The Greater Boston Chamber of Commerce today unveiled four key tax reform proposals designed to enhance the state’s overall business competitiveness. In a major new report entitled, “Making the Massachusetts Corporate Tax Code More Competitive,” produced with statistical and technical tax assistance by PricewaterhouseCoopers US, the Chamber analyzes key drivers of state economic performance, and finds there is a competitiveness gap in the Commonwealth’s corporate tax structure that needs to be addressed.
“Current policy makes Massachusetts’ corporate tax burden the 5th highest in the country,” said Paul Guzzi, President & CEO of the Greater Boston Chamber of Commerce. “Our region has many attributes that boost our competitiveness, such as a rich talent base, strong leading industries, and effective government/business collaboration. However, we are lagging when it comes to business cost structure, notably the corporate tax system. With an economy still struggling to fully recover, we need to take action to close the competitiveness gap in this key area, and our four proposed reforms will help accomplish this goal.”
Compared to other states, the report finds that Massachusetts’ corporate tax burden is relatively high, citing the following data points:
- Massachusetts’ corporate tax burden is the 5th highest in the nation
- As a percentage of private sector GDP, Massachusetts’ corporate tax burden is 0.54 percent—74 percent about the national average of 0.31 percent of GDP.
- Massachusetts’ burden is even less competitive given that the state’s for-profit corporate sector is smaller, as a portion of the total economy, than in all but 8 states
- When you adjust the measure of corporate tax burdens to exclude non-corporate activity—which accounts for 71 percent of private payroll nationally, and only 67 percent in Massachusetts—from private GDP, Massachusetts’ burden increases by approximately 6 percent.
“When a state’s corporate tax system is uncompetitive, it is at a significant disadvantage in the never-ending competition for jobs and investment,” said Jim Klocke, Executive Vice President of the Greater Boston Chamber of Commerce. “Corporate tax policy is one of the primary tools state governments have to influence economic development, and we are advocating for a series of important reforms to our current policy.”
To strengthen the competiveness of Massachusetts’ corporate tax system, the Chamber recommends a long-term strategy consisting of four reforms. Given current state budget challenges, the Chamber recommends the below reforms be adopted on a phased-in basis, to balance their costs and benefits:
- Adopting the elective single sales factor for all industries, so the tax code doesn’t penalize companies for locating facilities and jobs in Massachusetts, thereby increasing the incentive to locate jobs here;
- Adopting net operating loss (NOL) carryforwards for the state’s financial services and utility sectors, placing these key sectors on an equal footing with all other Massachusetts sectors and with their peers in nearly every other state;
- Aligning the state’s economic substance doctrine, which is extreme in both substance and process, with related federal provisions to make the tax process clearer and more predictable for companies in all industries;
- Phasing-out the balance sheet tax, a second corporate tax on inventories and financial assets that few comparable states utilize, and which must be paid even if a company is losing money or the economy is in a steep recession.
The Chamber recommends that each reform adopted begin on or after January 1, 2015, with all but the economic substance reform being phased-in over multiple years.
If the proposals are successful in attracting new investment to Massachusetts, any near-term reductions in state tax revenues would be accompanied by longer-term increased economic activity in the form of employment and purchases of capital equipment and structures. This increase in economic activity would generate new tax revenues for both the Commonwealth and its municipalities.
As policymakers at the federal level work to make the US corporate tax code more competitive, Massachusetts can and should do the same. The Chamber will work to advance legislation at the Massachusetts State House to enact these tax proposals.