Bill in The Works to Hit Businesses for $100 Million in New Taxes
By Amy Lambiaso from the State House News Service
      Anticipating the advancement of legislation this week that could generate $100 million in revenue, business leaders pleaded with lawmakers Monday to reject pending proposals they claim will increase their tax burden and threaten the fragile job picture.
      Newton Sen. Cynthia Creem, co-chairwoman of the Revenue Committee, said the committee on Tuesday will recommend legislation to produce roughly $100 million in new tax revenues. Creem said the committee was still “hammering out” many of the legislation’s details, but intended to retain the remainder of Gov. Mitt Romney’s original $170 million bill in committee for further review. Business leaders are hoping to derail legislation aimed at closing so-called corporate tax loopholes.
      “We ask you to stay the course and not enact policies that target businesses as not paying their fair share, because we know that is not the case,” Eileen McAnneny, vice president of governmental affairs at Associated Industries of Massachusetts (AIM), said in a letter to lawmakers that was circulated Monday.
      “We urge you to reject initiatives that exclusively rely on the business community for additional taxes. We must realize that a state can never tax its way out of a recession.”
      The already approved House and Senate budgets are predicated on the production of $87 million and $100 million, respectively, in revenue from closing loopholes in state tax laws. House Ways and Means Chairman Robert DeLeo (D-Winthrop) said last week he was waiting for the committee’s recommendation to determine how much revenue will be available for the final budget.
      AIM’s letter counters claims included in a recently published study by the Washington D.C.-based Council on State Taxation, which showed that Massachusetts tax laws are easy on businesses. The study, McAnneny said, doesn’t “tell the whole story,” leaving out key factors for businesses deciding where to locate: property taxes, regulatory environment, workforce attitudes and quality of life issues.
      According to the council’s April study, Massachusetts businesses paid 36 percent of all state and local taxes in 2004. Nationwide, businesses paid $447 billion in total state and local taxes in fiscal year 2004, or 43 percent of the total taxes collected in the US, according to the study. Additionally, taxes on businesses rose by 17 percent nationwide, or $65 billion, between fiscal years 2000 and 2004, according to the study, while local and state taxes overall rose by 14 percent.
      Several lawmakers are urging the committee to approve changes that generate $170 million, as Gov. Romney initially proposed, saying the state can use the revenue to help restore state services cut during the last several years. Rep. James Marzilli (D-Arlington) dismissed AIM’s letter as
“amusing,” saying the study “unequivocally” found Massachusetts’ employers pay less in taxes than the national average.
      “This is not a case of deciding whether to raise a rate or cut a rate,” Marzilli said. “This is a case where we have identified loopholes, we know how to fix them, and we are going to agree to keep those loopholes open? That’s not fair to the businesses that do pay them and it’s not fair to the taxpayers who live here and have to pay for the services.”
Added Creem: "This is tax avoidance. The issue is why should this be allowed? These aren't new ideas. This is not Taxachusetts anymore."
      But according to AIM, for-profit businesses bear a larger proportion of the 36 percent of local and state taxes paid in Massachusetts because educational and health care industries dominate employment in the Bay State, and non-profit institutions dominate those sectors. Non-profits are exempt from paying corporate excise taxes, local property taxes and sales taxes.
      In his February testimony before the Revenue Committee, Joseph Crosby, legislative director for the Council on State Taxation, credited changes in the state’s tax laws during the 1990s as the main reason for Massachusetts no longer being considered a “high tax” state. But, he said, the state’s tax climate remains unpredictable.
      “Three straight years of significant and unpredictable changes to the tax code have led to a much different climate,” he said. “COST is no longer touting Massachusetts’ improving business tax climate because that climate is in fact eroding.”
      In addition, McAnneny argues that the state’s job recovery is still sluggish, Massachusetts was the only state to lose population during the last US Census period, and a recent economy.com report indicated Massachusetts had the highest cost of doing business in the nation.“Public officials and lawmakers need to appreciate businesses and their contributions to our society in a way that hasn’t been apparent to date,” McAnneny said in her letter. Included in the pending legislation are proposals to apply the 5 percent sales tax to “intangible” software sales, impose penalties on users of tax shelters to underpay or avoid paying taxes, and ensure that state property owners living outside Massachusetts pay personal income taxes here when their property is sold.
      Romney originally proposed a $170 million tax package that included
legislation to give the state revenue commissioner discretionary powers to review tax activity in other states to determine if subsidiaries were being used to divert income streams from Massachusetts companies to avoid paying taxes here, and other provisions to bring state tax laws more in line with federal policies. The governor halved his legislation after hearing from business groups that his proposal could negatively affect jobs in the state.