Massachusetts Governor Issues Proposed Budget

On January 23, 2013, Governor Deval Patrick proposed budget recommendations for the Fiscal 2014 year to the Massachusetts Legislature. The bill contains a number of tax changes relating to personal income tax, corporate excise tax and sales and use tax proposals. If approved the changes in the tax law would take effect January 1, 2014.Highlights of the proposals are:

• An increase in the personal income tax rate from 5.25% to 6.25%
• Elimination of several deductions and credits for personal income tax
• A decrease in the sales and use tax rate from 6.25% to 4.5%
• Changes in the treatment of custom software and data processing services for sales tax
• Repeal of the FAS 109 deduction for corporations
• Taxing security corporation and utility corporations the same as all other business corporations
• Change to market based sourcing for the allocation of services in the corporate apportionment factor with application of a “throw-out” provision on services

Personal Income Changes

• All income will be taxes at the 6.25% rate, this eliminates the 12% rate on short term gains and sale of collectables
• Inclusion in MA gross income of employer provided benefits such as: Health Insurance, adoption or education assistance and qualified transportation fringe benefits
• Inclusion in MA gross income of the gain from the sale of a principal residence
• Inclusion in MA gross income of meals and lodging furnished to employees for the convenience of the employee
• Doubling of the personal exemption amount, for joint filers the exemption increases from $8,800 to $17,600
• Eliminates the deduction for social security payments up to $2,000
• Eliminates the deduction for dependent under age 12
• Eliminates the deduction for contributions to Health Savings Plans and Archer Medical Savings Accounts
• Eliminates the deduction for adoption fees
• Repeals state credits for: Renewable Energy property, lead paint removal, septic system replacement

Miscellaneous Provision

• Indexing of the gasoline tax from the present 21 cents per gallon to year adjustment based on the change to the Consumer Price Index from year to year
• Increase the tax on a pack of cigarettes by $1 dollar and increase the tax on other tobacco products by and undetermined amount
• Sales tax imposed on candy and soft drinks