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First major Massachusetts tax cut in over a decade: Top 5 Things You Need to Know

Posted on October 4, 2023

After months of negotiations, the Massachusetts state legislature has finally agreed to pass a tax package that provides relief to both employers and individuals. AIM has long championed the need to reduce outliers in our tax code in order to make the Commonwealth more competitive and attractive to both businesses and individuals. AIM was pleased to see that Gov. Maura Healey and the legislature listened to your advocacy and made tax relief the first significant priority of this legislative session. 

This legislation is the first major tax cut enacted in Massachusetts in over a decade. The entire tax package will provide about $561 million in relief this fiscal year. Several other provisions are phased in over time and will provide more than $1 billion in relief by fiscal year 2027.  The AIM Government Affairs team is excited to support this package and will continue to fight for new beneficial tax policies throughout this legislative session and beyond.  

Here are 5 things that Massachusetts Employers Need to Know: 
  1. Single Sales Factor

Massachusetts is transitioning to a Single Sales Factor Apportionment formula for determining sales tax for corporations. The state is abandoning the prior three factor test which took into account (I) property (2) payroll and (3) sales. The transition to Single Sales Factor Apportionment will begin on January 1, 2025.  

  1. Short Term Capital Gains 

The tax deal will cut the short-term capital gains rate from 12% to 8.5%. This significant tax cut should save Massachusetts taxpayers millions each year and encourage investment in startup businesses. 

  1. The Estate Tax 

The tax deal will raise the Estate Tax floor from $1 million to $2 million and will exempt all estates below $2 million from the tax. All estates will be issued a $99,600 credit that can be used to reduce the overall burden. This reform is estimated to save taxpayers $128 million this fiscal year.  

  1. Joint Filing 

The legislation contains language that will alter how married couples file their tax returns. The legislation will now require all married couples who file taxes jointly at the federal level to also file jointly at the state level. Previously couples could elect to file separately at the state level regardless of how they filed federal returns. The state is estimated to gain between $200-$600 million in new revenue from this reform.  

  1. Housing Development Incentive Program 

The legislation makes significant new investments in the state’s Housing Development Incentive Program (HDIP). HDIP provides Gateway cities with a tool to develop market rate housing and provides tax credits to developers building much needed housing projects. The tax package allocated $57 million to clear the backlog on eligible projects awaiting the credit. The legislation also raised the cap on HDIP spending to $30 million per year.  

What’s Next? 

AIM wants to hear from our members about policies we should pursue to provide additional tax relief. We view this bill as a down payment on making the state more competitive but will be pushing for additional pro-growth policies.  

If you have questions about the tax package or have suggestions on new goals to pursue, please reach out to Sam Larson Vice President of Government Affairs