$876m Mass. tax workaround set in motion

A tax change designed to help some wealthy Massachusetts residents recover a portion of a lucrative federal tax break they lost four years ago kicked into gear in December, when a group of so-called pass-through businesses paid $876 million in excise taxes to the state.

The figure was disclosed in a Department of Revenue press release issued on Wednesday detailing the state’s tax take for December.

With pass-through businesses, including S corporations, limited liability companies, and some trusts, income flows through the company to the owner or shareholder, who traditionally paid income tax to Massachusetts on the money earned. 

Up until four years ago, the business owners who itemized could deduct all of the Massachusetts income taxes they paid (as well as their property taxes) on their federal tax returns. But the so-called state and local tax deduction, or SALT deduction, was capped at $10,000 in 2017 to help pay for tax cuts sought by President Trump that benefited the wealthy and large corporations. 

Massachusetts last year approved a work-around to restore the deduction for taxpayers associated with pass-through businesses. Instead of the owner or shareholder of the pass-through business making the tax payments, the new Massachusetts law allowed the pass-through companies themselves to pay an equivalent excise tax, which under federal law would be fully deductible on the company’s federal tax return. 

Since the workaround didn’t gain final approval until September, the owners of the pass-through businesses made estimated tax payments of roughly $876 million during 2021 and now will be able to claim most of that money as a refund. 

Gov. Charlie Baker and the Legislature disagreed on how big the refund should be. Baker wanted all the money returned to the business owners, and twice vetoed provisions that would return only 90 percent. Lawmakers overrode his veto both times, and now the business owners will get refunds totaling $784 million and the state will retain nearly $88 million. State lawmakers were counting on $90 million in their budget for this year.

More than 20 other states have approved similar workarounds. 

The Massachusetts workaround dramatically inflated the state’s tax take in December, but the Department of Revenue adjusted the numbers to reflect refunds that will be going out to owners of pass-through businesses later this year.

Even with the adjustments, tax revenues in December continued their upward trajectory. Collections were $520 million, or 18.3 percent, above December 2020 levels and $635 million, or 23.3 percent, above the state’s revenue forecast. For the first six months of the fiscal year, the state has collected $17.8 billion, 24.8 percent above year-ago levels and more than $2 billion higher than the benchmark forecast.




Rollins targets MBTA: As she heads out the door to become US attorney, Suffolk County District Attorney Rachael Rollins said she has launched a probe investigating whether the MBTA should be criminally charged in connection with a Green Line trolley crash last summer that injured 27 passengers.

The Green Line crash occurred last July when a trolley operated by Owen Turner slammed into another train from behind. National Transportation Safety Board investigators later determined that Turner’s train accelerated before the crash, and Turner was charged with negligence of a person having care of public conveyance and gross negligence in management of a train. Rollins said Turner’s colleagues and supervisors had been aware of his pattern of reckless behavior but failed to take action.

– The investigation is a bold move, and disclosing it publicly at this early stage is unusual. Rollins’s announcement comes as she is about to hand the reins of the DA’s office to Kevin Hayden, whom Gov. Charlie Baker appointed to replace Rollins on an interim basis. Hayden has been serving as chair of the Sex Offender Registry Board but previously worked in the DA’s office. Read more.

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An investigation into the Massachusetts Court Officer Training Academy at Westover Air Force Base finds that recruits were repeatedly hit and strangled during training. The training academy was closed in September due to allegations of hazing and abuse. (MassLive)


Former New York Times columnist Nicholas Kristof is having trouble getting his run for governor in Oregon off the ground. Shemia Fegan, Oregon’s secretary of state, says she won’t allow Kristof’s candidacy because he has been unable to establish residency in the state. Kristof says he will go to court to make his case. (Oregon Capital Chronicle)

Boston Globe editor Brian McGrory praises the staff in a year-end memo and says every part of the Globe is operating at peak performance. (Media Nation)