Tax Expenditure Review Commission Meeting
Friday, March 28, 2025
2:00 p.m.
Via Zoom
Commission Members in Attendance:
- Chairperson Rebecca Forter, MA Department of Revenue
- Lindsay Janeczek, Designee, MA Auditor
- Chris Carlozzi, Designee, Senate Minority Leader
- Katie Verra, Designee, Senate Ways and Means Committee
- Sue Perez, Designee, MA Treasurer
- Bridgette Maynard, Designee, House Chair Joint Committee on Revenue
- David Emer, Designee, Senate Chair Joint Committee on Revenue
- Professor Natasha Varyani, Governor’s Appointee
- Professor Thomas Downes, Governor’s Appointee
Commission Members Absent:
- Representative Aaron Michlewitz, House Ways and Means Committee
- Representative Bradley Jones, House Minority Leader
List of Documents:
- Meeting Agenda
- Draft Minutes
- February 26, 2025 Meeting
- Presentation of January tax expenditure evaluation ratings, discuss and vote on ratings
- 1.615 & 2.619 Conservation Land Tax Credit
- 1.037 Survivor Annuities of Fallen Astronauts
- 1.401 & 1.402 Deduction for Employee Social Security and Railroad Retirement Payments/Deduction for Employee Contributions to Public Pension Plans
- 1.403 Additional Exemption for the Elderly
- 1.404 Additional Exemption for the Blind
- 1.405 Dependents Exemption where the Dependent Earns Income
- 1.408 Deduction for Adoption Fees
Meeting Minutes:
Chairperson Forter welcomed Commission members, and a quorum was recognized. The meeting via teleconference was called to order at 2:04 PM. Chairperson Forter put the Commission and public on notice that the meeting is recorded for the purpose of minutes. The recording of the meeting will be kept for public record.
Chairperson Forter mentioned that the Open Meeting Law, previously set to expire on March 31, 2025, has been extended through June 2027. The Open Meeting Law permits state and local public bodies to conduct public meetings in a hybrid or remote format while also allowing participants at town meetings to participate remotely. Chairperson Forter reminded members that the TERC 2025 report was submitted to legislature and uploaded to the TERC website March 1, 2025.
Chairperson Forter noted the following changes in membership; (i) Senator James B. Eldrige is the new Senate Chair of the Joint Committee on Revenue, and has appointed David Emer, Senior Policy Counsel, as his designee, (ii) Representative Adrian Madaro is the new House Chair of the Joint Committee on Revenue, and has appointed Bridgette Maynard, Research Director, as his designee, and (iii) Rep. Michael Soter is no longer serving as the designee for Rep. Bradley Jones, House Minority Leader, and Rep. Jones’ new designee is to be determined. Members welcomed David and Bridgette.
Chairperson Forter asked for any comments or changes on the February 26, 2025 meeting minutes. Members did not provide any comment. Members voted to approve the February ‘25 meeting minutes as drafted. The meeting minutes will be posted to the TERC website.
Tom Downes led a discussion on the Conservation Land Tax Credit. This tax expenditure was adopted in 2008 and has an annual revenue impact of $1.6 - $2 million during FY22–FY26 with no sunset date.
Massachusetts provides a personal income tax and corporate excise credit equal to 50% of the fair market value of certified conservation land donated to a public or private conservation agency. The credit is limited to $75,000 for each donation. Note there is no federal conservation land tax credit but there is a charitable deduction that may apply and a tax deduction for conservation easement contributions. Certified conservation land is land designated by the Secretary of the Executive Office of Energy and Environmental Affairs (“the Secretary”) to have sufficient natural resources to merit being protected from development. Certified conservation land includes (i) land containing drinking water supplies, wildlife habitats, agricultural resources, or forestry resources and (ii) land that provides recreational opportunities, or scenic and cultural values. To qualify for the credit a donation must be made in perpetuity. The credit may be taken in addition to any deduction for charitable contributions resulting from a donation. The Secretary determines which donations qualify for the credit and the actual amount of the credit awarded to each taxpayer. The credits may not be sold or transferred to another taxpayer but are refundable. The total cumulative value of all credits authorized for personal income tax and corporate excise purposes may not exceed $2 million annually. The amount of personal income tax or corporate excise foregone as a result of the credit constitutes a tax expenditure.
