Tax Proposals in Fiscal Year 2026 Massachusetts Budget

By Leanne Scott February 10, 2025

Governor Healey released her fiscal year 2026 budget on January 22, 2025. Despite being portrayed as containing no new broad-based taxes on either individuals or businesses here in the Commonwealth, there are a number of tax-related proposals in the budget that we are monitoring.

The tax-related proposals within the larger $61.5 billion 2026 Massachusetts budget package include:

• Imposition of a cap on the charitable donation deduction, which was reinstituted in 2023 in Massachusetts, for individuals of either $5,000 or $10,000 (joint filers), depending upon filing status.
• Elimination of preferential tax regime for security corporations, a special type of entity incorporated into the structures of businesses in many industries.
• Statutory language changes in the wake of the 2022 Massachusetts Supreme Judicial Court’s decision in the VAS Holdings case. These changes are intended to subject more sales of businesses or interests in businesses by nonresident individuals to tax in Massachusetts. For more background and current Dept. of Revenue guidance, see here. The proposed effective date of this change is January 1, 2026.
• Requiring unitary corporate excise filers to include affiliated captive insurance companies in their combined reporting groups.
• Clarification of the estate tax treatment of qualified terminable interest property, and alignment of the tax treatment of resident and nonresident decedents with respect to property located outside of Massachusetts (proposed effective date of August 1, 2025).
• Limiting certain state tax benefits on investments made only in federally-designated opportunity zones.
• Imposing the deeds excise on transfers of controlling interests in entities holding real property, along with a cap of $1 million on the deduction allowed for assumed mortgages in computing the tax (proposed effective date of August 1, 2025).
• Changes in taxation of synthetic nicotine products to align them with tobacco products (proposed effective date of August 1, 2025).
• Imposition of the room occupancy tax on the fair market value of complimentary hotel rooms offered by hotels (proposed effective date of August 1, 2025).
• Removal of sales tax exemption for candy and confectionary products (proposed effective date of August 1, 2025).
• Imposition of a new pharmaceutical tax on certain drug manufacturers whose drug costs exceed certain benchmarks (proposed effective date of October 1, 2025).

Unless otherwise noted above, should any of these proposals ultimately be enacted, they would take effect on January 1, 2025.

It is important to keep in mind that the governor’s budget proposals are just the start of the legislative season here in Massachusetts.  Hearings will begin soon, followed by a House budget in April, and a Senate package in May.  Conference committees will then meet, with the goal of having a final fiscal year 2026 budget signed by July 1, 2025.

We will be monitoring these tax proposals in the 2026 Massachusetts budget as they work their way through the process on Beacon Hill.  If you have questions about these proposals, including their potential impact on your or your business, please contact Leanne Scott or your BNN tax advisor at 800.244-7444.