Lawmakers to rescind retroactive '02 tax bills
Legislative leaders act after storm of protest
Swamped by angry calls and e-mails, House and Senate leaders abandoned plans yesterday to retroactively charge 48,000 taxpayers for capital gains incurred nearly four years ago and also ordered thousands of refunds to investors.
The 48,000 taxpayers sold assets in the first four months of 2002, but they began receiving bills this fall to pay taxes for those transactions at a higher rate than lawmakers enacted that year. The taxpayers can now ignore the bills, lawmakers said.
Legislative leaders also plan to order tax refunds that would average $1,750 for 157,000 taxpayers who paid at the higher tax rate that year. Any refunds larger than $1,000 would be paid over a four-year period, leaders said.
Those who paid the capital gains taxes at the higher rate in 2002 would have to apply for the refund, they said. The state will not pay interest on the refunds.
''If you want to view this as a corrective action, you can," Senate President Robert E. Travaglini, an East Boston Democrat, told reporters yesterday. He said the decision was ''based on fairness and it's certainly based on a set of circumstances that at the time was unintended and spontaneous."
During a press conference yesterday, Travaglini and House Speaker Salvatore F. DiMasi said they expect to pass the tax measure next week, handing a major victory to Governor Mitt Romney as he readies himself for a possible run for the White House in 2008.
''No one wants to have to give back tax money, but fairness comes first; the Legislature recognized that," Romney said yesterday. ''Collectively, we found an answer that doesn't harm the Commonwealth and still supports the respect we have for our citizens."
Despite criticism from Democrats yesterday over his trip to California for the Republican Governors Conference, Romney praised the Democrat-run Legislature for the tax refund plan.
''Most of the wins are shared wins, and in a state where my Legislature is 85 percent in the opposition party, anytime I win they win, too," he said. ''So this is the kind of victory we share"
In recent days, several lawmakers said their offices were being deluged with calls and e-mails from angry taxpayers, as talk radio shows stoked the outrage and gave out the telephone numbers and e-mail addresses of Travaglini and DiMasi.
''It's good for my family; my bill was about $3,000," said Mark Bernardin, a stay-at-home dad from Andover who cofounded Citizens Against Retroactive Taxation to fight the tax hike.
''I heard horror stories from families who were going to have to take out loans to pay the bill," he said.
The surprise reversal by Travaglini and DiMasi brings to an end a bizarre string of events that began in the spring of 2002, when lawmakers facing a fiscal crisis passed a mid-year capital gains tax increase to raise revenues.
The new tax rates were effective May 1, 2002, but after a group of taxpayers sued, the Supreme Judicial Court ruled last year that the midyear tax increase was unconstitutional.
The court gave the Legislature two options: Move the effective date of the tax hike forward to Jan. 1, 2003 and forfeit up to $275 million or move the date back to Jan. 1, 2002, and retroactively hit 48,000 taxpayers.
The Legislature, seeking to strike a compromise, responded by passing a bill that would move the date back to Jan. 1, 2002, but provide amnesty for those who would otherwise get hit retroactively.
That way, they could hold onto the money collected after May 1, 2002.
Again, the group of taxpayers sued, and, again, the SJC ruled that the Legislature's plan did not pass constitutional muster.
Romney repeatedly called on the Legislature to forgo the $275 million and avoid retroactively taxing citizens.
But as the session wound down, the House and Senate ignored the governor's calls and instead passed a bill in November that would exempt anyone owing $100 or less, and would waive any interest owed.
The governor refused to sign the measure and instead sent the Legislature an alternative plan similar to the one the Democrats announced yesterday.
Yesterday, several taxpayers said they were overjoyed that the legislative leaders had changed course.
Chris and Bob Kochem, a Belmont couple who were expecting to receive an $8,000 bill for the sale of a second home on Cape Cod, said they could now afford a new coat of paint for their house.
The Kochems said the website they established two weeks ago, Noretrotax.org, was receiving roughly 100 visitors a day since the state announced its plans to mail out the tax bills.
''I was increasingly convinced that the Legislature would see the wisdom of changing directions, and I'm thrilled that they've listened to the people," Chris Kochem said.
As for those who already paid the taxes and will now be getting a refund, there was much celebration as well.
''The right remedy, we believe, has finally come down," said Stephen Schultz, the lawyer who filed the suits opposing the Legislature's tax hikes on behalf of about 100 taxpayers who paid capital gains taxes in the final eight months of 2002.
House Republican Leader Bradley H. Jones Jr. said he was certain the leadership in both houses was being responsive to the growing opposition to the tax hike.
''Do I think that the advocacy of the constituents and the citizens of the Commonwealth and the near-unanimity in the media had an influence on public policy? Yes, I do," he said.
Michael Widmer, president of the Massachusetts Taxpayers Foundation and a critic of the retroactive taxation plan, said his group has ''received more e-mails on this than on any subject since I came to the foundation, 15 years ago."
''I think [the Legislature] deserves high praise for this, coming together and fixing a problem that was not of their making," Widmer said.
''What's happened is, as the notices went out, the implication of this became a lot clearer in terms of the average folks being hit."
Tim Connolly, a spokesman for the Department of Revenue, said that the agency had already mailed out 21,000 of the 48,000 bills seeking the retroactive taxes. To date, only 10 taxpayers have sent in payments on the bills, with a total paid of $95,000. 