Tax measure could cost state millions
Late amendment would create break on corporate offshore holdings
Governor Deval Patrick's quest to tighten corporate tax laws and reap hundreds of millions of dollars in new revenue might be undermined by a last-minute amendment providing new offshore tax breaks that was tacked onto the legislation by the House, according to state officials.
The complex amendment was backed by the House leadership and approved with little debate during mid-evening voting two weeks ago as representatives were adopting the overall tax package. Several lawmakers said they were unaware of the details of the provision, which was sought by the state's largest business lobbying group.
The provision would permit large corporations to avoid up to $200 million in state taxes a year if they maintain large portions of their business operations overseas, according to an estimate by the state Department of Revenue. The tax-shelter strategy has proved controversial in other states.
Administration officials say the maneuver could essentially make a wash of the revenue raised by corporate tax reform, a cornerstone of Patrick's agenda that was expected to bring in $217 million in the first six months of 2009.
"It would allow companies to shift money overseas and avoid taxes in Massachusetts," Navjeet K. Bal, the state's revenue commissioner, said in an interview yesterday. "This is a real concern for us."
The offshore tax break still must be considered by the Senate, along with the rest of the tax bill, before reaching Patrick's desk. Through a spokesman, Patrick said the administration will lobby senators to change the plan.
"We look forward to continuing to work with the House and the Senate to craft a final loopholes plan that will ensure tax fairness and provide much needed revenue," said the governor's spokesman, Kyle Sullivan.
The state Department of Revenue is not identifying companies that could benefit from the provision, but it points to a lawsuit by Illinois against
The Massachusetts Budget and Policy Center, which analyzes the state budget and tax policies, is planning to release a report today that details the consequences of the House amendment, which was adopted April 10.
"It looks like what this amendment does is create new opportunities for tax avoidance and new loopholes," said Noah Berger, the executive director of the Boston-based nonprofit. "That goes in exactly the wrong direction."
Representative Daniel E. Bosley, who sponsored the amendment, disputed the state's estimates as inflated and suggested the Department of Revenue's criticism was motivated by other provisions in his amendment that remove some regulatory power from the department.
"I just don't trust their figures," Bosley said of the department. "It's a ridiculous estimate. They're just bad at numbers."
The amendment was sought by the Associated Industries of Massachusetts, according to officials at the organization, which advocates on behalf of the state's business community.
"We don't think this is a particularly good time to be jacking business taxes," said John Regan, an executive vice president of the Associated Industries of Massachusetts.
Since he took office last year, Patrick has sought changes in the tax code to raise more revenue by closing what he considers to be loopholes. But he was repeatedly rebuffed by House lawmakers who said tax increases would send the wrong messages to businesses. When the House signaled it would embrace the plan and voted it through this month, it was considered a major breakthrough.
Under a compromise, the House adopted most of the governor's proposals, which would bring in about $217 million in new revenue during the first six months of 2009. But they could lose $100 million to $200 million every 12 months in the future because of the Bosley amendment, according to state estimates.
There was little public debate on the five-page, highly technical amendment, and it passed on a voice vote, without a roll call vote. Several lawmakers later admitted they did not realize the full extent of what they were voting on.
"It's somewhat embarrassing," said Representative Jay R. Kaufman, a Lexington Democrat who, after the vote, started looking into the issue. "Since it was introduced at the last minute - and there was a desire to get this voted on that day - there was an understanding we would be working with incomplete information."
Senate President Therese Murray declined to comment yesterday, but the Senate's chief budget writer said they would carefully examine the Department of Revenue's concerns.
The Department of Revenue "is our tax collector," said Senator Steven C. Panagiotakos, chairman of the Senate Committee on Ways and Means. "We are going to take what they say very seriously and see what makes sense and what doesn't."
The issue hinges on a complex tax regulation called combined reporting, which is designed to prevent large, multistate corporations from shifting certain profits to other states that have lower tax rates. The House-approved corporate tax legislation would require companies in Massachusetts to combine all income and apportion the Massachusetts share.
But while the overall bill tightened that rule, Bosley's 2,300-word amendment inserted language that could allow certain corporations to shift a large portion of their income to overseas subsidiaries and avoid paying corporate income taxes in Massachusetts.
Several major corporations, including Wal-Mart, McDonalds, and
Wal-Mart, for example, set up a small real estate office in Florence to control billions of dollars of the retailer's property in the United States, the Wall Street Journal reported in November. The Illinois Department of Revenue last year demanded $26.4 million in back taxes, interest, and penalties in a case that is ongoing.
Bal wrote a letter to the Senate president last week, expressing concern over the changes and citing the Wal-Mart example to illustrate how Massachusetts could lose tax revenue.
"These changes primarily benefit a limited group of very large, sophisticated, multinational businesses," reads the letter, which was obtained by the Globe. "If left unchanged, these changes will materially reduce the additional revenue anticipated from the governor's combined reporting bill by at least $100 million to $200 million annually."
Burlington Northern did not respond to a request for comment yesterday. Public relations officials at
"Anytime there's a lawful way to reduce our expenses and save money for our customers, we're aware of it," said Daphne Moore, a Wal-Mart spokeswoman.
Proponents say they do not want to tax businesses unfairly on profits, even if they originated in Massachusetts and then shifted to offshore subsidiaries.
"At what point do we break the backs of these businesses and corporations and force them to expand beyond our boundaries?" said Representative John J. Binienda, House chairman of the Joint Committee on Revenue. "If you did every single loophole in the world all at the same time, you'd be having layoffs by these companies. And without these corporations and having these people working we'd be a lot worse off."
Matt Viser can be reached at maviser@globe.com. 