Massachusetts is on the brink of returning too much excess state revenues — to the tune of nearly $1.4 billion — to Bay Staters, according to a new report that calls into question a critical calculation underlying a tax cap law known as Chapter 62F.
State Auditor Suzanne Bump last month determined that $2.9 billion in surplus dollars were owed back to Massachusetts taxpayers, based on an analysis that takes into account annual wage and salary growth.
But a report released this week by the left-leaning Massachusetts Budget and Policy Center contends the figure is vastly overstated.
While the number reflects business tax payments made in tax year 2021 and the first part of tax year 2022, it doesn’t deduct most pending pass-through entity excise tax credits.
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“The flawed 62F structure does not subtract these as-yet-unclaimed credits from the FY 2022 tax collection total,” the report, written by senior policy analyst Kurt Wise, states. “Many eligible filers have yet to claim and apply these PTE credits on their income taxes. These guaranteed credits, once claimed, are expected to reduce tax collections by 90 percent of the value of the PTE tax excise.”
Those tax credits should eventually total $2.032 billion. Yet with only $638 million deducted so far, Bump’s 62F certification is overstated by $1.394 billion, the report states.
The report underscores corrective action is needed for 62F, which already disproportionately benefits wealthier residents who can expect to see the heftiest tax refunds.
“This fundamentally flawed statute is poised to make after-tax income inequality in Massachusetts worse than it now is, while also reducing the resources available to support important priorities throughout the Commonwealth,” the report states.
“The Governor’s plan to refund this illusory $1.4 billion of ‘excess’ FY 2022 revenue through the 62F process does not change the fact that future fiscal year personal income tax collections will be reduced by some $1.4 billion, as filers claim and apply their outstanding FY 2022 PTE tax credits,” the report states. “This means there will be $1.4 billion less that is available to address critical needs.”
Yet Bump, in a statement to MassLive Thursday, cautioned Chapter 62F “requires that all revenue be counted even if, as in this case, tax law requires that much of it will be rebated later.”
And a spokesperson for the Executive Office for Administration and Finance emphasized previously announced information from Gov. Charlie Baker and Bump.
“The Department of Revenue followed the calculation as defined in the Chapter 62F statute for determining whether and by how much net state tax revenues exceeded allowable state tax revenues in FY22,” the spokesperson said in a statement to MassLive. “The State Auditor independently confirmed that $2.9 billion in excess revenue was collected and is due back to taxpayers.”
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