A number of states offer credits for donations of conservation land. Such states include California and Connecticut.
The commission assumes that the goal of the expenditure is to protect certified conservation land from future development.
The administration of the credit for donations of certified conservation land does not pose any special challenge to the Department of Revenue (DOR). The Secretary issues a numbered certificate to the taxpayer that establishes the amount of the credit. No credit is allowed unless the certificate number is included on the taxpayer’s return. DOR may request additional validation of the credit as part of its audit processes.
Members noted that close to a majority of claimants have taxable incomes between $200,000 and $1,000,000, and some claimants have low taxable incomes. Members concluded that this a worthwhile credit and agreed that it should not be flagged for legislative review.
Members voted to approve the evaluation template for the Conservation Land Tax Credit as presented.
Chairperson Forter led a discussion on Survivor Annuities of Fallen Astronauts. This tax expenditure was adopted in 2003 and has an annual revenue impact of under $50,000 during FY22-FY26 with no sunset date.
Due to Massachusetts’ reliance on the Internal Revenue Code (Code) to determine gross income for personal income tax purposes, Massachusetts excludes from income certain employer payments to the family or estate of an astronaut killed in the line of duty. The exclusion only applies to amounts that exceed the benefits that would have been payable if the death occurred for a reason other than death in the line of duty, unless the payments are from an employer-sponsored stock bonus, pension, or profit-sharing plan as described in Code § 401(a) plan and are tax-exempt under Code § 501(a). In the absence of the exclusion, the families and estates of astronauts would be required to pay personal income tax on payments received as a result of the astronaut’s death in the line of duty. The revenue foregone as a result of the exclusion constitutes a tax expenditure.
States that conform to the Code for individual income tax purposes adopt the exclusion unless they decouple from Code § 101(i). The Commission is not aware of any state that has decoupled. States that conform to Code § 101(i) include California, Connecticut, Maine, New York, Rhode Island, and Vermont.
The Commission assumes the goal of the exclusion is to provide tax relief to the families of astronauts killed in the line of duty.
The administration of the exclusion of employer payments to the survivors and estates of astronauts killed in the line of duty does not present any special challenges for DOR. Conformity with the federal treatment simplifies tax compliance and administration by allowing the same general rules and definitions to be used for Massachusetts and federal purposes. The Commission assumes that this consistency of treatment also eases the compliance burden for taxpayers.
Members noted the negligible cost resulting from the tax expenditure and that it is a result of the state’s conformity to the federal code. Members agreed that this tax expenditure should not be flagged for legislative review. Members voted to approve the evaluation template for Survivor Annuities of Fallen Astronauts as presented.
Chairperson Forter led a discussion on the Deduction for Employee Social Security and Railroad Retirement Payments/Deduction for Employee Contributions to Public Pension Plans. This tax expenditure was adopted in 1973 and has an annual revenue impact of $319.4 - $341.5 million during FY22–FY26 with no sunset date.
A deduction, up to a maximum of $2,000 per year, is allowed for employee contributions to Social Security, Railroad Retirement or contributory retirement plans of the federal government or the Massachusetts government. See M.G.L. c. 62, §§ 3B(a)(3) and (4). A government plan is considered contributory only if the employee actually contributes to it from his or her own funds through payroll deductions or by transfers from his or her own accounts. For purposes of the deduction, the federal government includes federal agencies and instrumentalities. The Massachusetts government includes state agencies and political subdivisions (including cities and towns). The deduction is not available for contributions to retirement plans of other states. Taxpayers that are married and file joint returns may deduct up to $2,000 each. The limit on deductible contribution amounts may not be combined or transferred from one spouse to the other. Contributions to Social Security and Railroad Retirement are included in employees’ gross income for both federal and Massachusetts purposes. The Massachusetts deduction can therefore be viewed as subsidizing employees’ Social Security and Railroad Retirement contributions up to the $2,000 limit. Massachusetts does not tax Social Security or Railroad Retirement income when received by retirees. The federal retirement plan consists of noncontributory and contributory components. The noncontributory component is funded by the federal government and contributions are not included in employees’ federal or Massachusetts gross income. However, employee contributions to the contributory portions of federal retirement plans are generally excluded from federal gross income. No provision of the personal income tax requires such contributions to be added back to Massachusetts income. The deduction therefore applies, even if the contribution was excluded from federal and Massachusetts gross income. The Massachusetts deduction can therefore be viewed as a pure bonus, up to the $2,000 limit, to federal employees that contribute to federal retirement plans. Massachusetts does not tax income from federal pensions when received by retirees. Contributions to Massachusetts retirement plans are excluded from federal gross income. However, the full amount of the contribution must be added back to federal gross income. The deduction can therefore be viewed as subsidizing state retirement contributions up to the $2,000 limit. Income from Massachusetts state retirement plans is not subject to the personal income tax when received by retirees. The amount of revenue foregone as a result of the deduction constitutes a tax expenditure.
