Commission Members in Attendance:
- Chairperson Rebecca Forter, MA Department of Revenue
- Lindsay Janeczek, Designee, MA Auditor
- Sue Perez, Designee, MA Treasurer
- Lucas Spagnuolo, Stand-in Designee, Senate Chair Joint Committee on Revenue
- Amar Patel, Designee, Senate Committee on Ways and Means
- Chris Carlozzi, Designee, Senate Minority Leader
- Professor Natasha Varyani, Governor’s Appointee
- Professor Thomas Downes, Governor’s Appointee
- Jamie Oppendisano, Designee, House Minority Leader
Commission Members Absent:
- Representative Aaron Michlewitz, House Ways and Means Committee
- Representative Adrian C. Madaro, House Chair Joint Committee on Revenue
List of Documents:
- Meeting Agenda
- Draft Minutes
- March 28, 2025 Meeting
- Presentation of May tax expenditure evaluation ratings, discuss and vote on ratings
- 1.410 Exemption of Medical Expenses
- 1.418 Deduction for Costs Involved in Unlawful Discrimination Suits
- 1.428 Gambling Loss Deduction (only if from a trade or business)
- 1.605 Earned Income Credit
- 1.609 Refundable Credit Against Property Tax for Seniors ("Circuit Breaker")
- 3.101 Exemption for Food
- 3.102 Exemption for Certain Food and Beverages Sold in Restaurants
Meeting Minutes:
Chairperson Forter welcomed Commission members, and a quorum was recognized. The meeting via teleconference was called to order at 1:03 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 noted the following changes in membership (i) Representative Bradley Jones, House Minority Leader, has appointed Jamie Oppedisano as his designee and (ii) Bridgette Maynard is no longer the designee for Representative Adrian C. Madaro, Joint Committee on Revenue. A new designee is expected soon.
Chairperson Forter asked for any comments or changes on the March 28, 2025 meeting minutes. Members did not provide any comment. Members voted to approve the March ‘25 meeting minutes as drafted. The meeting minutes will be posted to the TERC website.
Lindsay Janeczek led a discussion on 1.410 Exemption of Medical Expenses. This tax expenditure was adopted in 1973 and has an annual revenue impact of $54.1- $67.4 million during FY22 -FY26 with no sunset date.
Massachusetts allows a personal income tax exemption equal to the federal deduction allowed for medical, dental, and other expenses allowed under the Internal Revenue Code (Code). See M.G.L. c. 62, § 3B(b)(4). The federal deduction is allowed for medical and dental expenses described in Code § 213. Deductible medical expenses include the costs of diagnosis, cure, mitigation, treatment, or prevention of disease. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. See Internal Revenue Service (IRS) Publication 502 for a detailed explanation of deductible expenses. The federal deduction is allowed to the extent eligible expenses exceed 7.5% of the taxpayer’s federal adjusted gross income.
The Massachusetts exemption for medical and dental expenses is equal to the federal deduction allowed under the Code as amended and in effect on January 1, 2024. See M.G.L. c. 62, §§ 1(c), 3B(b)(4). Taxpayers must itemize their deductions for federal purposes to be eligible for the Massachusetts exemption. M.G.L. c. 62, § 3B(b)(4). Further, taxpayers that file joint returns for federal purposes must also do so for Massachusetts purposes in order to claim the Massachusetts exemption.
The personal income tax revenue foregone as a result of the exemption for medical and dental expenses constitutes a tax expenditure.
The Commission assumes the goal of the exemption is to reduce the financial burden of medical and dental costs by allowing a tax exemption for a portion of such costs.
The administration of the exemption of medical and expenses does not present any special challenges for DOR. Conformity with the federal deduction for such expenses simplifies tax compliance and administration by allowing the same general rules and definitions to be used for Massachusetts and federal purposes. Such conformity also allows the DOR to monitor the exemption based on data shared by the IRS. The Commission assumes that conformity also eases the compliance burden for taxpayers claiming the exemption.
Most states allow a deduction for medical and dental expenses. States that do so include California, Connecticut, Maine, New York, Rhode Island, and Vermont.
Members noted the significant cost of the expenditure and that it is not likely that the Legislature would decouple from this federal code section.
