Comptroller Fiscal Year Memo Letter Head

July 25, 2014

Secretary Glen Shor
Executive Office of Administration and Finance

The Honorable Stephen M. Brewer
Senate Committee on Ways and Means

The Honorable Brian S. Dempsey, Chairman
House Committee on Ways and Means

RE:  Interest revenue transfer, capital gains tax and settlements and judgments certifications for FY2014

Dear Secretary Shor, Chairman Brewer and Chairman Dempsey:

On July 9, 2014, the Attorney General and Commissioner of Revenue jointly certified to the State Comptroller’s Office that through June 30, 2014, the amount of year-to-date individual judgments and settlements in excess of $10 million totaled $436,529,814.01.  Section 2H of Chapter 29 of the Massachusetts General Laws requires that individual judgments and settlements in excess of $10 million be transferred to the Stabilization Fund.  However, Chapter 55 of the Acts of 2013 requires that, rather than be transferred to the Stabilization Fund, revenue from judgments and settlements in FY2014 be retained in the General Fund in an amount equal to the revenue lost from the sales tax holiday that took place in August 2013.  On December 31, 2013 the Commissioner of revenue certified that the amount of sales tax revenue foregone due to the August 2013 sales tax holiday totaled $22,220,000.00, after adjusting for increases in income and corporate tax revenue generated by greater economic activity induced by the sales tax holiday.  Thus, through June 30, 2014, the amount of FY2014 year-to-date judgments and settlements required to be transferred to the Stabilization Fund is $414,309,814.01.

Previously in FY2014, transfers totaling $399,149,772.01 were made on account of judgments and settlements in excess of $10 million.  Therefore, an additional transfer of $15,160,042.00 will be made from the General Fund to the Stabilization Fund on account of judgments and settlements received in June 2014.

On July 18, 2014, the Commissioner of Revenue certified to the State Comptroller’s Office that for the period June 1, 2014 through June 30, 2014 capital gains tax revenue totaled $116,100,000.00, and for FY2014 as a whole capital gains tax revenue totaled $1,068,700,000.00.  Section 5G of Chapter 29 of the Massachusetts General Laws requires that capital gains in excess of the fiscal year threshold be transferred to the Stabilization Fund, and from the Stabilization Fund to the State Retiree Benefits Trust Fund (SRBTF) and Commonwealth’s Pension Liability Fund.  For FY2014 this threshold is $1,023,242,988.00. As such tax revenues from capital gains in fiscal year 2014 exceeded the threshold by approximately $45.5 million, per Section 5G of Chapter 29 the following three transfers will be generated:

  1. A transfer of approximately $45.5 million to the Stabilization Fund;
  2. A transfer equal to 5% of the capital gains tax revenues transferred to the Stabilization Fund, or approximately $2.3 million, to the State Retiree Benefits Trust Fund;
  3. A transfer equal to 5% of the capital gains tax revenues transferred to the Stabilization Fund, or approximately $2.3 million, to the Commonwealth's Pension Liability Fund.

Section 172(b) of Chapter 38 of the Acts of 2013 (the fiscal year 2014 General Appropriation Act) mandates the transfer of interest earned by the Commonwealth Stabilization Fund during FY2014 to the General Fund.  Interest earned by the Stabilization Fund during FY2014 totaled $5,369,146.13.  Previously in FY2014, transfers of Stabilization Fund interest earnings of $4,740,320.61 were made to the General Fund.  Therefore, a transfer of $628,825.52 from the Stabilization Fund to the General Fund also will be processed in conjunction with the Office of the State Treasurer and Receiver General.

If you have any questions regarding this letter, please contact Howard Merkowitz, Deputy Comptroller, at (617) 973-2602.

Sincerely,

Martin J. Benison
Comptroller

Enc.     
Attachment #1:  Section 5G of Chapter 29 of the Massachusetts General Laws
Attachment #2:  Chapter 55 of the Acts of 2013
Attachment #3:  Section 172(b) of Chapter 38 of the Acts of 2013
Attachment #4 xls format of Attachment 4: 
: Stabilization Fund Balance Spreadsheet

Cc:       
Amy Pitter, Commissioner, Department of Revenue
Judy Zeprun Kalman, Deputy Attorney General, Attorney General’s Office
Ashley Groffenberger, Budget Director, House Ways and Means
Douglas Howgate, Budget Director, Senate Ways and Means
James MacDonald, First Deputy Treasurer, Treasurer’s Office
Kazim Ozyurt, Director, Office of Tax Policy Analysis, Department of Revenue
Howard Merkowitz, Deputy Comptroller, Office of the Comptroller
BJ Trivedi, FRAB Director, Office of the Comptroller
Julia Burns, GAB Director, Office of the Comptroller

 

Attachment #1

Section 5G. After each quarter, the department of revenue shall certify to the state comptroller the amount of tax revenues estimated to have been collected during the preceding quarter from capital gains income. If the department of revenue certifies that the amount of tax revenues estimated to have been collected from capital gains income exceeds $1,000,000,000 in a fiscal year, the comptroller shall transfer quarterly any such amount that exceeds $1,000,000,000 collected during that fiscal year to the Commonwealth Stabilization Fund established in section 2H. The $1,000,000,000 threshold established in the preceding sentence shall be adjusted annually to reflect the average annual rate of growth in United States gross domestic product over the preceding 5 years based on the most recently available data published by the Bureau of Economic Analysis in the United States Department of Commerce.

