from Taxation

Exemption of Credit Union Income 2.701 4.8 5.4 5.4

Tax-Exempt Organizations 2.702 N.A. N.A. N.A.

Exemption for Regulated Investment Companies 2.703 N.A. N.A. N.A.

PROPOSED HOUSE 1 CHANGES

Eliminate the Investment Income Tax on Domestic Life Insurance
Companies * N.A. N.A. 15.0

Set the Investment Tax Credit Rate Permanently at 3% * N.A. N.A. 0.0

Job Training tax Credit * N.A. N.A. 5.0

SUBTOTAL 565.2 656.7 706.3

Fiscal Year Estimates (in $ millions)

Tax Expenditure Item Number FY96 FY97 FY98

SALES AND USE TAX

Exempt Entities

Exemption for Sales to the Federal Government 3.001 N.A. N.A. N.A.

Exemption for Sales to the Commonwealth 3.002 N.A. N.A. N.A.

Exemption for Sales to Tax-Exempt Organizations 3.003 279.0 291.2 303.9

Exempt Products/Services

Exemption for Food 3.101 336.0 341.0 346.0

Exemption for Certain Food and Beverages Sold in Restaurants 3.102 N.A. N.A. N.A.

Exemption for Clothing 3.103 204.0 207.0 209.0

Exemption for Medical and Dental Supplies and Devices 3.104 68.0 71.0 74.0

Exemption for Water 3.105 22.0 23.0 24.0

Exemption for Newspapers and Magazines 3.106 43.0 43.0 43.0

Exemption for the American Flag 3.107 N.A. N.A. N.A.

Exemption for Certain Precious Metals 3.108 N.A. N.A. N.A.

Exemption for Cement Mixers 3.109 N.A. N.A. N.A.

Exemption for Fertilizers, Insecticides and Fungicides 3.110 1.2 1.2 1.2

Exemption for Meals Served by Continuing Care Facilities 3.111 N.A. N.A. N.A.

Exempt, Taxed Under Another Excise

Exemption for Alcoholic Beverages 3.201 82.0 83.0 91.0

Exemption for Motor Fuels 3.202 159.0 165.0 171.0

Exempt Component of a Product or Consumed in Production

Exemption for Items Used in Making Clothing 3.301 2.0 2.1 2.1

Exemption for Materials, Tools, Fuels, and Machinery Used in Manufacturing 3.302 160.0 167.8 175.5

Exemption for Materials, Tools, Fuels, and Machinery Used in Research and Development 3.303 19.3 20.1 21.8

Exemption for Materials, Tools, Fuels, and Machinery Used in Furnishing Power to Consumers 3.304 49.4 52.4 55.3

Exemption for Materials, Tools, Fuels, and Machinery Used in Furnishing Power to an Industrial Manufacturing Plant 3.305 14.6 15.4 16.1

Exemption for Materials, Tools, Fuels, and Machinery Used in Newspaper Printing 3.306 21.0 22.1 23.2

Exemption for Materials, Tools, Fuels, and Machinery Used in Manufacturing of Cast Metal Products 3.307 N.A. N.A. N.A.

Exemption for Materials, Tools, Fuels, and Machinery Used in Agricultural Production 3.308 4.1 4.1 4.1

Exemption for Materials, Tools, Fuels, and Machinery Used in Commercial Fishing 3.309 1.6 1.7 1.7

Exemption for Materials, Tools, Fuels, and Machinery Used in Radio and TV Broadcasting 3.310 1.4 1.4 1.4

Exemptions for Specified Uses of Products/Services

Exemption for Electricity 3.401 126.7 128.4 131.1

Exemption for Fuel Used for Heating Purposes 3.402 52.0 54.0 56.0

Exemption for Piped and Bottled Gas 3.403 55.0 57.0 59.0

Exemption for Steam 3.404 4.0 4.0 4.0

Exemption for Certain Energy Conservation Equipment 3.405 N.A. N.A. N.A.

