Legislators near trimming tax loopholes
Massachusetts lawmakers have struck a deal to raise taxes on corporations by as much as $500 million a year by eliminating tax loopholes and preventing businesses from shifting profits to their out-of-state operations.
After weeks of contentious talks, negotiators from the House and Senate reached an agreement late yesterday that would help prevent budget cuts and pave the way for final approval of the $28 billion state spending plan, which is now a day late.
The lawmakers dropped from the compromise a controversial provision that Democrats said would have allowed large multinational companies to lower their taxes in the state by shifting profits to foreign divisions. The provision was included in the version the House approved in April.
Also yesterday, the Legislature approved a $1-per-pack increase in the cigarette tax, which would raise $175 million.
The corporate tax bill, expected to be voted on by the Legislature today, would close several so-called loopholes that companies have used to lower their payments to the state.
The biggest money-raiser is a provision known as combined reporting, which is designed to prevent companies from shifting profits to other states with lower tax rates. The measure would require companies to combine income from all their opera tions, then apportion a profit for tax purposes based on the amount of business activity they have in Massachusetts.
Another significant provision, known as "check the box," would prevent firms from lowering their taxes by identifying themselves differently on their federal and Massachusetts forms; for example, filing as a corporation at the federal level but as a trust or partnership at the state level.
The tax changes, if approved, would take effect in January and are projected to generate $290 million in the state fiscal year that begins today. At full effect in 2010, the legislation would increase tax collections by about $500 million, officials said.
The impact on businesses would be partially offset by a gradual reduction in the corporate tax rate that would begin in January 2010, to 8.75 percent from 9.5 percent. It would then drop to 8.25 percent in 2011 and to 8 percent in 2012, lawmakers said.
Governor Deval Patrick had originally proposed the tax-law changes in 2006 and is expected to sign the legislation if it passes.
"It appears that the legislation in many ways mirrors the governor's goals to ensure tax fairness and ultimately make Massachusetts more competitive," Patrick spokesman Kyle Sullivan said in a prepared statement.
"Closing these loopholes while lowering the corporate tax rate will provide new revenues and assist the overwhelming number of Massachusetts businesses that create most of the new jobs in the Commonwealth."
However, Republican lawmakers involved in the negotiations over the bill said it sends the wrong message to businesses amid the faltering economy and will hurt the state in the long run.
House Minority Leader Brad Jones, a North Reading Republican, said he is concerned the Democrat-dominated Legislature will back out of the corporate rate reductions when times get tough.
"I'm very suspicious as to whether they're ever going to happen," Jones said. "We have a challenging economy right now . . . and what we're doing is making Massachusetts less competitive."
Negotiations were contentious and dragged on for several weeks, requiring direct intervention from House Speaker Sal DiMasi and Senate President Therese Murray, lawmakers said.
Casey Ross can be reached at cross@globe.com.