Members agreed that this tax expenditure should not be flagged for legislative review. Members voted to approve the evaluation template as presented.
Lindsay Janeczek led a discussion on 1.418 Deduction for Costs Involved in Unlawful Discrimination Suits. This is a federal tax expenditure that was enacted in 2004; Massachusetts conformed to the federal expenditure as of 2022. This tax expenditure has an annual revenue impact of $0.2 - $0.3 million during FY22-FY26 with no sunset date.
In general, litigation expenses are deductible only if the lawsuit pertains to the taxpayer’s trade or business. However, Code § 62(a)(20) provides a deduction for attorney fees and court costs paid by taxpayers to recover a judgment or settlement for a claim of unlawful discrimination even if the claim does not stem from a trade or business. Such costs are allowed as a deduction from federal gross income whether or not the taxpayer wins his or her claim. The deduction cannot exceed the amount of any judgment or settlement that the taxpayer receives. Unlawful discrimination is broadly defined to include any violation of federal, state, local law, or common law claims providing for the enforcement of civil rights. See Code § 62(e).
Massachusetts adopts Code § 62 and allows a deduction for the costs of unlawful discrimination lawsuits. Specifically, Massachusetts allows the federal deductions determined under Code § 62, as amended and in effect on January 1, 2024. See M.G.L. c. 62, §§ 1(c), 2(d)(1). The Massachusetts deduction is equal to the federal deduction.
The personal income tax revenue foregone as a result of the deduction constitutes a tax expenditure.
The Commission assumes the goal of the expenditure is to reduce the financial burden on taxpayers that wish to file unlawful discrimination suits.
The administration of the deduction for costs involved in unlawful discrimination suits does not present special challenges for the Department of Revenue (DOR). Conformity with the federal deduction based on the 2024 Code 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.
States that conform to the Code for individual income tax purposes adopt the deduction for costs of unlawful discrimination suits, unless they have specifically decoupled from the Code. The Commission is not aware of any state that has decoupled. States that adopt the federal deduction include California, Connecticut, Maine, New York, Rhode Island, and Vermont.
Members agreed that health/environmental/social justice should be added as a goal of this tax expenditure due to the nature of the benefit.
Members agreed that this tax expenditure should not be flagged for legislative review. Members voted to approve the evaluation template for the Deduction for Costs Involved in Unlawful Discrimination Suits with a change to the goal of the tax expenditure to include Health/Environment/Social Justice.
Chris Carlozzi led a discussion on 1.428 Gambling Loss Deduction (only if from a trade or business). This tax expenditure was adopted in 2015 (amended in 2023 to include sports wagering losses) and has an annual revenue impact of $7.0 – $21.5 million per year during FY22 - FY26 with no sunset date. The Commission agreed to Tom Downes led a discussion on 1.605 Earned Income Tax Credit. This tax expenditure was adopted in 1997 and has an annual revenue impact of $210.5 - $394.8 million per year during FY22 - FY26 with no sunset date.
The Massachusetts Earned Income Credit (EITC) is a refundable tax credit for personal income taxpayers with low or moderate earned income and is based on the federal EITC. The Massachusetts credit is equal to 40% of the federal credit and is available to taxpayers who are eligible for the federal EITC.
Eligibility for the credit and the amount of the credit are based on a taxpayer’s filing status, number of dependent children and amount of earned income. For 2024 the maximum amount of the federal credit is $7,830. Married taxpayers are generally required to file a joint tax return in order to claim the EITC. The credit is refundable, but it is not transferable.
The Massachusetts credit is authorized by M.G.L. c. 62, § 6(h). Section 6(h) adopts the federal eligibility and computational rules except that to claim the credit a taxpayer must be a Massachusetts resident for at least part of the taxable year. For part-year residents, the credit is limited to 40% of the federal credit multiplied by the ratio of the number of days the individual resided in Massachusetts during the taxable year by the total number of days in the taxable year.
Massachusetts allows a taxpayer to satisfy the joint filing requirement if the taxpayer files a Massachusetts personal income tax return using a filing status of married filing separately and the taxpayer lives apart from the taxpayer's spouse at the time the taxpayer files the tax return and is unable to file a joint tax return because the taxpayer is a victim of domestic abuse. There is no analogous exception to the joint filing requirement for purposes of the federal EITC.