This transfer shall be made before the certification of the consolidated net surplus for the previous fiscal year under section 5C. The department of revenue shall report by November 30 to the state comptroller, the executive office for administration and finance and the house and senate committees on ways and means tax revenues estimated to have been collected during the preceding fiscal year from capital gains income. The comptroller shall not make adjustment to amounts previously transferred if the capital gains revenue reported on November 30 differs from the amounts estimated during the preceding fiscal year.

 

Five per cent of any amount transferred to the Commonwealth Stabilization Fund under this section shall then be transferred from the Commonwealth Stabilization Fund to the State Retiree Benefits Trust Fund established in section 24 of chapter 32A and 5 per cent of any amount transferred to the Commonwealth Stabilization Fund under this section shall then be transferred from the Commonwealth Stabilization Fund to the Commonwealth’s Pension Liability Fund established in section 22 of chapter 32.

 

Attachment #2

Ch. 55 of the Acts of 2013

SECTION 1. Notwithstanding any general or special law to the contrary, for the days of August 10, 2013 and August 11, 2013 an excise shall not be imposed upon nonbusiness sales at retail of tangible personal property, as defined in section 1 of chapter 64H of the General Laws. For the purposes of this act, tangible personal property shall not include telecommunications, tobacco products subject to the excise imposed by chapter 64C of the General Laws, gas, steam, electricity, motor vehicles, motorboats, meals or a single item the price of which is in excess of $2,500.

SECTION 2. Notwithstanding any general or special law to the contrary, for the days of August 10, 2013 and August 11, 2013, a vendor shall not add to the sales price or collect from a nonbusiness purchaser an excise upon sales at retail of tangible personal property, as defined in section 1 of chapter 64H of the General Laws. The commissioner of revenue shall not require a vendor to collect and pay excise upon sales at retail of tangible personal property purchased on August 10, 2013 and August 11, 2013. An excise erroneously or improperly collected during the days of August 10, 2013 and August 11, 2013 shall be remitted to the department of revenue. This section shall not apply to the sale of telecommunications, tobacco products subject to the excise imposed by chapter 64C of the General Laws, gas, steam, electricity, motor vehicles, motorboats, meals or a single item the price of which is in excess of $2,500.

SECTION 3. Reporting requirements imposed upon vendors of tangible personal property, by law or by regulation, including, but not limited to, the requirements for filing returns required by chapter 62C of the General Laws, shall remain in effect for sales for the days of August 10, 2013 and August 11, 2013.

SECTION 4. On or before December 31, 2013, the commissioner of revenue shall certify to the comptroller the amount of sales tax forgone, as well as new revenue raised from personal and corporate income taxes and other sources, pursuant to this act. The commissioner shall file a report with the joint committee on revenue and the house and senate committees on ways and means detailing by fund the amounts under general and special laws governing the distribution of revenues under chapter 64H of the General Laws that would have been deposited in each fund without this act.

SECTION 5. The commissioner of revenue shall issue instructions or forms, or promulgate rules or regulations, necessary for the implementation of this act.

SECTION 6. Eligible sales at retail of tangible personal property under sections 1 and 2 shall be restricted to those transactions occurring on August 10, 2013 and August 11, 2013. Transfer of possession of, or payment in full for the property shall occur on 1 of those days and prior sales or layaway sales shall be ineligible.

SECTION 7. Not later than December 31, 2013, the commissioner of revenue shall certify to the comptroller the amount of foregone revenue from any sales tax holiday enacted by the General Court in calendar year 2013. Notwithstanding the last paragraph of section 2H of chapter 29 of the General Laws, for the purpose of compensating for that amount of foregone revenue the comptroller shall transfer to the General Fund such amount of foregone revenue, the proceeds of one-time settlements or judgements that would otherwise be transferred to the Commonwealth Stabilization Fund, according to a schedule approved by the secretary of administration and finance and considering the cash flow needs of the commonwealth.

 

Attachment #3

Chapter 38 of the Acts of 2013

Section 172(b) Notwithstanding any general or special law to the contrary, the comptroller shall, on or before June 30, 2014, transfer the interest earned from the Commonwealth Stabilization Fund during fiscal year 2014 to the General Fund.