Commission Members in Attendance:
- Chairperson Rebecca Forter, MA Department of Revenue
- Lindsay Janeczek, Designee, MA Auditor
- Sue Perez, Designee, MA Treasurer
- David Emer, 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
- Thomas Baranowski, Stand-in Designee, House Chair Joint Committee on Revenue
Commission Members Absent:
- Representative Aaron Michlewitz, House Ways and Means Committee
- Jamie Oppendisano, Designee, House Minority Leader
List of Documents:
- Meeting Agenda
- Draft Minutes
- May 16, 2025 Meeting
- Presentation of September tax expenditure evaluation ratings, discuss and vote on ratings
- 1.428 Gambling Loss Deduction
- 1.623 & 2.625 Cranberry Bog Renovation Credit
- 1.201 Capital Gains Deduction for Collectibles
- 1.601 Renewable Energy Source Credit
- 2.001 Small Business Corporations
Meeting Minutes:
Chairperson Forter welcomed Commission members, and a quorum was recognized. The meeting via teleconference was called to order at 1:04 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 asked for any comments or changes on the May 16, 2025 meeting minutes. Members did not provide any comment. Members voted to approve the May ‘25 meeting minutes as drafted. The meeting minutes will be posted to the TERC website.
Lindsay Janeczek led a discussion on 1.428 Gambling Loss Deduction. This tax expenditure was adopted in 2015 (amended in 2023 to include sports wagering losses) and has an annual revenue loss estimate to be $7.0 – $21.5 million during FY22 - FY26 with no sunset date.
All income from gambling activity is included in Massachusetts and federal gross income, whether from legal or illegal gambling activity. Massachusetts allows a personal income tax deduction for gambling losses incurred in certain legal gambling activity, but only to the extent of amounts won in gambling activities. M.G.L. c. 62, § 3(B)(a)(18). The deduction is available for losses incurred in wagering activity at Massachusetts-licensed casinos, slot machines, horse races and horse race simulcasts, and online sports betting. The deduction is not allowed for any other gambling losses. See Technical Information Release (TIR) 15-14: Income Tax, Withholding and Reporting Rules for Certain Gambling Income. The Massachusetts deduction parallels the federal deduction for gambling losses. The federal deduction is allowed as an itemized deduction, up to the amount of gambling winnings. See Internal Revenue Code § 165(d); see also IRS Publication 525 (2024), Taxable and Nontaxable Income. Taxpayers that are engaged in gambling as a trade or business can deduct gambling losses as a business expense, up to the amount of gambling winnings. See Bathalter v. Commissioner, 54 T.C.M. 902 (1987) Docket No. 26304-81; see also IRS Publication 525. Note that the Massachusetts and federal deductions for gambling losses are different. The Massachusetts deduction is available to all taxpayers with gambling winnings, whereas to claim the federal deduction taxpayers are required to itemize or be in the trade or business of gambling. Thus, more Massachusetts taxpayers will be eligible for the state deduction than are eligible for the federal deduction. On the other hand, the Massachusetts deduction is restricted to losses from specified gambling activity as noted above, whereas the federal deduction is allowed with respect to all gambling losses. Thus, the amount of the Massachusetts deduction claimed may be lower than the federal amount. The amount of 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 allow taxpayers to offset gambling winnings with gambling losses.
The administration of the gambling loss deduction presents challenges for the Department of Revenue (DOR). Due to nonconformity with the federal deduction DOR cannot rely entirely on information shared by the IRS to monitor compliance with the deduction. Instead, the DOR must in part monitor compliance with the deduction through its personal income tax audit processes.
A number of states allow gambling loss deductions. Most limit the deduction to the amount of winnings. States with such a limited deduction include California, Maine, and New York. Connecticut, Rhode Island, and Vermont do not allow any deduction for gambling losses.
Lindsay Janeczek reviewed ratings on the evaluation sheet for this tax expenditure. Members agreed that it can be difficult to identify taxpayers that claim this deduction but that it is relevant today as thousands of taxpayers claim the deduction.
