$1 Billion Massachusetts Tax Relief Package Signed into Law

By Leanne Scott October 10, 2023

Governor Maura Healey (D) signed a long-awaited Massachusetts tax relief package into law on October 4, finalizing proposals that we first reported on back in March (see here). Since then, the House and Senate issued their proposals, a budget for fiscal year 2024 was finalized, and the tax package conference committee discussions resumed last month after a summer recess.

The only tax provisions in the FY 2024 budget that was passed in August related to tracking and making best use of an assumed $1 billion in new revenue from the 4% surtax that took effect on income in excess of $1million earlier this year, and a further extension of the existing brownfields tax credit program. In an unusual move, the budget set aside approximately $580 million for a tax relief package to be taken up at a later point in time. It was that process, completed this month, which generated this relief package.

For business entities, the biggest change is that apportionment will move from three-factors to one (based on sales) in 2025. This change will apply not only to Subchapter C and S corporations, but also to financial institutions and partnerships. Changes were also made to the sourcing rules applicable to certain income of financial institutions, which will be addressed in more detail in a subsequent alert.

The move to single sales factor for all businesses brings Massachusetts into line with most other Northeastern states and should also simplify some areas of apportionment for taxpayers. Previously, only certain industries and taxpayers fell within the single sales factor rules in Massachusetts. However, eliminating the property and payroll factors can lead to large shifts in a company’s Massachusetts apportionment, which will need to be carefully considered for both tax compliance and tax accounting purposes. Questions remain regarding the stated effective date and how it will apply to non-calendar year taxpayers.

Other notable provisions include the following:

• Reduction in short term capital gains rate from 12% to 8.5%.
• Raising the Massachusetts estate tax threshold from $1 million to $2 million via a credit mechanism for decedents dying on or after January 1, 2023.
• Closing of a perceived 4% surtax “loophole” to prevent those who file jointly for federal income tax purposes from filing separately in Massachusetts (note that this provision does not take effect until 2024).
• Alteration of Ch. 62F rebate statutes to require a uniform amount to be paid to all Massachusetts taxpayers, rather than using a formula based on a percentage of tax paid by each individual.
• Requiring the Department of Revenue to study options for expanding the elective pass-through entity (PTE) excise rules to allow taxpayers who elect into the regime to pay in at a rate of more than the current default of 5%. (Otherwise, the entity-level funding would come up short of the combined rate of 9% imposed on taxpayers subject to the “regular” tax and the 4% surtax that took effect earlier this year.)
• Increasing the cap on rental deductions from $3,000 to $4,000.
• Doubling the maximum senior circuit breaker credit from $1,200 to $2,400.
• Increasing the child and family tax credit over a two year period starting in 2024.
• Increasing the earned income tax credit from 30% to 40% of the federal credit.
• Expanding the housing development incentive program (effective in 2024).
• Increasing low income housing tax credit funding.
• Miscellaneous other changes to rules regarding commuter costs, student loan expenses, lead paint remediation, septic credits, and various other matters.

Unless noted otherwise above, most of the tax relief legislation is effective for taxable years beginning on or after January 1, 2023.

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We will continue to monitor these items, in particular any guidance released by the Massachusetts Department of Revenue, in the coming weeks and months. While it remains to be seen how these changes will impact the Commonwealth’s attempts to retain businesses and residents and to increase competitiveness, it can be said that they are all a step in the right direction, though many feel that some did not go far enough.

If you have any more questions or if you would like to further discuss any of these items in more detail, please contact Leanne Scott or your  BNN tax advisor at (800) 244-7444.