Exemption for Funeral Items 3.406 5.0 5.0 5.0

Exemption for a Motor Vehicle for a Paraplegic 3.407 0.6 0.6 0.6

Exemption for Textbooks 3.408 9.0 10.0 11.0

Exemption for Books used for Religious Worship 3.409 N.A. N.A. N.A.

Exemption for Containers 3.410 88.0 91.0 94.0

Exemption for Certain Sales by Typographers, Compositors and Color Separators 3.411 N.A. N.A. N.A.

Exemption for Sales of Building Materials and Supplies to be Used in Connection with Certain Construction Contracts 3.412 111.1 116.7 122.7

Exemption for Plant and Seed 3.413 0.8 0.8 0.8

Exemption of Feed 3.414 1.7 1.7 1.7

Exemption for Livestock and Poultry 3.415 N.A. N.A. N.A.

Exemption for Commercial Fishing Vessels 3.416 1.0 1.0 1.0

Exemption for Commuter Boats 3.417 N.A. N.A. N.A.

Exemption for Fuels, Supplies, and Repairs for Vessels Engaged in Interstate or Foreign Commerce 3.418 1.5 1.5 1.5

Exemption for Fuel Used in Operating Aircraft and Railroads 3.419 13.0 13.7 14.4

Exemption for Sales of Certain New and Used Buses 3.420 N.A. N.A. N.A.

Exemption for Films 3.421 N.A. N.A. N.A.

Exemption for Telephone and Telegraph Services 3.422 37.0 38.0 38.0

Exempt, Not Taxable as Tangible Personal Property

Nontaxation of Transfers of Real Property 3.501 943.0 877.2 816.0

Nontaxation of Rentals of Real Property 3.502 544.6 553.6 561.7

Nontaxation of Certain Services 3.503 1,155.0 1,204.0 1,252.0

Miscellaneous Exemptions

Exemption for Casual or Isolated Sales 3.601 N.A. N.A. N.A.

Exemption for Vending Machine Sales 3.602 N.A. N.A. N.A.

Exemption for Certain Meals 3.603 5.2 5.4 5.6

Exemption for Certain Bed and Breakfast Establishments from Sales Tax on Meals and Room Occupancy Excise 3.604 N.A. N.A. N.A.

Exemption for Certain Summer Camps from Sales Tax on Meals and Room Occupancy Excise 3.605 0.4 0.4 0.4

Exemption for Trade-in Allowances for Motor Vehicles and Trailers 3.606 42.9 46.1 49.5

Exemptions for Publications of Tax-Exempt Organizations 3.607 3.6 3.8 4.0

Exemption for Gifts of Scientific Equipment 3.608 11.0 11.0 12.0

Exemption for Vessels or Barges 50 Tons and Over 3.609 N.A. N.A. N.A.

Exemption for Rental Charges for Refuse Containers 3.610 N.A. N.A. N.A.

Exemption for Honor Trays 3.611 N.A. N.A. N.A.

PROPOSED HOUSE 1 CHANGES

Phase Out the Telecommunications Tax Over Five Years * N.A. N.A. 16.0

SUBTOTAL 4,679.7 4,737.4 4,822.4

TOTAL 7,936.9 8,208.1 8,826.5

ENDNOTES:
¹ Estimates have been revised because of new data or improved methodology, and reflect current tax law.

² Subtotals and totals have been provided to give an idea of the revenue costs of tax expenditures by tax and in total. However, these sums should be used with extreme caution. The underlying estimates do not take into account such factors as the interaction of tax expenditures and taxpayer behavior. Also it should be noted that many estimates are not available due to a lack of data. These estimates are shown as N.A. and are not included in the subtotals and totals.

³ This estimate takes into account the dynamic economic impacts of this tax expenditure.

Executive Office for Administration & Finance
Budget Bureau
State House, Room 272
Boston, MA 02133
(617) 727-2081

Last updated on January 22, 1997