Boston- The Massachusetts Senate on Tuesday approved legislation to modernize and simplify the Commonwealth’s corporate tax structure and establish an automatic rate reduction plan for businesses, from 9.5 percent to 8 percent, over a three-year period beginning in 2010.
“This package was carefully crafted to strike a delicate balance. It raises the revenue necessary to support critical state programs and services, while implementing reforms to the Commonwealth’s tax code that bring Massachusetts in line with competitor states,” said State Senator Benjamin B. Downing (D-Pittsfield).
Senate President Therese Murray (D-Plymouth) said the Senate bill “strikes a balance” between corporate tax proposals submitted by the Governor and the House of Representatives.
“The Senate’s proposal is a reasonable representation of everyone’s interests that provides predictability and fairness,” the President said. “It’s a bill that is sensitive to the needs of the business community to help them maintain their competitive edge while also generating appropriate and much-needed revenue for state services.”
Senator Steven Panagiotakos (D-Lowell), Senate Ways and Means chairman, said: “Business, state government and private citizens are all partners in moving the Commonwealth forward. This legislation is a fair and appropriate way for businesses to continue to contribute to that partnership. These provisions not only provide much-needed revenue for Massachusetts, but also, in time, provide a majority of businesses with a tax cut.”
The Senate proposal adopts the “check-the-box” reform to prevent corporations from claiming one status for Massachusetts taxes and another for federal and other-state taxes. It also adopts “combined reporting” to prevent multi-state businesses from moving their Massachusetts income to affiliates in lower-tax areas.
These reforms will bring the Commonwealth in line with its competitor states, making Massachusetts the last in the nation to adopt “check-the-box” and the 23rd state to implement combined reporting.
The proposal includes financial institutions in the combined reporting regimen and similarly reduces their proportional excise rate from 10.5 percent to 9.0 percent over three years, beginning in 2010.
For smaller corporations, which make up the majority of businesses in the Commonwealth, the bill also reduces excise rates over three years, beginning January 1, 2010. The rate for “S-corporations” with gross sales between $6 million and $9 million moves from 3 percent to 1.8 percent, and the rate for S-corporations with gross sales above $9 million moves from 4.5 percent to 2.7 percent.
In addition to restructuring corporate taxation, the Senate proposal also adopts a one-dollar increase in the cigarette tax and applies it to existing inventories effective July 1, 2008.
The bill also ensures that businesses or Internet retail agents who resell hotel/motel rooms cannot avoid the tax on the full price of the room as paid by consumers.
Other provisions of the bill include:
- Allows businesses to use their federal consolidated return group as the base for their combined group as long as the election does not reduce by 20 percent or more and $1 million or more the total net income that would be apportioned to Massachusetts in the absence of such election.
- Clarifies that recipients of the personal earned income tax credit must live or work in Massachusetts.
- Eliminates the minimum pricing law for cigarettes to allow market competition on cigarette prices.
The bill will now go back to the House of Representatives for further action.