The recent announcement by Fidelity Investments that it plans to move about 1,100 jobs from its Marlborough location here in Massachusetts to company sites in New Hampshire and Rhode Island has ignited a firestorm of commentary related to a 1996 state economic-development law. Much of that commentary – which has suggested that the legislation was a cash incentive enacted primarily for Fidelity's benefit – has misrepresented the provisions, scope and spirit of the law.
The 1996 Jobs Growth Act created an equitable tax structure for the mutual fund industry in Massachusetts. Prior to the law’s enactment, Massachusetts’ corporate income tax structure penalized mutual fund firms that grew in the state, taxing them for every job they created and any real estate they built or acquired to run their operations. The Jobs Growth Act leveled the playing field between in-state and out-of-state companies by basing the tax on a company’s sales in the Commonwealth, in proportion to the company’s total sales.
The old tax structure had existed since the early 20th century and was the remnant of a time when the vast majority of companies were local entities, operating largely in one state. Massachusetts had already addressed this tax apportionment imbalance on behalf of the manufacturing and defense industries in 1995. The 1996 Jobs Growth Act extended this new, more equitable tax structure to the mutual fund industry, but added one significant stipulation: The mutual fund companies were required to grow their in-state employee count by at least 5 percent per year for the next five years in order to qualify. No benefit could be obtained unless the job growth requirements were met.
Among economic planners and tax professionals, the thinking behind the 1996 law is hardly controversial. Because of the inherent disadvantages for in-state companies, most states have been moving away from the historical approach and toward the apportionment method more heavily based on sales.
While Massachusetts was an early adopter, today the majority of states, including major markets such as California, New York, New Jersey and Texas, have similar apportionment rules for mutual fund and other financial service businesses. Any retreat from this law in Massachusetts would place the Commonwealth at a distinct competitive disadvantage.
Fidelity's announcement regarding its Marlborough campus employees is disappointing, especially to the many local businesses in and around Marlborough. But the rhetoric of some policymakers, implying that the application of a widely accepted approach to taxing mutual fund companies is somehow a “corporate giveaway,” is troubling. Criticizing the decision of a major employer that has clearly and indisputably complied with the law is short-sighted and likely will prove to be counter-productive.
Competitive tax policies enable a state to “compete” for jobs—they are essential but not sufficient to attracting and maintaining jobs. Many factors affect decisions to locate and grow employment. But the rush to politicize this particular business decision by Fidelity should not obscure the fact that the Jobs Growth Act has done exactly what it was enacted to do – create and preserve thousands of high-quality jobs, thereby enriching the state, its residents and its communities.