The Commission is not aware of any other state that allows an income tax deduction for contributions to Social Security or Railroad Retirement. Federal and state retirement contributions are generally excluded from federal gross income. States that base their income taxes on federal gross income or adjusted gross income will follow the federal exclusion unless a statutory modification applies. Maine and New York have such a modification applicable to state, but not federal, retirement contributions. In these states contributions to state retirement plans are taxed but contributions to federal retirement plans are not. Maine and New York allow tax exemptions for the amount paid to retirees by their state retirement plans.
The Commission assumes the goal of the deduction is to reduce the tax burden of employees that contribute to Social Security, Railroad Retirement or federal or Massachusetts retirement plans.
The administration of the deduction for employee contributions to Social Security, Railroad Retirement, and federal and Massachusetts public pension plans does not present any special challenges for the Department of Revenue (DOR). The amount of such contributions is reported on each employee’s Form W-2 and the DOR can use this information to monitor compliance with the deduction.
Members noted that the deduction provides a double tax benefit with respect to employee contributions to federal retirement plans, which are already excluded from federal gross income and there is no provision of the personal income tax that requires contributions to be added back to Massachusetts income as there is for contributions to a Massachusetts retirement program. The Commission is not aware of any other state that allows an income tax deduction for contributions to Social Security or Railroad Retirement. Members also noted the significant cost of this tax expenditure and agreed that this tax expenditure should be flagged for legislative review.
Members voted to approve the evaluation template for the Deduction for Employee Social Security and Railroad Retirement Payments/Deduction for Employee Contributions to Public Pension Plans as presented.
Lindsay Janeczek led a discussion on the Additional Exemption for the Elderly. This tax expenditure was adopted in 1973 and has an annual revenue impact of $25.7 - $29.1 million during FY22 – FY26 with no sunset date.
Massachusetts allows a personal income tax exemption of $700 for taxpayers aged 65 or older. M.G.L. c. 62, § 3B(b)(1)(C), § 3B(b)(1A)(C), § 3B(b)(2)(C). If married taxpayers file a joint return, each spouse may claim a $700 exemption if they reach age 65 as of the last day of the taxable year. The exemption is in addition to the $4,400 personal exemption ($8,800 for married taxpayers filing jointly) to which all taxpayers are generally entitled. The Massachusetts additional exemption parallels federal tax provisions allowing a higher standard deduction for taxpayers aged 65 or older. In the absence of the additional exemption, taxpayers aged 65 or older would be entitled only to the personal income tax exemption that is allowed to younger taxpayers. The revenue foregone as a result of the additional exemption constitutes a tax expenditure.
Most states that impose a personal income tax allow some form of income tax exemption or credit for taxpayers aged 65 or older. California, New York, Rhode Island and Vermont do so. Maine does not allow an income tax exemption or credit for elderly taxpayers. The New York exemption is available to taxpayers of the age of 59 ½ at the close of the taxable year. Note that states may provide property tax exemptions for older taxpayers instead of or in addition to these income tax exemptions.
The administration of the additional exemption for taxpayers aged 65 or older does not present special challenges for the Department of Revenue (DOR). Eligibility for the exemption is based on the same parameters as the increased standard deduction available to taxpayers aged 65 or older for federal tax purposes. DOR can use information shared by the Internal Revenue Service (IRS) to assist in monitoring eligibility for the additional exemption. The Commission assumes that this consistency of treatment also eases the compliance burden for taxpayers and employers.
