Tax Expenditure Budget

UPDATES

March 2010 - Revenue Committee Vote to Limit Film Credits Fails. Film Credits Untouched. Legislation scaling back the state's tax sweeteners for the film industry received a thumbs-down Thursday from the Revenue Committee, seriously complicating the bill's path to passage... [SHNS]

January 27, 2010 - Gov. Deval Patrick's FY11 budget... scales back business tax credits. Both the film and life science industries, recipients of the highest-profile tax breaks in recent years, would take hits under Patrick's bid to recoup revenues sacrificed in efforts to draw investments here. Smokeless tobacco - sometimes known as "chew" or "dip" - cigars, and loose tobacco were shielded from the state's 2008 tax hike of $1, to $2.51, on cigarettes. [Full Brief: Limiting Tax Expenditures in FY11]

October 28, 2009 - Revenue Subcommittee Hearing on Tax Expenditures. Testimony on exemptions and credits - some decades-old - explored whether they still serve a purpose, and included a statement from UMass Professor Randy Albelda, Professor of Economics and Senior Research Associate. [Albelda's Testimony] [Full SHNS Article]

BACKGROUND

In its simplest form, a tax is an across-the-board levy on a base, such as income, to which a specific rate applies and for which no modifications exist. Taxes are rarely levied in this manner, however. Instead, most state tax codes incorporate a number of exemptions, deductions, credits, and deferrals designed to encourage certain taxpayer activities or to limit the tax on certain types of individuals or endeavors. Known as "tax expenditures", these provisions can have a significant impact on state tax revenues.

The Fiscal Year 2009 Tax Expenditure Budget Summary provides a detailed list of all the exemptions, exclusions, deductions of the personal income tax, corporate excise tax, and sales tax in Massachusetts. [More at mass.gov]

EXAMPLES

Professional Services Tax - $6.9B.

By far, the largest single area of exemption is that of services from the state sales tax. This area accounts for $6.9 Billion dollars of uncollected revenue. [More information on extending the state sales tax to professional services.]

Film Tax Credits - $113M.

According to the DOR, we spent nearly $113 million on film credits and sales tax exemptions in 2008, but only collected $17.5 million on the new economic activity. Currently, film credits are uncapped - there are no limits on how much we might spend on them.

ADDITIONAL RESOURCES

• Tax Expenditure Resources. The Center on Budget and Policy Priorities [CBPP] has released a report on the options and issues surrounding the expansion of sales taxation to services. [Full Report] [CBPP Website] [Recent Testimony]
• State Taxation Resources. The Federation of Tax Administrators [FTA] provides services to state tax authorities and administrators, including research and information exchange, training, and intergovernmental and interstate coordination. The Federation also represents the interests of state tax administrators before federal policymakers where appropriate. [FTA Website]