Testimony: Massachusetts Options for Corporate Tax Reform

This presentation was made to the Massachusetts Senate Corporate TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Subcommittee, an initiative of the broader Senate Revenue Working Group. The working group is taking a holistic look at Massachusetts’ tax code with a goal of making legislative recommendations for reform by the end of this session, which runs until January 5, 2021.

Sen. Adam Hinds (D), chair of the Senate Revenue Working Group, described the state’s tax code as “incredibly complicated and incoherent,” and said that the working group would work to “ensure we have a modern tax system that is efficient, simple, fair, that supports economic growth and that provides the necessary revenue for critical government investments.” Hinds also noted that the issue of tax fairness was important for Massachusetts, and that the Commonwealth would compare its system of revenue with those of other states.

With these goals in mind, the Tax Foundation provided testimony and the following presentation for the subcommittee considering corporate tax reform.

Massachusetts’ corporate excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. is unique in several ways, some of which present an opportunity for reform along the lines Sen. Hinds described. The tax is made up of four parts: a traditional corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. at a rate of 8 percent on C corporations (9 percent for financial institutions), an entity-level tax at a rate of 0 to 3.9 percent on S corporations, a tax of $2.60 per $1,000 of tangible property or net worth allocable to Massachusetts, and a corporate minimum tax of $456.

Massachusetts’ corporate excise tax collects the second most revenue per capita of any state ($320 per capita in 2017), reflecting a relatively high corporate excise tax burden made up of multiple different revenue drivers. The corporate excise tax can be reformed to improve the tax’s efficiency and neutrality while enhancing the incentive for investment and job creation in the Commonwealth.