Auditor certification paves way for $2.9b in tax cap credits
Debate now shifts to how the money should be returned to taxpayers
MASSACHUSETTS RESIDENTS could soon be receiving tax refunds in the mail after state Auditor Suzanne Bump officially certified that the state’s tax cap law has been triggered and taxpayers are owed $2.94 billion.
Bump announced her certification Thursday morning, five days ahead of the deadline for action. Her decision means the Baker administration can now set in motion its somewhat controversial rush-rush plan to return the money to taxpayers by sending out checks.
Most of the time state government moves at a snail’s pace, but not with the tax cap, even though its very existence caught most of Beacon Hill by surprise.
The tax cap was approved in 1986 via a ballot question sponsored by Citizens for Limited Taxation and the Massachusetts High Technology Council. The question set a limit on how much tax revenue the state could take in during a given year and required returning any excess collections to taxpayers via credits on their taxes.
The news derailed debate on economic development legislation, which contained its own separate tax relief package, and prompted accusations by House leaders that the Baker administration had deliberately kept them in the dark.
There has also been some discussion that the tax cap shouldn’t be as large as it is. A state workaround to a $10,000 cap on a federal tax deduction for state and local taxes inflated state tax revenues in fiscal 2022 by more than $2 billion, most of which is likely to be rebated to taxpayers in coming years.
Bump, in a press release announcing her certification, took note of the extra revenue (most of which will be claimed as credits and deductions in future years), but chose not to make any adjustments to the tax cap estimate.
Her ruling means the debate can now begin on how to return the money to taxpayers. The tax cap law, dubbed 62F in legislative parlance, and its accompanying regulations direct the Department of Revenue to determine what percent $2.94 billion is of the state’s total tax take in 2021. That percentage is then used by each taxpayer to determine how much of their individual 2021 tax payment should be returned as a credit, but the credit can only be taken against the individual’s tax liability for 2022.
It’s a two-step process that means taxpayers would see no benefit until 2023, when they file their 2022 tax forms.
Baker administration officials are moving to accelerate the process of returning the funds. In April, well before the notion that the tax cap could be triggered surfaced publicly, the Department of Revenue put out a notice that it intended to rescind the existing regulation that spells out in detail the two-step process for returning excess tax collections to taxpayers.
“This regulation is being repealed because it is obsolete; no credit has been required since 1987,” the hearing notice said. “If a credit becomes available, DOR will issue guidance and update forms specific to the year the credit is allowed.”
The 62F law does not define credit, so the Baker administration is taking the position that it can insert its own definition. Baker, at a press scrum on September 6, indicated he saw no difference between a refund check and a credit on next year’s tax forms.
“The definition of a credit can either be a return of revenue or credited next year,” he said.
Peter Enrich, an attorney who worked as general counsel and counsel for revenue policy at the Executive Office for Administration and Finance in 1986 and 1987 when the tax cap law was being debated and implemented, said the definition of a credit is well established in tax law – credits reduce taxes that are owed and are not refunds issued by check.
Bump, in her press release, took no position on how the money should be returned to taxpayers. She only noted that under the tax cap law the money must be returned in the form of a credit.Baker argues the money should be returned to taxpayers as soon as possible.
“Inflation at this point is rising at a dramatic rate. Gas has come down, but food is still incredibly expensive. Rents have gone up dramatically,” Baker said on September 6. “I think one of the best things we can do here is put money back in the hands of these folks as soon as possible, and, if we can, before the holiday season.”