The personal income tax revenue foregone as a result of the Massachusetts EITC constitutes a tax expenditure.
The Commission assumes the goal of the expenditure is to help support low- and moderate-income individuals and working families by reducing their state tax burden.
The administration of the EITC does not present any special challenges for DOR. General conformity with the federal EITC simplifies state tax compliance and administration by allowing the same eligibility and computational rules to be used for Massachusetts and federal purposes. However, the Massachusetts exception to the federal EITC’s joint filing requirement requires some additional work to determine a taxpayer’s eligibility for the exception. The Internal Revenue Service (IRS) audits compliance with the federal credit and shares information that the DOR can use to monitor compliance with the state credit.
Most states allow an EITC based on the federal EITC. Such states include California, Connecticut, Maine, New York, Rhode Island, and Vermont.
Members noted the significant fiscal impact of this tax expenditure but that a vast majority of taxpayers who have taken the EITC have AGIs below $50,000 and that the number of taxpayers who have taken the EITC drops once AGI exceeds $60,000.
Members agreed that this tax expenditure should not be flagged for legislative review but that it should be highlighted in the final report that only about 80% of those eligible for this benefit actually claim it, suggesting there is room for advocacy to increase this share.
Members voted to approve the evaluation template for the Earned Income Tax Credit with additional comments.
Amar Patel led a discussion on 1.609 Refundable Credit Against Property Tax for Seniors ("Circuit Breaker"). This tax expenditure was adopted in1999 and has an annual revenue impact of $98.4 - $179.4 million per year during FY22 - FY26 with no sunset date.
Massachusetts taxpayers aged 65 or older are eligible for a personal income tax credit equal to the amount by which (i) their property tax payments or (ii) 25% of their rent payments exceed 10% of their total income, up to a maximum credit amount. Such payments must be for the taxpayer’s principal residence located in Massachusetts. M.G.L. c. 62, § 6(k)(2).
Property tax payments are defined in the statute to include real estate taxes, 50% of water and sewage charges, and charges for betterments assessed to the taxpayer. Rent payments include the actual amount of rent paid. M.G.L. c. 62, § 6(k)(1).
Total income for purposes of the credit generally includes all income that is available to pay property taxes. This includes amounts subject to the Massachusetts personal income tax plus additional cash inflows such as (i) income from social security, (ii) non-taxable retirement income, (iii) the cash value of public assistance, (iv) tax-exempt interest and dividends, (v) non-taxable distributions from trusts or pass-through entities and (vi) gifts. M.G.L. c. 62, § 6(k)(1).
For the credit for property taxes to apply, the assessed valuation of the taxpayer’s residence as of January 1, 2024 cannot exceed $1,172,000. See M.G.L. c. 62, § 6(k)(3); Technical Information Release (TIR) 24-10; Annual Update of Real Estate Tax Credit for Certain Persons Age 65 and Older. The credit is available only to taxpayers whose income does not exceed an eligibility limit. For the 2024 tax year, the income limit was $72,000 for a single individual, $91,000 for a head of household and $109,000 for married couples filing a joint return. No credit is allowed for a married individual unless a joint return is filed. For the 2024 tax year the maximum credit amount is $2,730. TIR 24-10. The credits may not be sold or transferred to another taxpayer but are refundable. M.G.L. c. 62, § 6(k)(7).
The revenue foregone as a result of the Circuit Breaker credit constitutes a tax expenditure.
The Commission assumes the goal of the expenditure is to assist lower- and middle-income seniors with their housing expenses.
The administration of the Circuit Breaker credit does not present special challenges for DOR. Eligibility for the credit is based on parameters that have been in place since the credit was first implemented in 2001. The DOR monitors the credit as part of its personal income tax audit program.
Twenty-nine states have credits for property taxes paid by lower- and middle-income taxpayers over age 65. Some allow the credit against the personal income tax. Such states include Connecticut, Maine and Rhode Island. New Hampshire and Vermont offer property tax credits or reductions. New York allows an income tax deduction instead of a credit. California does not have a credit or deduction.