Members noted that changing demographics and aging population may increase the cost of this tax expenditure to the Commonwealth. Members further noted that taxpayers with net adjusted gross income (AGI) of $100,000 or more claim over 30% of the total tax savings resulting from this expenditure and that the average tax savings per beneficiary is $45.
The Commission assumes the goal of this expenditure is progressivity/assistance to low earners and noted that there may be ways to make it more so. Members agreed that this tax expenditure should not be flagged for legislative review, but should still be mentioned in the year-end report. Members voted to approve the evaluation template for the Additional Exemption for the Elderly with additional comments.
Katie Verra led a discussion on the Additional Exemption for the Blind. This tax expenditure was adopted in 1973 and has an annual revenue impact of $0.59 - $0.6 million during FY22–FY26 with no sunset date.
Massachusetts allows a personal income tax exemption, up to a maximum of $2,200, for taxpayers that are blind. M.G.L. c. 62, § 3B(b)(1)(B), (1A)(B), (2)(B). Taxpayers that are married and file joint returns may deduct up to $2,200 each if both are blind. These exemptions are in addition to the $4,400 credit ($8,800 for married taxpayers filing jointly) that is generally available to all personal income taxpayers. To claim the additional exemption a taxpayer must be blind at the end of the tax year. Department of Revenue (DOR) guidance explains that a taxpayer is blind for purposes of this exemption if visual acuity with correction is 20/200 or less in the taxpayer’s better eye, or if peripheral vision has been reduced to a 10-degree radius or less. In the absence of the exemption, taxpayers that are blind would be entitled only to the personal income tax exemption available to all taxpayers. The revenue foregone as a result of the additional exemption constitutes a tax expenditure.
Several states provide income tax benefits to blind taxpayers. These states include California, Maine, Rhode Island, and Vermont. Connecticut and New York do not do so. Note that states may provide property tax exemptions instead of or in addition to these income tax benefits.
The Commission assumes that the goal of the expenditure is to ease the financial burden on taxpayers that are blind by providing an additional exemption that is not available to other taxpayers.
The administration of the additional exemption for blind taxpayers does not present special challenges for the Department of Revenue (DOR). There is a similar federal tax benefit in the form of an increased standard deduction for blind taxpayers. DOR can use information shared by the Internal Revenue Service (IRS) to assist in monitoring eligibility for the additional exemption. DOR may also ask taxpayers that claim the additional exemption to provide a doctor's statement verifying legal blindness.
Members noted that while taxpayers in all income brackets claim the exemption, most of the claimants are lower income. Members agreed that this tax expenditure should not be flagged for legislative review. Members voted to approve the evaluation template for the Additional Exemption for the Blind as presented.
Chric Carlozzi led a discussion on the Dependents Exemption where the Dependent Earns Income. This tax expenditure was adopted in 1973 and has an annual revenue impact of $10.5 - $11.0 million during FY22 – FY26 with no sunset date.
This tax expenditure results from the interaction between the Massachusetts personal income tax exemption that allows a $1,000 reduction of taxable income for each of a taxpayer’s dependents (see M.G.L. c. 62, § 3B(b)(3)) and the $4,400 personal exemption that every taxpayer may claim to reduce their own taxable income (see M.G.L. c. 62, § 3B(1)(a)). No provision prevents taxpayers from claiming the $1,000 exemption for dependents even if the dependent claims the $4,400 personal exemption against their own income on their own returns. Massachusetts provides a personal income tax exemption for each of a taxpayer’s dependents. See M.G.L. c. 62, § 3B(b)(3). Dependents are defined in the same manner as they are for federal tax purposes under Internal Revenue Code (“Code”) § 151(c). The Code’s definition of a dependent includes qualifying children and other qualifying relatives. See Code § 152(a). The Massachusetts exemption allows taxpayers to reduce their taxable income by $1,000 for each dependent, even when the dependent earns income against which the dependent’s own $4,400 personal exemption is taken. Note that the federal deduction for personal exemptions is suspended (reduced to $0) for tax years 2018 through 2025. When the federal exemption was in effect, taxpayers were generally not permitted to claim their own personal exemption if they could be claimed as a dependent on another taxpayer’s return. See Code § 151(d)(2). Further, the federal standard deduction was and still is reduced for taxpayers that can be claimed as dependents on another taxpayer’s return. See Code § 63(c)(5). The federal disallowance sought to remove the duplicative benefit that would otherwise occur if taxpayers claimed a dependent exemption for someone who claimed their own personal exemption. The concept of allowing one exemption per person is viewed as a normative feature of a tax exemption system because it allows for each person to be counted once in the aggregate distribution of exemptions. The Massachusetts exemption system departs from the normative rule by allowing some taxpayers to claim a $1,000 dependency exemption for dependent taxpayers who are themselves claiming a $4,400 personal exemption against their own income on their own returns. Thus, in effect, Massachusetts allows more exemption amounts than a normative tax system would. The revenue foregone as a result of allowing some taxpayers a $1,000 dependency exemption for dependents who claim their own $4,400 personal exemption constitutes a tax expenditure. Note that the personal exemption is generally not otherwise considered a tax expenditure.
