Audit  Audit of the Determination of Whether Net State Tax Revenues Exceeded Allowable State Tax Revenues

Chapter 555 of the Acts of 1986 inserted Chapter 62F into the Massachusetts General Laws. This chapter provides for the establishment of a state tax revenue growth limit for each fiscal year beginning with the fiscal year ended June 30, 1987. This limit is calculated on the basis of the level of growth in total wages and salaries of the citizens of the Commonwealth. In addition, the law requires that the Commissioner of Revenue (Commissioner), annually on or before September first, prepare and submit to the State Auditor a report of the net state tax revenues and the allowable state tax revenues of the Commonwealth for the preceding fiscal year.

Chapter 62F of the General Laws gives oversight responsibilities to the State Auditor for each fiscal year. In accordance with Chapter 62F, the State Auditor is responsible for reviewing the Commissioner’s report for completeness and accuracy. In doing so, the State Auditor may make, or request that the Commissioner make, any necessary adjustments or modifications to ensure its completeness and accuracy. Further, the State Auditor, annually on or before the third Tuesday of September, independently determines whether net state tax revenues for the fiscal year exceeded allowable state tax revenues. If the State Auditor determines that there was an excess of state tax revenues, she reports that determination and the amount by which allowable state tax revenues were exceeded to the Governor, the President of the Senate, the Speaker of the House, the respective Chairs of the Committees on Ways and Means of the Senate and House, and the Commissioner. The law further states that the determination of the State Auditor as to the existence and the amount of excess state tax revenues shall be conclusive. Thereafter, the Commissioner takes all the necessary action to effectuate a credit equal to the total amount of such excess.

On July 30, 1987, the Commissioner prepared his first annual report, as required by Chapter 62F of the General Laws, on net state tax revenues and allowable state tax revenues and submitted it to the State Auditor for review.

The State Auditor reviewed the report for completeness and accuracy and determined, on August 15, 1987, that state tax revenues for the fiscal year ended June 30, 1987 exceeded allowable state tax revenues by $29,221,675 (Audit Report No. 88-5004-9). Accordingly, the State Auditor requested that the Commissioner effectuate a credit of $29,221,675. The Commissioner responded by adding a line on the 1987 version of the Massachusetts Individual Income Tax Return, upon which each individual taxpayer could insert their individually calculated share of the $29,221,675 credit.

For fiscal years 1987 through 2024, net state tax revenues increased approximately 387%, from $8,102,373,437 to $39,457,279,313. Allowable state tax revenues increased approximately 447%, from $8,073,151,762 to $44,130,782,381, during the same time period. For fiscal years 1988 through 2021, the State Auditor determined that net state tax revenues were less than allowable state tax revenues; therefore, no credit was required to be effectuated by the Commissioner for those years.

After the State Auditor reviewed the Commissioner’s fiscal year 2022 tax revenues report for completeness and accuracy, it was determined on September 15, 2022 that net state tax revenues for the fiscal year ended June 30, 2022 exceeded allowable state tax revenues by $2,941,499,731 (Audit Report No. 2023-5555-3S). Accordingly, the State Auditor requested that the Commissioner effectuate a credit of $2,941,499,731, in accordance with Section 6 of Chapter 62F. The Commissioner responded by returning excess revenue to taxpayers based on their 2021 personal income tax returns.

According to the Department of Revenue (DOR), in an email sent to us on September 3, 2024,

Eligible taxpayers received a credit in the form of a refund equal to 14.0312% of their Massachusetts personal income tax liability for tax year 2021. This percentage was finalized after the 2021 individual tax return filing extension deadline of October 17, 2022. Taxpayers had until September 15, 2023 to file their tax year 2021 Massachusetts personal income tax return to be eligible for the refund. The amount of the refund issued to an individual taxpayer may have been reduced due to refund intercepts, including for unpaid tax liability, unpaid child support, and certain other debts.

As of June 30, 2024, the total amount refunded to taxpayers was $2,789,256,564 and the total amount credited to taxpayers to offset the tax liabilities to the Commonwealth was $94,213,793, totaling $2,883,470,357, which is approximately 98% of the amount by which fiscal year 2022 net state tax revenues exceeded allowable state tax revenues. According to DOR, the amount refunded to taxpayers, and the amount used to offset liabilities to Commonwealth as of June 30, 2024, is less than the amount by which the fiscal year 2022 net state tax revenue exceeded the allowable state tax revenues in large part because the total tax year 2021 Massachusetts personal income tax liability as of September 15, 2023 was lower than was expected when the refund percentage of 14.0312% was finalized on October 17, 2022.

For fiscal year 2023, the State Auditor determined that net state tax revenues were less than allowable state tax revenues; therefore, no credit was required to be issued to taxpayers.