Members noted that credits like these can lead to slower turnover in property and that this credit can be discriminatory as the credit creates horizontal equity issues because it is only available to taxpayers over 65. These restrictions have the potential to distort the housing market, making housing more expensive for all and disadvantaging the non-elderly poor. Members further noted that the credit will become increasingly expensive, both because the maximum credit amount is increasing and because a growing share of the population will be eligible for the credit.
Members agreed that this tax expenditure should not be flagged for legislative review. Members voted to approve the evaluation template for the Refundable Credit Against Property Tax for Seniors ("Circuit Breaker") as presented.
Chairperson Rebecca Forter led a discussion on 3.101 sales tax Exemption for Food. This tax expenditure was adopted in 1967 (with an additional subsection added in 1986) and has an annual revenue impact of $1,066.1 - $1,314.2 million per year during FY22-FY26 with no sunset date.
Massachusetts imposes a 6.25% sales tax on retail sales of tangible personal property, consisting of any produce, goods, wares, merchandise and commodities. M.G.L. c. 64H, §§ 1, 2. Sales of “food products” are exempt from this tax. M.G.L. c. 64H, § 6(h). Food products are foods and beverages that are commonly understood to be groceries (e.g., cereals, flour, milk, meat, fish, eggs, vegetables, fruits, and spices). Id. In general, foods and beverages sold by a store (e.g., supermarket, convenience store, etc.) are considered food products and are tax-exempt. All purchases made using Supplemental Nutrition Assistance Program (“SNAP”) benefits (formerly called “food stamps”) are exempt from the sales tax. M.G.L. c. 64H, § 6(kk).
The food products exemption does not apply to meals sold by a restaurant or restaurant part of a store. M.G.L. c. 64H, § 6(h). A taxable meal is any food or beverage, or both, that has been prepared for immediate consumption and is sold by a restaurant or a restaurant part of a store (e.g., sandwiches, pizza, soup, and poured beverages). Id. A restaurant is an establishment that is primarily engaged in the business of selling meals (e.g., diners, bars, cafes, certain catering businesses, and food trucks). Id. Certain foods and beverages sold by a restaurant or restaurant part of a store are not considered meals and are exempt from the sales tax. See Tax Expenditure Report 3.102 (Exemption for Certain Food and Beverages Sold in Restaurants).
Absent the exemption afforded by this tax expenditure, food products would be subject to sales tax. The revenue lost as a result of the exemption constitutes a tax expenditure.
The Commission assumes that the goal of the expenditure is to shield groceries, which are a life necessity, from the sales tax. Providing an exemption for groceries is especially helpful to low-income earners for whom grocery expenses may comprise a significant percentage of their income.
The administration of the exemption for food presents challenges to DOR and taxpayers. The exemption is based on statutory definitions that often make it difficult to distinguish between exempt food products and taxable meals. Additionally, the application of the exemption often depends on identifying whether the establishment making the sale is a “restaurant,” a “store,” or a store with “restaurant parts.” Such establishment identification has become increasingly difficult as vendors selling foods and beverages have become more complex (e.g., supermarkets with numerous restaurant parts and options for digital purchasing).
Most states that impose a sales tax provide a similar exemption for food but not meals. Such states include Connecticut, Maine, New York, Rhode Island, and Vermont. Each state defines “food” and “meals” differently, resulting in certain differences between the exemptions. All states that impose a sales tax provide an exemption for food purchases made using SNAP benefits (formerly known as “food stamps”), as required by federal law.
Members noted the significant cost of this tax expenditure and the administrative challenges for DOR. Members agreed that the reality of what is considered a restaurant and what is not is less clear than it used to be. There are many establishments where only a portion of the establishment is considered a restaurant. Examples of this include grocery stores with prepared food sections where meals are available. Members agreed that the administrative challenges are a burden for both vendors and taxpayers. Members agreed that this tax expenditure should not be flagged for legislative review but that it should be highlighted in the final report that it should be reviewed from an administrative perspective.
Members voted to approve the evaluation template for the Exemption of Food as presented.
Natasha Varyani led a discussion on 3.102 Exemption for Certain Food and Beverages Sold in Restaurants. This tax expenditure was adopted in 1975 and has an annual revenue impact of $10.9 -$14.4 million during FY22-FY26 with no sunset date.