The states of California, Maine, Rhode Island, and Vermont do not allow taxpayers to claim a personal exemption if someone else can claim them as a dependent. The state of New York reduces the standard deduction and eliminates the household credit of a taxpayer that can be claimed as a dependent on another taxpayer’s federal return.
The Commission assumes the goal of the expenditure is to enhance the economic security of families by allowing dependents who work claim the full amount of their personal exemptions.
The administration of personal income tax dependency exemptions does not present any special challenges for the Department of Revenue (DOR). Dependents may claim the personal exemption even if claimed as a dependent by another taxpayer. There is therefore no reason to review such claims on audit. As a general matter the DOR verifies exemptions as part of its personal income tax audit process. Conformity with the federal definitions applicable to the dependency exemption simplifies tax compliance and administration by allowing the same general rules and definitions to be used for Massachusetts and federal purposes. The Commission assumes that this consistency of treatment also eases the compliance burden for employers and employees.
Members noted that the federal deduction for personal exemptions is suspended (reduced to $0) for tax years 2018 through 2025, and that the Massachusetts exemption system departs from the normative rule by allowing some taxpayers to claim a $1,000 dependency exemption for dependent taxpayers who are themselves claiming a $4,400 personal exemption against their own income on their own returns.
Members agreed that this tax expenditure should not be flagged for legislative review, but should still be mentioned in the year-end report. Members voted to approve the evaluation template Dependents Exemption where the Dependent Earns Income with additional comments.
Lindsay Janeczek led a discussion on the Deduction for Adoption Fees. This tax expenditure was adopted in 1958 and has an annual revenue impact of $0.27- $0.34 million per year during FY22 – FY26 with no sunset date.
Massachusetts provides a personal income tax deduction for eligible adoption fees paid by taxpayers to licensed adoption agencies in the process of adopting a minor child. M.G.L. c. 62, § 3B(b)(5). Amounts paid to any person other than a licensed adoption agency are not eligible for the deduction. Amounts paid to third parties through an adoption agency for services not performed by the adoption agency are likewise not eligible for the deduction. See Letter Ruling 88-12. There is no limit on the amount of adoption expenses that may be claimed as a deduction. The amount of personal income tax revenue foregone as a result of the expenditure constitutes a tax expenditure.
Most states provide subsidies to encourage adoptions. Slightly under half the states do so through their tax systems by providing deductions or credits. California and Rhode Island provide credits. The California credit is equal to 50% of adoption fees with a maximum of $2,500. The Rhode Island credit is equal to 25% of the federal credit for adoption fees. Connecticut, Maine, and Vermont do not provide deductions or credits.
The Commission assumes the goal of the expenditure is to promote the adoption of minor children by decreasing the financial barriers to adoption.
Members agreed that this tax expenditure should not be flagged for legislative review. Members voted to approve the evaluation template for the Deduction for Adoption Fees as presented.
Members agreed to reconvene in late April. The purpose of the next meeting is to discuss and vote on the next batch of tax expenditures. The meeting concluded at 3:13 PM.
| Date published: | September 17, 2025 |
|---|