Ash pushes corporate tax break
Baker aide also backs $7 million cap on film tax credits per production
STATE HOUSE NEWS SERVICE
GOV. CHARLIE BAKER, who campaigned two years ago on lowering business taxes, is aiming to align Bay State corporate tax policy with that of 23 states around the nation.
The proposed change included in Baker’s economic development bill would affect multistate companies doing business in Massachusetts and eventually reduce state revenues by more than $70 million, according to an administration economist.
Housing and Economic Development Secretary Jay Ash pushed lawmakers to adopt the alteration in the corporate tax formula, along with a reduction in the film tax credit and increases in the low-income housing tax credit, at a Revenue Committee hearing Tuesday.
With some exceptions, in-state revenue accounts for about 50 percent of the formula that determines what portion of corporate profits Massachusetts can tax. Property costs and payroll make up 25 percent apiece of that formula, according to David Davenport, deputy revenue commissioner for legislative and external affairs.
Under Baker’s proposal, by Jan. 1, 2021 a company’s receipts would account for 100 percent of the formula determining the state’s share.
“If a company now puts payroll or property into the state, whether it’s headquarters or a plant, with single-sales-factor apportionment they don’t get penalized,” Davenport told the News Service. “Their tax doesn’t go up because they put investments into the state.”
Kazim Ozyurt, chief economist at the Department of Revenue, said the measure would reduce state revenues by $67 million in fiscal 2022 and $72 million in fiscal 2024.
An administration official said the estimate does not account for businesses that might be attracted to Massachusetts after a change in corporate tax policy.
Business-backed groups the Associated Industries of Massachusetts and the Massachusetts High Technology Council support Baker’s corporate taxation measure, while the left-leaning Massachusetts Budget and Policy Center argues the formula change has not been proven to be beneficial when used elsewhere.
Taxes on Massachusetts mutual fund companies, manufacturers and defense contractors are already apportioned based on what is called the single-sales factor.
Predicting industry work will dry up if the credit is scaled back, Dot Aufiero, who produced The Fighter and The Finest Hours and is working on Patriots Day, recalled how work in Massachusetts was “sporadic” prior to the film tax credit’s introduction. “It was difficult to work in Massachusetts. There wasn’t enough work,” she said.
In 2014, about 850 Massachusetts residents worked on sets for The Finest Hours in Quincy, Duxbury, Norwel,l and Chatham, said Aufiero, adding that she has a book signed by the film’s cast that she hopes to present to Baker some day.
The House last session rejected Baker’s bid to retreat on the film tax credit and the governor came back this year with a new proposal that he says would “restore the film tax credit to the structure when the credit was introduced in 2005.” (The primary feature of the legislation is a cap of $7 million on the tax credits any one production can receive, which would likely discourage Hollywood films from coming to Massachusetts. The governor says his proposal would save the state $47 million a year. ) The governor, if successful, wants to use the money to raise the cap on the low-income housing tax credit by $5 million, which would benefit low-income workers.
Ash told the Revenue Committee that the film tax credit is not the best investment for the state.
“Nearly two-thirds of the jobs and new spending attributed to the tax credit flowed out of state in 2012. Of the 1,351 jobs that the film tax credit created, only 730 went to Massachusetts residents at a cost of nearly $100,000 per local job,” Ash said. “For the period of 2006 to 2012, one net new job was created for every $118,000 in film tax credits issued and in 2012 74 percent of the wages created through this credit went to out-of-state workers. Over one-third of all wages were paid to individuals with salaries over $1 million.”By comparison, Ash said the state attracted IBM Watson Health to Cambridge at a cost of roughly $5,000 per job and drew Amazon to establish a fulfillment center in Fall River at a cost of about $7,500 per job.
The film tax credit is a “poor expenditure of our limited state resources to create jobs in the commonwealth,” he said. “So while we continue to work to welcome the film industry, we believe that the funds currently used for this credit would have a greater impact in creating opportunities around affordable and workforce housing, and in creating jobs in companies that are based here in Massachusetts, that have made investments here.”