Massachusetts imposes a 6.25% sales and use tax on retail sales of tangible personal property, consisting of any produce, goods, wares, merchandise and commodities. M.G.L. c. 64H, §§ 1 and 2; M.G.L. c. 64I, §§ 1 and 2. Sales of “food products” are exempt from tax. M.G.L. c. 64H, § 6(h). Food products are foods and beverages that are commonly understood to be groceries. Id. The food products exemption does not apply to meals sold by a restaurant or restaurant part of a store. Id. A meal is any food or beverage, or both, that has been prepared for immediate consumption and is sold by a restaurant or a restaurant part of a store (e.g., sandwiches, pizza, soup, and poured beverages). Id and 830 CMR 64H.6.5. A restaurant is an establishment that is primarily engaged in the business of selling meals (e.g., diners, bars, cafes, certain catering businesses, and food trucks). Id and 830 CMR 64H.6.5.
Although foods and beverages sold by a restaurant are generally taxable as meals, M.G.L. c. 64H, § 6(h) specifies three categories of food and beverages that “shall not be deemed a meal” when sold by restaurants “for consumption off the restaurant premises.” M.G.L. c. 64H, § 6(h). The premise of this rule is that certain items will be taken out and consumed by households in the preparation or serving of meals at home.
The first exemption category is for “food sold by weight, liquid or dry measure, count or in unopened or original containers or packages.” M.G.L. c. 64H, § 6(h). This exemption only applies to sales of foods that are “commonly sold in such manner in a retail food store which is not a restaurant” (e.g., supermarket, convenience store, etc.). Id. For example, uncooked pasta sold by weight is exempt from tax even if sold by a restaurant.
The second exemption category is for “[b]everages in unopened original containers or packages as a unit having a capacity of at least twenty-six fluid ounces.” Id. For example, a six-pack of 12-ounce beverages is exempt even if sold by a restaurant.
The third exemption category is for “[b]akery products including but not limited to doughnuts, muffins, bagels, and similar items sold in units of six or more.” Id. Note that “bakery stores” are not considered restaurants and all their sales are tax-exempt so long as they exclusively sell baked goods. Id and 830 CMR 64H.6.5. However, due to the third exemption category, baked goods sold by restaurants in quantities of six or more are also exempt.
Absent the exemption afforded by this tax expenditure, all foods and beverages sold by a restaurant or restaurant part of a store would be subject to sales and use tax, even if the items purchased will be used by households in the preparation or serving of meals at home. The sales and use tax revenue lost as a result of the exemption for such items constitutes a tax expenditure.
The Commission assumes that the goal of the expenditure is to recognize that some items sold by restaurants are akin to grocery items. Groceries are a life necessity which the legislature has chosen to shield from the sales and use tax.
The administration of the exemption for eligible food items sold by restaurants presents challenges to the DOR and taxpayers. The exemption is based on statutory definitions that often make it difficult to distinguish between exempt food products and taxable meals. The application of the exemption requires DOR and taxpayers to determine whether the establishment making the sale is a “restaurant,” a “store,” or a store with “restaurant parts.” Further, it requires DOR and taxpayers to determine whether certain foods are “commonly sold” as groceries and when they are “available for immediate consumption without further significant preparation.” These determinations require fact-specific analyses that can be complicated for DOR and taxpayers.
Most states that impose a sales and use tax provide an exemption for food but not meals. These states provide rules for when certain restaurant sales are considered sales of tax-exempt food rather than taxable meals. Such states include Connecticut, Maine, New York, Rhode Island, and Vermont.
Members noted the administrative challenges associated with this tax expenditure and the lack of clarity of predictability due to broadness of the expenditure. Members agreed that this tax expenditure should not be flagged for legislative review but that it should be highlighted in the final report that it should be reviewed from an administrative perspective.
Members voted to approve the evaluation template for the Exemption of Certain Food and Beverages Sold in Restaurants as presented.
Members agreed to reconvene in September. The purpose of the next meeting is to discuss and vote on the next batch of tax expenditures. The meeting concluded at 1:55 PM.
| Date published: | September 23, 2025 |
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