FY99H1A Tax Expenditures Appendix A

Fiscal Affairs Division

The Tax Expenditure Budget

Appendix A: Recent Law Changes Affecting Tax Expenditures

REVISED

Over the last year the following tax expenditures have been revised due to law changes:

The Personal Income Tax :

Deduction for Dependent Under 12 (budget item 1.406) Effective January 1, 1997, the deduction for taxpayers with a dependent under the age of 12 who does not claim the deduction for business-related dependent care expenses (budget item 1.409) increased from $600 to $1,200.

ENACTED

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

The Personal Income Tax :

Earned Income Credit (budget item 1.605) Effective January 1, 1997, taxpayers will be allowed a refundable credit against Massachusetts tax equal to 10% of the amount of the earned income credit claimed on their federal individual income tax return.

Septic System Repair Credit (budget item 1.606) Effective January 1, 1997, taxpayers required to repair or replace a failed cesspool or septic system pursuant to the provisions of Title V, as promulgated by the Department of Environmental Protection in 1995, are allowed a credit equal to 40% of the design and construction costs incurred (less any subsidy or grant from the Commonwealth), up to a maximum of $1,500 per tax year and $6,000 in total. Unused credits can be carried forward for up to three years.

Exemption for Retirement Pay of the Uniformed Services (budget item 1.029) Effective January 1, 1997, income received from the United States government as retirement pay and survivorship benefits for a retired member of the Uniformed Services of the United States is exempt from the personal income tax. The Uniformed Services of the United States are: the Army, Navy, Air Force, Marine Corps, Coast Guard, and the Commissioned Corps of the Public Health Service and National Oceanic and Atmospheric Administration.

Sales and Use Tax:

Exemption for Internet Access and Related Services (budget item 3.504) Effective January 1, 1990, internet access services, electronic mail services, electronic bulletin board services, web hosting services or similar on-line computer services are not subject to the sales and use tax.

OTHER RELATED LAW CHANGES

This year’s estimates of tax expenditures were affected by the following law changes that were enacted in prior years:

The Personal Income Tax :

Capital Gains Deduction (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.

Corporate Excise:

Unequal Weighting of Sales, Payroll, and Property in the Apportionment Formula (budget item 2.401). Prior to FY98, 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 are 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 are allowed to apportion their income to Massachusetts based solely on the percentage of sales attributed to Massachusetts.

The Tax Expenditure Budget: Table of Contents

[ Appendix A ]

Executive Office for Administration and Finance
Fiscal Affairs Division
State House, Room 272
Boston, MA 02133
(617) 727-2081

Last updated on January 21, 1998