Members noted that this tax expenditure is not easily administered as the only way to monitor it is through DOR’s audit process, which can be challenging. Chairperson Forter noted that the MA rule is separate from the Federal rule and that there were recent changes to the federal rule passed in the One Big Beautiful Bill Act (OBBBA) which limits the federal deduction to 90% of losses. Chairperson Forter mentioned that it would be worth noting in the comment section of the evaluation template that the MA deduction will not conform to the new federal limitations. Members agreed to add this comment.
Members further noted that they disagree that this tax expenditure is beneficial to lower income taxpayers. Tom Downes noted that the summary report indicates that some lower income taxpayers take advantage of this tax expenditure but that a majority of the deduction is claimed by taxpayers with AGI greater than $500K.
Members discussed whether this tax expenditure incentivizes gambling and if this is worth mentioning in the comment section of the evaluation template. Members discussed the goals of this tax expenditure and agreed that the evaluation template should be edited to remove “access to opportunity” and to add “other” instead.
Chairperson Forter provided a motion to approve the evaluation template with a change of the goal from “access to opportunity” to “other” and with an additional comment noting that the MA deduction will not conform to the new federal limitations passed in OBBBA. Amar Patel seconded the motion. All members were in favor of approving the evaluation template for 1.428 Gambling Loss Deduction with the changes noted above.
David Emer led a discussion on 1.623 & 2.625 Cranberry Bog Renovation Credit. This tax expenditure was adopted in 2021 and has an annual revenue loss of $0.2 - $0.4 million during FY23 – FY27. This tax expenditure has a sunset date of December 31, 2030.
Personal income tax and corporate excise filers primarily engaged in cranberry harvesting and production may claim a credit equal to 25% of the cost of certain renovations (“qualified renovations”) incurred for (i) the renovation, repair, replacement, regrading or restoration of a cranberry bog; or (ii) any other activity or action for the renovation of an abandoned cranberry bog. For purposes of the credit, a “qualified renovation” includes “the renovation, repair, replacement, regrading or restoration of a cranberry bog for the cultivation, harvesting or production of cranberries or any other activity or action associated with the renovation of an abandoned cranberry bog.” See M.G.L. c. 62 § 6(w); M.G.L. c. 63 § 38II. The construction of facilities or structures for the processing of cranberries (as opposed to growing them) is not considered a qualified renovation. Id. The credit cannot exceed $100,000 for any taxpayer. To be eligible for the credit, the taxpayer must be primarily engaged n cranberry harvesting and production, meaning that it sales from cranberry production equal 50% or more of the taxpayer’s total revenue. See 830 CMR 62.6W.1(2). A taxpayer must claim the credit in the taxable year in which a qualified renovation is made. The credit is refundable, or alternatively may be carried forward by the taxpayer for 5 years. The credit is not transferable. See M.G.L. c. 62, § 6(w)(2)(ii); M.G.L. c. 63 § 38II(b)(2). The Executive Office of Energy and Environmental Affairs (“EOEEA”) is primarily responsible for administering the credit. The total cumulative value of all credits authorized may not exceed $2 million in any taxable year. M.G.L. c. 62 § 6(w)(2)(i); M.G.L. c. 63, § 38(b)(3). The amount of revenue foregone as a result of the credit constitutes a tax expenditure.
The Commission assumes the goal of the expenditure is to encourage the improvement, restoration, or development of cranberry bogs.
The administration of the cranberry bog renovation credit does not pose any special challenges for the Department of Revenue (DOR). The EOEEA determines eligibility for the credit and the amount of credit awarded to each taxpayer. DOR reviews this information and certifies the final credit amount. The documentation provided by the EOEEA gives DOR the means to monitor the credit.
The Commission is not aware of any other state with an investment tax credit made available only to cranberry farmers.
David Emer reviewed ratings on the evaluation sheet for this tax expenditure and noted that it is difficult to measure how this tax expenditure is impacting cranberry bogs as it is difficult to determine whether repairs are happening or not.
