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Compromise Reached on Controversial Tax Change

Posted by Brad MacDougall on Jul 17, 2015 12:22:00 PM

Governor Charlie Baker, legislative leaders and the business community have reached a compromise on the controversial corporate tax change that was inserted into the state budget to pay for an extension of the Earned Income Tax Credit for low-income workers.

StateHouse-resized-600The agreement means the so-called FAS 109 deduction will be delayed for five years instead of repealed, as recommended a week ago by the legislative conference committee hammering out a budget for the fiscal year that began July 1. The time period over which a company may claim its overall deduction will be increased from seven to 30 years.

The deal follows several days of intense negotiations among employers, business associations, the Baker administration, House Speaker Robert DeLeo and Senate President Stanley Rosenberg. Associated Industries of Massachusetts supported the expansion of the earned income tax credit (EITC), but opposed the repeal of the FAS109 provision.

“We all agree that expanding the Earned Income Tax Credit is a critical tool to provide tax relief to over 400,000 low income individuals and working families and my administration believes in providing a stable, competitive business climate to encourage economic development across the Commonwealth,” Baker said.

“In that effort, we have reached a joint compromise to extend the delay of the FAS-109 deduction implementation for five years and extend the length of the deduction’s life from seven to 30 years, minimizing the annual revenue impact on the state budget.  I am pleased the legislature is ready to act on these new parameters for the FAS-109 deduction by the end of July.”

Verizon and other companies that stood to be affected by the repeal, expressed support for the compromise.

"Governor Baker, Senate President Rosenberg and Speaker DeLeo continue to find ways to work together to address some of the tough problems facing our Commonwealth. Increasing the Earned Income Tax Credit helps low income workers when they need it the most,” said Donna C. Cupelo, Region President – New England for Verizon.

“Embracing a new approach to the FAS 109 provision recognizes that we have capital-intensive companies that steadily invest in the infrastructure that forms the platform for our economy.  When we match fair policies with the right investments in people and infrastructure, we make Massachusetts a stronger global competitor. "

Employer groups, including AIM, also applauded the agreement.

“As representatives of the state’s business community, we applaud you for finding a solution that both preserves the 2008 agreement on the FAS 109 deduction and extends tax relief to the state’s hard working residents by raising the state’s Earned Income Tax Credit,” said a letter sent within the hour to Baker, DeLeo and Rosenberg from Associated Industries of Massachusetts, the Massachusetts Taxpayers Foundation, the Massachusetts Business Roundtable and the Greater Boston Chamber of Commerce.

“This agreement provides certainty for the state’s businesses regarding the FAS 109 deduction for several years, and such predictability is critical for economic growth and business development. We are grateful for your recognizing this, for the collaborative manner you brought to these discussions, and for the hard work of your dedicated staff.”

Proposed repeal of the deduction of the FAS 109 deduction would have reversed an agreement reached between business and the Legislature as part of the 2008 “combined reporting" tax policy change. The repeal would have caused significant financial harm to capital-intensive national and global companies.

The combined reporting law brought income from companies' operations in other states into a unitary or "combined" Massachusetts return. The FAS 109 deduction was adopted to avoid penalizing companies after the fact for making capital investments. FAS 109 is an accounting standard that requires that financial statements reflect the tax consequences of all book/tax differences.

The governor signed most of the remaining $38.1 billion Fiscal Year 2016 budget, which includes no broad-based tax increases and makes substantive public-transportation reforms.

The MBTA reforms included in the budget provide Baker with many of the tools he is seeking to overhaul the transit agency. The budget would suspend for three years the onerous privatization vetting of the Pacheco Law, give the secretary of transportation the authority to hire an MBTA general manager, increase the size of the state Transportation Board and create a temporary fiscal and management control board for the T.

The governor also made $162 million in line-item and outside sections vetoes, including $38 million in earmarks. 

Topics: Taxes, Charlie Baker, massachsetts legislature

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