| Closer Than Initially Announced, Corporate Tax Code Vote Assailed by Critics By Kyle Cheney
STATE HOUSE NEWS SERVICE
Enhanced resources – The Study Commission on Corporate Taxation Report and all dissents and appendices – are available at www.statehousenews.com
STATE HOUSE, BOSTON, JAN. 2, 2008…..A just-completed special commission report on corporate taxes is under fire from members of the commission who say the ultimate report ignored important data and skewed recommendations in favor of administration priorities.
“What you have is a deeply divided commission,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, one of six commission members who voted against the 15-member body's recommendations. “I don't think it was a balanced final report and it largely ignored one of the key mandates of the commission, the goal of competitiveness.”
Although the vote was initially announced to be 10-5 in favor of the most controversial tax reform proposals, the report revised the count to 9-6. Jane Steinmetz, an appointee of Senate President Therese Murray, said she could not support the report because it failed to make a specific corporate tax rate reduction.
Reforming some elements of the corporate tax code has been a key Patrick administration priority, often cited by the governor as a way to raise as much as $500 million to help alleviate property taxes and support spending initiatives. Patrick is due in three weeks to unveil a fiscal year 2009 budget and has left the door open to including corporate tax reform revenue in his blueprint. A key committee indicated today it will hold hearings this month or in early February on a slate of corporate tax bills that have been on hold while the commission conducted its work.
On Dec. 18, commission members approved two major tax reforms, known as combined reporting and check-the-box. The combined reporting provision would block firms from shifting profit-reporting out of state to subsidiaries, while "check-the-box" would force companies to file under the same status on both state and federal tax forms.
The 34-page final report, finalized on December 28, is accompanied by 652 pages of subcommittee reports, dissents and appendices, including data used to develop the final draft. Its recommendations are non-binding and are now in the hands of the administration and Legislature, who will ultimately decide whether to act on them.
In a phone interview, Widmer, who during commission deliberations argued that any additional increases to the corporate tax burden should be accompanied by an equal excise tax cut, said the final report relies heavily on Department of Revenue numbers and “ignored counters that I put forward.”
Other commission members opposed to the final report include House Minority Leader Brad Jones, Senate Minority Leader Richard Tisei, Associated Industries of Massachusetts Vice President Eileen McAnneny, PricewaterhouseCoopers partner Jane Steinmetz and Kevin Long, a tax attorney and accountant from Sudbury. Four of them - Widmer, Long, McAnneny and Jones - issued separate minority reports.
In his dissent, Jones argued that commission members misunderstood their mandate, which included a charge to increase business competitiveness and growth in the commonwealth. The commission, formed last April, was charged “to study the modernization and simplification of the current business tax laws of the Commonwealth, to promote tax fairness and equity, encourage business growth and innovation, and strengthen the Commonwealth's global competitiveness,” according to a joint press release issued by Patrick, Senate President Therese Murray and House Speaker Salvatore DiMasi.
“Unfortunately, many members seem to have interpreted this mandate as an opportunity to alter the tax code so as to raise more money for state coffers,” Jones wrote. “While they may view business tax increases as a fix for perceived budgetary problems, the potential for long-term damage to businesses certainly outweighs any short-term gains.”
Long similarly argued that commission members ignored the goals of competitiveness and business growth, adding that only one subcommittee was assigned to pursue that objective and that its report was “largely ignored in the final report except for an illusory suggestion of a potential undefined rate reduction at some unspecified time in the future.”
“Ultimately the work of the Commission as portrayed in the final report can be seen as a thinly veiled exercise in raising corporate taxes,” he wrote. Long also questioned some of the figures adopted in the final report, in particular, numbers comparing corporate profits to corporate tax collections, a major component of the proponents' argument to close the loopholes.
“The message sent to the business community is clear,” he wrote. “Massachusetts is a dangerous place to do business because tax policy decisions here are based on fiction, rather than reason.”
In her dissent, McAnneny argued that the commission was too fixated on one particular reform – combined reporting – at the expense of a more thorough review of the entire tax code. She added that the final report was too heavily dependent on the work of commission subcommittees, three member groups assigned to review narrow portions of the tax code.
“The Commission's procedures were flawed,” she wrote.
Widmer's dissent also took issue with some of the terminology employed to characterize the business community.
“In the discussion of combined reporting, for example, there are frequent references to ‘income shifting,' ‘tax planning techniques,' and ‘erosion of the corporate tax base,' he wrote. “Nowhere is it mentioned that combined reporting represents a major change in the way that corporations have been taxed in Massachusetts for decades. The policy change can be debated, but the superficial and one-sided portrayal of the issue is not helpful.”
The 9-6 votes on combined reporting and check-the-box reform were themselves was the subject of debate.
At the commission's final meeting on Dec. 18, Chairwoman Leslie Kirwan announced that “we have reached a near-consensus, near unanimity on the major issues facing this commission,” and when the final votes were tallied, Kirwan announced a 10-5 victory in favor of closing the so-called combined reporting and check-the-box loopholes. But the final report included a narrower 9-6 vote, with the switch attributed to Steinmetz, who insisted that she would only approve the final report if it included a specific excise tax rate cut. The final report did include a recommendation for a “meaningful” excise tax cut, but left the actual number ambiguous, leaving it up to the administration and lawmakers to define.
The revised tally indicates that only one member, Rep. John Binienda, House chair of the Committee on Revenue, switched sides since an 8-7 interim vote last June. An aide to Binienda said the Revenue Committee was aiming to hear a slew of legislation regarding the corporate tax code before the end of January, including a bill filed by the governor, H 3756, that includes check-the-box and combined reporting reforms. That bill, the aide said, would be “a priority.”
Some dissenters and even one proponent of the commission report questioned the official nature of the commission's role, noting that it was essentially created by a press release.
“[T]he Study Commission on Corporate Taxation was formed not by legislative enactment but via agreement among Governor Patrick, Speaker DiMasi and Senate President Murray, and that the only document that can be said to constitute the Commission is a press release,” wrote Joseph Donovan, a commission member who supported the final recommendations. “While the 15 members have been characterized as ‘appointees' of Governor Patrick, Speaker DiMasi, or the Senate President, because of the informality of the process the members of the Commission may not have known in advance by whom they were appointed. This member certainly did not know.”
In an email, administration spokeswoman Cyndi Roy said, “The Governor is pleased that the Tax Commission recognized the importance of ensuring both tax fairness and adequate revenues. The Administration is working to determine the best way of addressing the commission's recommendations,” although no timetable for action offered.
Other commission members who voted in favor of the report include Revenue Committee Senate Chair Cynthia Creem, Massachusetts Turnpike Authority Executive Director Alan LeBovidge, University of Massachusetts Professor Alan Clayton-Matthews, tax lawyer Karl Fryzel, Hemenway & Barnes Managing Partner Stephen Kidder and New England Public Policy Center Director Robert Tannenwald.
Additional recommendations included a 12-3 vote to apply a room occupancy tax to intermediary resellers, a 13-2 vote to clarify earned income credit and a 14-1 vote to adopt a streamlined sales and use tax agreement.
Two proposals – to apply the corporate excise tax to companies not subject to the income tax on business income and to apply a deeds excise tax to companies that primarily deal in real estate – were not given a final vote, with members opting to recommend them for further study. At the Dec. 18 commission meeting, Senate Minority Leader Tisei said the study order left one glaring omission: “Who's going to study it?” Kirwan said that determination had not been made.
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