Article by Sam Larson, Vice President of Government Affairs at AIM

Governor Maura Healey’s much-anticipated tax package unveiled this morning would eliminate the estate tax for estates under $3 million and reduce by more than half the state tax on short term capital gains.

The tax proposal will be filed as part of the governor’s first budget, H.1, on Wednesday. The governor is seeking to address the high cost of living for working families while adjusting areas in the tax code where the Commonwealth is an outlier.

The package totals $859 million and will have a $742 million net impact on the budget. Here is a brief explanation of the package below:

The legislative language for these proposals will be released on Wednesday. AIM will review all of the proposals in detail and provide guidance to member companies.

Estate Tax Relief-The proposal would eliminate the estate tax for estates under $3 million and reduce taxes for larger estates. Under current law, estates with a gross value over $1 million are subject to taxation, starting at a rate of 0.8% and growing to a marginal rate of 16%. (Gross value means the value with certain gifts made by decedents added back to the estate.) The administration’s proposal would establish a non-refundable $182,000 credit for each estate, without a tax increase on estates of any size. This credit would have the effect of eliminating all taxes on estates of up to $3 million in net taxable value and would represent $182,000 of tax relief on larger estates.

Short Term Capital Gains -The proposal reduces the state tax on short-term capital gains from 12% to 5%. This change would not have a net effect on the state budget. Capital gains taxes above a threshold of approximately $1.4 billion are not available to the budget under current law. The estimated $117 million in tax savings would be diverted from the rainy-day fund.

Child & Family Tax Credit– The $600 credit is a refundable credit for each qualifying dependent, including children under 13, disabled adults, and seniors. This credit is the centerpiece of the administration’s proposal and an effort to provide relief for working families.

Miscellaneous Reforms- Several additional tax-reform provisions have much lower budgetary impacts and total roughly $17 million.

• HDIP Cap Increase: The Housing Development Incentive Program (HDIP) currently awards up to $10 million per year in state tax credits to developers of market-rate housing in Gateway Cities for qualified project expenditures, expanding the supply of housing. The administration would increase the statewide cap from $10 million to $50 million on a one-time basis, and thereafter to $30 million annually.
• Apprenticeship Tax Credit: The package also proposes doubling the statewide cap on the Apprenticeship Tax Credit to $5 million and expanding eligible occupations to ensure employers in critical industries can utilize this credit.
• Student Loan Repayment Exemption: The package would create a new exemption from taxable income for employer assistance with student loan repayment, ensuring that these benefits will no longer be treated as taxable compensation.
• Commuter Transit Benefit Expansion: The expansion of commuter transit benefits to include regional transit passes and bike commuter expenses.
• Lead Paint Abatement Credits: Doubling the credit for lead paint abatement to $3,000 for full and $1,500 for partial abatement.
• Septic Tank Repair Credits: The tax relief proposal will also double the maximum credit for septic tank repair or replacement in a primary residence to $12,000 and will allow taxpayers to access these credits on a more accelerated schedule.
• Brownfields Program: The proposal extends the expiring Brownfields tax credit program through 2028.
• Live Theater Tax Credit: A live theater tax credit would enable tax credits to be claimed for a share of payroll, production, and transportation costs of qualifying live theater productions.
• Dairy Tax Credit: Expanding the dairy tax credit cap from $6 million to $8 million.
• Cider Tax Treatment: Allowing locally produced hard cider and still wines to be taxed at a more competitive rate, comparable to similar alcoholic beverages.

AIM members with questions about the governor’s tax proposal should contact me at slarson@aimnet.org.