Massachusetts tax law of 1986 upsets economic development bill

A economic development bill totaling more than $4 billion is pending, foiled by a 36-year-old tax law.

Part of a 1986 state law – Chapter 62F — has a trigger effect that automatically sends money back to taxpayers when a certain surplus is reached.

In this case, the surplus could trigger nearly $3 billion in taxpayer rebates.

Lawmakers tabled the economic development bill after it was clear both houses would not have time to tackle it before the August 1 deadline.

“We don’t even know exactly what the impact will be,” said Sen. Michael Rodrigues, D-Westport.

In question, the tax refund. The economic development bill provides approximately $1 billion in tax relief, including $500 million in one-time tax refunds. The money for this is expected to come from the state’s fiscal year 2022 tax revenue surplus.

This law, which has only been triggered once before, could send $3 billion of that excess tax revenue back to taxpayers — the same excess where the Development Bill tax relief was supposed to come from. economic.

About this tax law of 1986

In 1986, the Massachusetts group Citizens for Limited Taxation filed an initiative petition to limit the amount the state is allowed to collect in tax revenue, and this initiative was approved by voters.

This law of 1986… The Taxpayer Relief Act – includes a complex formula that links allowed tax growth to wage growth in Massachusetts. Each spring, the Massachusetts Department of Revenue tallies in-state wages using tax data.

Each year, the allowable tax revenue threshold is adjusted based on a three-year average of wage growth. This calculation is made by the state auditor’s office each September.

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If the state’s tax revenue growth exceeds its combined wage growth, the state has exceeded its tax cap and the excess tax revenue must be redistributed to taxpayers as a refund.

Since the Taxpayer Relief Act of 1986 was passed, it has only been triggered once, in 1987.

Until, perhaps, this year.

And now?

Lawmakers and legal experts plan to evaluate the 1986 bill and develop a plan to move forward. But in the meantime, the economic development bill is in limbo.

The same goes for the $250 and $500 rebate checks that were in that economic development bill, which also included billions of dollars in investments in health care, climate change mitigation and more.

State Auditor Suzanne Bump is due to review and analyze the Tax Act of 1986 and its impact on fiscal year 2022 revenue and the Economic Development Bill in September.

“Pursuant to Chapter 555 of the Acts of 1986 and pursuant to Section 5 of Chapter 62F of the MGL, the Department of Revenue (DOR) is required to submit a report to the Office of the State Auditor (OSA) no later than September 1st.” Once OSA receives this information from DOR and other data sources, we begin our review and analysis to determine if there is an excess of allowable state tax revenue and, as required by law, our office publishes a report. the third Tuesday in September.

This means that we will have a clear final answer on September 20.

Senate Minority Leader Bruce Tarr, R-Gloucester, calls on Beacon Hill to proceed with economic development bill tax relief even as a 1986 tax bill threatens to overturn the bill of law.

Some lawmakers are suggesting the legislature amend or scrap the 1986 law, but Republicans are pushing for it to remain unchanged and also move the tax relief through the economic development bill.

“The 1986 voter-approved law was passed as a fundamental protection and last-minute attempts to gut it or change it without public input would do a disservice to those who pay our government’s bills,” said Senator Bruce Tarr, R-Gloucester, in a statement. statement on Saturday. “We must all remain steadfastly committed to providing the tax relief we promised and the 1986 law dictates.”

Governor Charlie Baker is urging the Legislature to do the same, saying the House and Senate versions of the economic development bill can be adjusted to pass with the automatic tax relief prompted by Chapter 62F.

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