Members noted that this tax expenditure was enacted recently and that it applies to both personal income and corporate excise. Members agreed that the tax expenditure seems to be easily administered and is a relatively low cost.
Members determined that claimants are not necessarily small businesses. Sue Perez pointed out the comments section of the evaluation template which reads, “This tax expenditure is a relatively small cost. But is not limited to small business and is only claimed by a small group of taxpayers. It is also not targeted towards low-income taxpayers.”
Tom Downes suggested checking off an additional goal for this tax expenditure to include Health/Environmental/Social justice. Chairperson Forter and Chris Carlozzi agreed with this suggestion, noting that this credit can be used to renovate abandoned cranberry bogs and that it helps keep farmland as farmland. Sue Perez agreed with this suggestion. Chairperson Forter provided a motion to approve the evaluation template with the suggested change noted above. Sue Perez seconded the motion. Members were all in favor for this suggested change and moved to approve the evaluation template for 1.623 & 2.625 Cranberry Bog Renovation Credit with the changes noted above.
Chris Carlozzi led a discussion on 1.201 Capital Gains Deduction for Collectibles. This tax expenditure was adopted prior to 1986 and has an annual revenue impact of $0.12 - $0.58 million during FY23 - FY27 with no sunset date.
The personal income tax applies different rates to various categories of income. Most long-term capital gain is taxed at 5%, but the statutory rate of personal income tax applicable to long-term capital gains on the sale of collectible items is 12%. M.G.L. c. 62, §§ 4(a)(1) and 4(2)(b). However, a deduction of up to 50% of such gain is available. The deduction is equal to 50% of any remaining long-term gain from collectibles after any allowable offset by capital losses. M.G.L c. 62, § 2(c)(3). Accordingly, the effective rate of tax on long-term gains from the sale or exchange of a collectible item held for more than one year is a maximum of 6%. Note that Massachusetts adopts the definition of “collectibles” in section 408(m) of the Code. IRC § 408(m)(2). Such items include works of art, antiques, coins, stamps, and similar items. Id. The revenue loss resulting from the deduction constitutes a tax expenditure.
The Commission assumes the goal of the expenditure is to reduce the disadvantage that would otherwise apply to taxpayers that sell collectibles, by adopting an effective tax rate on long-term gains that is only one percentage point higher than the rate applicable to long-term gain on other personal use property.
The administration of the deduction for long-term gains on the sale or exchange of collectibles presents some challenges for the Massachusetts Department of Revenue (DOR). Capital gains from collectibles are reported for federal tax purposes. However, because of differences between Massachusetts and federal computational and presentational rules desk audits are required to ensure that taxable gains on collectibles are reported and taxed appropriately.
It does not appear that any other state has a deduction for long-term capital gains on collectibles. Note, however, that it appears no other state distinguishes gains on the sale of collectibles from other types of capital gains.
Chris Carlozzi reviewed ratings on the evaluation sheet for this tax expenditure and highlighted that MA uses the federal definition of collectible for this deduction but that this tax expenditure is not a result of conformity to the federal code and that no other state separates collectibles specifically from other types of capital gains.
Members noted that most beneficiaries of this tax expenditure have AGI of more than $200k and that not many low-income taxpayers are claiming this deduction. Members agreed that this tax expenditure is somewhat relevant today and that the annual revenue impact was negligible enough to justify its fiscal cost.
Members agreed that this tax expenditure is not easily administered since desk audits are required to ensure that taxable gains on collectibles are reported and taxed appropriately.
Chairperson Forter noted that (i) collectibles are taxed at 12%, (ii) all other short term capital gains are taxed at 5%, and that (iii) this tax expenditure essentially reduces the capital gains rate on collectibles to 6%. Members agreed that this is could be considered a structural problem and that additional comments should be added to the evaluation template stating that this tax expenditure is a convoluted way to apply a lower tax rate to collectibles.
