You asked for information on the proposed corporate tax reform in Massachusetts, specifically the elimination of corporate tax credits.

SUMMARY

The Massachusetts governor and House speaker have proposed reforms to the state's corporate tax laws that would require combined reporting, require businesses to use the same business designation they uses for federal tax purposes, and reduce the corporate business tax rate. The governor's proposal would also limit the earned income tax credit to income earned in Massachusetts and tax at full room value hotel rooms resold via the Internet. Neither proposal included elimination of corporate tax credits. The governor's bill is part of his fiscal year 2009 budget proposal, to be decided in late May. The House passed its bill on April 16, 2008.

COMBINED REPORTING

Combined reporting would change the way Massachusetts taxes multi-state companies. Under current law, Massachusetts taxes these companies as separate entities, a practice that allows a parent company to reduce its Massachusetts tax liability by shifting income to less profitable subsidiaries or subsidiaries in tax-free jurisdictions. Similar laws exist in 21 other states. Massachusetts Department of Revenue estimates show that combined reporting save about $313 million annually. Both the governor's and the speaker's proposals include this provision (http://www.massbudget.org/TransparencyandBalanceBrief.pdf, H.B. 2, 185th Gen. Assem., Reg. Sess. (Mass. 2008), H.B. 4656, 185th Gen. Assem., Reg. Sess. (Mass. 2008)).

CHECK-THE-BOX CONFORMITY

Current federal laws allow some companies to choose the type of entity they are classified as for tax purposes. Under Massachusetts law, companies may be designated as one type of entity, like a partnership or corporation, in Massachusetts and as another in other states and federally, creating opportunities for tax reduction. By mandating “check-the-box conformity,” the reforms make a company's state designation the same as its federal designation. Implementing this practice could save Massachusetts $169 million in lost revenue annually. Both the governor's and the speaker's proposals include this provision (http://www.massbudget.org/TransparencyandBalanceBrief.pdf, H.B. 2, 185th Gen. Assem., Reg. Sess. (Mass. 2008), H.B. 4656, 185th Gen. Assem., Reg. Sess. (Mass. 2008)). Similar laws exist in 45 other states (http://www.boston.com/news/local/articles/2007/06/13/panel_backs_patrick_proposal_on_corporate_tax_code/).

CUTTING THE CORPORATE TAX RATE

The governor and the speaker propose lowering Massachusetts' 9.5% corporate tax rate. The governor proposes a 12.6% cut over three years, from 2010 to 2012, lowering the tax to 8.3%. This would cost the state approximately $210 million. The speaker's proposal cuts the corporate tax rate to 7.5% by 2011, a 26.3% cut, costing the state approximately $438 million (http://www.massbudget.org/TransparencyandBalanceBrief.pdf, (H.B. 2, 185th Gen. Assem., Reg. Sess. (Mass. 2008), H.B. 4656, 185th Gen. Assem., Reg. Sess. (Mass. 2008), http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/04/16/tax_reform_we_got_tinkering/).

HOTEL ROOM RESALE

The governor also proposes that companies reselling hotel rooms over the Internet be required to charge the room occupancy tax on the full retail price of the room, not the lower price the reseller pays. This is estimated to save the Commonwealth $9.6 million annually in lost revenue (http://www.massbudget.org/TransparencyandBalanceBrief.pdf, H.B. 2, 185th Gen. Assem., Reg. Sess. (Mass. 2008)).

EARNED INCOME TAX CREDIT

The governor also proposes limiting the earned income tax credit to income earned in Massachusetts. This change is estimated to save $2 million in lost revenue annually. (http://www.massbudget.org/TransparencyandBalanceBrief.pdf, H.B. 2, 185th Gen. Assem., Reg. Sess. (Mass. 2008)).

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