Governor Patrick Proposes to Close Corporate Tax Loopholes, Cut Business Taxes to Ensure Commonwealth's Global Competitiveness
Legislation to generate nearly $300 million for FY09; Reduce business tax rate by nearly13%
BOSTON-Thursday, January 17, 2008- To assure Massachusetts' businesses retain their competitive edge and to enhance government services that we all rely on, Governor Deval Patrick will file legislation to close unintended corporate tax loopholes and substantially reduce the tax rate on businesses, he announced today.
These significant tax reforms will generate an estimated $297 million in Fiscal Year 2009, helping the administration close a $1.3 billion budget gap and ensuring that all businesses-especially smaller, Massachusetts-based ones-can compete in a global economy. Under the current system, small businesses are at a disadvantage, while larger corporations avoid paying their fair share. The legislation will be filed as a companion bill to the FY09 budget the administration will file January 23.
"The Massachusetts tax system should be fair and equitable for all individuals and businesses," Governor Patrick said. "By both closing loopholes and reducing the business tax rate, our proposal aligns Massachusetts with our competitor states and keeps faith with the recommendations of the Tax Commission. With these measures, we can secure our competitive advantage and also make targeted investments in our future."
The legislation implements the recommendations of a 15-member Study Commission on Corporate Taxation, which recommended closing two major loopholes: Combined Reporting and so-called "check the box" conformity. These unintended loopholes allow mostly large, multi-state corporations to shift their income to avoid paying Massachusetts taxes.
The elimination of these loopholes will allow the administration to significantly reduce the structural budget gap and make targeted investments in the state's top priorities.
Massachusetts is the only state in the nation that does not have "check the box," which prevents state's from classifying themselves as corporations on federal tax returns and as another, more financially beneficial way, on state ones. Twenty-two other states have adopted combined reporting.
Also included in the Governor's legislation is a plan to cut the corporate tax rate-nominally the fourth-highest in the nation-by 13 percent over three years. Under the proposal, businesses would see their tax rate fall from 9.5 percent in FY09 to 8.3 percent in FY12. In its first full year of implementation (FY10), a cut in the corporate tax rate would send approximately $200 million back to business taxpayers.
The bill also prevents Internet retail agents from avoiding the hotel/motel tax on the full price of a room as charged to a consumer, and clarifies that the Earned Income Tax Credit is available only to Massachusetts residents.
The Study Commission on Corporate Taxation last month recommended the changes the Governor is including in his legislation after the Governor proposed closing corporate tax loopholes last year. The full report can be viewed at http://www.mass.gov/Ador/docs/dor/Publ/PDFS/Study%20Commission%20on%20Corporate%20Taxation%20-%20Final%20Report.pdf.