Tom Downes noted that this tax expenditure was previously flagged for legislative review by the Commission in the 2021 TERC report. Members agreed that it would be appropriate to flag it again for legislative review and to add additional comments to the evaluation template to treat collectibles the same as other short term capital gains. Chairperson Forter made a motion to approve the evaluation template with the additional comments. Chris Carlozzi seconded the motion. Members were all in favor of approving the evaluation template for 1.201 Capital Gains Deduction for Collectibles with additional comments.
Tom Downes led a discussion on 1.601 Renewable Energy Source Credit. This tax expenditure was adopted in 1979 and has an annual revenue impact of $6.5 - $9.7 million during FY23 - FY27 with no sunset date.
Owners and tenants of residential property located within Massachusetts who are not dependents of another taxpayer and who occupy the property as their principal residence are allowed a credit equal to 15% of the net expenditure for renewable energy source property or $1,000, whichever is less. Renewable energy source property is defined as property that transmits or uses solar energy or another form of renewable energy for the purposes of providing heating, cooling, hot water, or electricity for a residence. The net expenditure is equal to the cost of the renewable energy source property plus installation costs, less any federal grants or credits. For more details on eligibility for and computation of the credit, see 830 CMR 62.6.1. Unused credits may be carried forward for three (3) years. The credit is neither transferable nor refundable. The personal income tax revenue loss resulting from the credit constitutes a tax expenditure.
The Commission assumes the goal of the expenditure is to provide homeowners and tenants an incentive to purchase and install renewable energy source property to promote energy efficiency and reduce environmental pollution.
The administration of this credit presents some challenges for the Massachusetts Department of Revenue (DOR) because there is no corresponding federal credit or deduction on which to rely. Therefore, the DOR must make more administrative effort to process taxpayers’ returns where this credit is claimed, including potentially requesting substantiating documentation from the taxpayers.
Renewable energy tax incentive programs are common among states. The programs include sales tax, property tax and income tax incentives. States that have such programs include California, Connecticut, Maine, New Hampshire, New York, Rhode Island, and Vermont.
Tom Downes reviewed the ratings on the evaluation sheet for this tax expenditure and noted that this credit is primarily used for solar installations but is also applicable to wind. Absent this tax expenditure some people would still install solar. The cost of this tax expenditure may understate the total benefits, as some benefits are going to everyone in the Commonwealth. Roughly 7,500 taxpayers claim this credit annually with some taxpayers receiving up to $11K. Tom also noted that while some lower income taxpayers may take advantage of this tax expenditure, a majority of benefits go to taxpayers with AGI of over $100K.
Tom Downes noted that this tax expenditure is relevant today. There has been an increase in claims over the past 10 years. Members agreed that this made sense given the Commonwealth’s climate goals and changes in federal incentives. Members assume that claims will flatten out since the mirroring federal benefit has been eliminated.
No other comments were made by members. Members agreed that this tax expenditure should not be flagged for legislative review. Tom Downes made a motion to approve the evaluation template. Natasha Varyani seconded the motion. Members were all in favor to approve the evaluation template for 1.601 Renewable Energy Source Credit as presented.
Amar Patel led a discussion on 2.001 Small Business Corporations. This tax expenditure was adopted in 1986 and has an annual revenue impact of $269.5 - $310.4 million during FY23 - FY27 with no sunset date.
