Associated Industries of Massachusetts today opposed efforts to weaken non-compete agreements between employers and employees, but backed a series of reform measures designed to streamline the commonwealth’s tax system.
The tax reform bills include proposals to simplify the research and development tax credit and equalize the interest that the commonwealth pays on abatements to taxpayers with the interest that taxpayers are charged when they owe money. AIM also supports clarifying the circumstances under which an employee must notify a worker when information is added to that worker’s personnel record.
The association provided its comments as two key legislative committees – the Joint Committee on Revenue and the Joint Committee on Labor and Workforce Development – conducted hearings on dozens of pending bills.
AIM opposed three proposals to limit non-compete agreements. The association said the measures represent a “troubling shift in business practice in the commonwealth.”
“The bills raise concerns regarding the appropriate protection of trade secrets and intellectual property. The current law of restrictive covenants is voluntary and has a well-developed legal history in Massachusetts that strikes an appropriate balance between protecting employers' interests while allowing employee mobility,” Bradley MacDougall, Vice President of Government Affairs, argued in written testimony.
MacDougall highlighted several specific concerns for employers:
- In a state that prides itself on R&D prowess, failure to protect innovation and invention from poaching is unwise.
- Industry sectors of varying sizes, types and locations depend on the current law.
- The pending legislation regarding non-competition agreements represents a significant change in the way business is done in Massachusetts.
- The pending legislation will lead to uncertainty and increased litigation.
Here is a summary of AIM’s positions on other issues before the two committees today:
Research and Development Tax Credit
AIM strongly supports S.1334, An Act Relative to Updating the Research and Development Tax Credit, filed by Senator Barry R. Finegold, on AIM’s behalf, which seeks to simplify the R&D credit and encourage greater capital investment by aligning the state and federal provisions for "base amount." The measure would allow taxpayers to comply with one set of rules and limit the credit to 5 percent of the fixed base percentage.
Massachusetts enacted a research and development tax credit in 1991 for companies that conduct research within the commonwealth. AIM recommended aligning it with the simplified version of the federal R&D credit.
Massachusetts uses an antiquated base period to determine eligible expenses and requires complex calculations that limit eligible expenses. The Bay State uses a base period of research performed from 1984-1988. Anyone not conducting research in that period or lacking adequate documentation must calculate their base amount of eligible expenses using a statutorily set fixed based percentage, which can be distortive of the actual research performed.
Interest Rate Equity
AIM supports S.1372, Act Relative to Quarterly Estimated Taxes for Corporations, filed by Senator Michael O. Moore on AIM’s behalf, which restores equity between the taxpayer and the Department of Revenue regarding interest rates.
The bill would by equalize the interest that the Massachusetts Department of Revenue (DOR) pays on abatements to taxpayers with the interest that taxpayers pay when they owe money to the DOR. Taxpayers who owe money currently pay the federal short-term interest rate plus four percentage points, compounded daily, for the period the tax is overdue. If a taxpayer has overpaid, and is due a refund, DOR reimburses the taxpayer at the federal short-term rate plus two percentage points, simple interest.
AIM, supports S.1373, An Act Improving the Tax Administrative Laws of the Commonwealth, filed by Senator Michael O. Moore on AIM’s behalf, which changes the administrative provisions of tax law and improves the code in several important ways.
One provision encourages settlement of cases instead of litigation. The change would free up almost a billion dollars now tied up in litigation, allowing productive use of these funds for both the taxpayer and the state. Another provision, in recognition of the complexity of filing a combined return, provides a one month extension for combined filers.
The proposal also makes the “sham transaction” doctrine equitable by balancing the interests of the state with the taxpayer. S.1373 restores the ability of taxpayers to make four equal estimated payments of taxes rather than the current practice of frontloading liability in the first quarter. A broad tax amnesty program is also proposed as a way to increase collection of tax liabilities by allowing delinquent taxpayers to make payments without the usual interest and penalties.
In 2010, the legislature passed and Governor signed an Act Relative to Economic Development Reorganization, which included an amendment requiring employers to notify employees when negative information is added to their personnel record. The language has prompted many questions from employers and employees alike because the law applies to any "information" the employer "plac[es] in a personnel record" that is, has been, or may be used negatively to impact the employee's qualifications for hiring, firing, promotion, transfer, additional compensation or discipline.
The documents or information to which the new law applies is as broad as the documents that make up the "personnel record" generally.