Corporations with only one class of stock and no more than 100 shareholders are generally permitted to elect to be treated as S corporations for federal tax purposes. See Internal Revenue Code (Code) § 1361. S corporations are generally not subject to federal tax at the corporate level. Code § 163. However, S corporation income is subject to federal tax at the shareholder level on a flow-through basis. See (Code) § 1366. If a corporation does not make an S corporation election, it is generally treated as a C corporation. A C corporation is subject to federal tax on its income at the corporate level and its distributions of profits are subject to tax as dividends at the shareholder level. Massachusetts conforms to the federal definition of an S corporation. See M.G.L. c. 62, § 17A, M.G.L. c. 63, § 32D. For Massachusetts purposes, S corporations are not subject to the net income measure of the corporate excise if they have total receipts under $6 million. An S corporation with total receipts that are $6 million or more, but less than $9 million, is subject to the net income measure at a rate of 2% and an S corporation with total receipts that are $9 million or more is subject to the income measure of the corporate excise at a rate of 3%. See M.G.L. c. 63, § 32D. In contrast, C corporations are subject to the net income measure at a rate of 8%. See M.G.L. c. 63, § 39. The non-income measure of the corporate excise (a .26% tax on net worth or taxable tangible property) applies to S corporations and C corporations in the same manner. Similarly, the $456 minimum corporate excise applies to both. See M.G.L. c. 63, § 39. S corporation income is subject to Massachusetts personal income tax at the shareholder level on a flow-through basis. The Massachusetts flow through rules are modeled after the federal flow-through rules. See M.G.L. c. 62, § 17A. The corporate excise revenue lost as a result of the reduced rates applicable to S corporation net income compared to the 8% rate applicable to C corporation net income constitutes a tax expenditure.
The Commission assumes the goal of the expenditure is to support smaller businesses by affording them the limited liability of a corporation without the full burden of double taxation that generally applies to C corporation income.
The administration of the corporate net income tax as it applies to S corporations does not present any special challenge for the Department of Revenue (DOR). Conformity to the federal treatment of S corporations enables the DOR to monitor compliance based on data shared by the Internal Revenue Service. Further, the computation of S corporation net income is the same as the computation of C corporation net income, and both are based on federal rules. The Commission assumes that such conformity also eases the compliance burden on S corporation filers.
California, Connecticut, Maine, New York, Rhode Island, and Vermont treat S corporations in a manner similar to Massachusetts. These states impose a corporate level net income tax at a reduced rate but also tax S corporation income at the shareholder level on a flow-through basis. New Hampshire treats S corporations in the same manner as C corporations, offering no reduced rate.
Amar Patel reviewed the ratings on the evaluation sheet for this tax expenditure and noted that this tax expenditure is not a result of conformity to the federal code and that its primary goal is competitiveness rather than job creation. Amar highlighted that over 90% of the annual 120K claimants have taxable income of greater than $50K. Members agreed that this tax expenditure justifies its fiscal cost and that it is claimed by its intended beneficiaries, which makes it relevant today.
Amar Patel noted the increasing cost of this tax expenditure. Members agreed that it is difficult to determine whether businesses are opting for being S corporations for such benefits as it appears more and more small businesses are adopting S corporation status. Members agreed that this tax expenditure is easily administered as it can be compared to federal returns.
Chairperson Forter noted that the $6M - $9M thresholds may have stayed the same since this tax expenditure was enacted in 1986. Tom Chappel provided a brief history of this tax expenditure and S corporations in general, stating that the $6M - $9M thresholds have been a rule since this tax expenditure was enacted. Chairperson Forter mentioned that this would be noting in the comment section of the evaluation template. Kazim Ozyurt noted that other tax expenditures have adjustments for inflation, and this one does not. Chris Carlozzi agreed that adding this additional comment would be beneficial.
David Emer mentioned that it may be worthwhile to add further comments about what constitutes an S corporation (less than 100 shareholders) so that the public is not under the assumption that all S corporation are small ‘mom & pop shops’. Tom Downes noted that when the Commission previously evaluated this tax expenditure the report included a question regarding larger entities claiming this tax expenditure. Members agreed that it would be beneficial to include more data on S corps generating over $9M in gross receipts.
Members agreed that this tax expenditure should not be flagged for legislative review but that additional comments should be added to the evaluation template to address (i) what constitutes an S Corp (ii) size and scale of S corps in Massachusetts, and that the (iii) $6 - $9M thresholds have stayed the same since this tax expenditure was enacted.
Chairperson Forter made a motion to approve the evaluation template with additional comments. Tom Downes seconded the motion. Members voted to approve the evaluation template for 2.001 Small Business Corporations with additional comments noted above.
Members agreed to reconvene in October. 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: | November 18, 2025 |
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