Biennial Report of the Tax Expenditure Review Commission Massachusetts Tax Expenditure Review Commission
Total Page:16
File Type:pdf, Size:1020Kb
Biennial Report of the Tax Expenditure Review Commission Massachusetts Tax Expenditure Review Commission March 2021 1 Table of Contents Overview ....................................................................................................................................................... 3 Background: Current and Previous Studies of Massachusetts Tax Expenditures ........................................ 3 TERC Approach to Implementation of its Statutory Mandate ...................................................................... 4 Statutory Text ........................................................................................................................................... 4 Organizational Discussions ....................................................................................................................... 4 Template for Review of Tax Expenditures ................................................................................................ 5 TERC Observations and Recommendations for the Legislature ................................................................... 8 Particular Tax Expenditures Flagged in Evaluation Process. ......................................................................9 Issues Applying Across Multiple Tax Expenditures ................................................................................. 11 Appendix A: Chapter 207 of the Act of 2018 ...............................................................................................14 Appendix B: Members of the Massachusetts Tax Expenditure Review Commission......……………………......18 Appendix C: Evaluation Templates and Tax Expenditure Summaries…………………………………………………......19 Exclusion from Employee Income of Business-Related Meals and Entertainment.....................................................21 Exemption of Income from the Sale, Lease, or Transfer of Certain Patents...............................................................26 Capital Gains Deduction for Collectibles.....................................................................................................................31 Exemption of Interest on Savings in Massachusetts Banks........................................................................................37 Deduction for Clean Fuel Vehicles and Certain Refueling Property...........................................................................45 Renewable Energy Source Credit (tax credit).............................................................................................................51 EDIP/Economic Development Incentive Program......................................................................................................60 Credit Massachusetts Historic Rehabilitation Tax Credit...........................................................................................79 Film Production Incentives .........................................................................................................................................87 Medical Device User Fee Credit................................................................................................................................98 Small Business Corporations.....................................................................................................................................105 Net Operating Loss Carryover....................................................................................................................................121 Unequal Weighting of Sales, Payroll, and Property in Apportionment Formula......................................................138 Exemption for Property Subject to Local Taxation...................................................................................................167 Investment Tax Credit................................................................................................................................................183 Research Credit............................................................................................................................................................198 Harbor Maintenance Tax Credit................................................................................................................................216 Life Sciences Tax Incentive Program.........................................................................................................................224 Exemption of Credit Union Income...........................................................................................................................239 Exemption for Newspapers and Magazines..............................................................................................................252 Exemption for Alcoholic Beverages...........................................................................................................................264 Exemption for Motor Fuels........................................................................................................................................284 Exemption for Materials, Tools, Fuels, and Machinery Used in Manufacturing.......................................................297 Exemption for Materials, Tools, Fuels, and Machinery Used in Research and Development..................................316 Exemption for Vessels, Materials, Tools, Fuels, and Machinery Used in Commercial Fishing.................................334 Exemption for Vending Machine Sales ......................................................................................................................343 Appendix D: Template of Evaluating Expenditures…………………………………………………………………………...…..350 Appendix E: Tax Expenditure Review Commission Meeting Minutes……………………………………………….......351 Appendix F: Economic Impact Analysis Model and Its Use in TERC Reports …………………………………….......384 2 Overview This document is the 2021 Report to the Legislature of the Tax Expenditure Review Commission (referred to herein as “TERC” or the “Commission”) filed pursuant to Chapter 14, section 14, of the General Laws. “Tax expenditures” are defined under Chapter 29 of the General Laws as state tax revenue foregone due to statutory provisions that allow “exemptions, deferrals, deductions from or credits against taxes” imposed on income, businesses, or sales. The Commissioner of Revenue prepares an annual tax expenditure budget estimating the cost of tax expenditures to the Commonwealth in the fiscal year, as directed by section 5B of Chapter 29. It is the statutory responsibility of the Commission to review the various tax expenditures adopted by the Commonwealth on a five-year cycle and to report biennially to the Legislature on the goals and effectiveness of the expenditures reviewed. This 2021 Report is TERC’s first such biennial report. It considers a group of tax expenditures that relate to commerce, energy, and research & development. Future biennial reports will review the balance of the state’s tax expenditures, as grouped by TERC, over the balance of its five-year review cycle. Background: Current and Previous Studies of Massachusetts Tax Expenditures There has been considerable interest in the last decade regarding the Commonwealth’s tax expenditures. The current TERC, which was created by the Acts of 2018, follows up on the work of an earlier ad hoc Tax Expenditure Commission, formed pursuant to Acts 2011, section 160, that issued an extensive report to the Legislature on April 30, 2012. Indeed, the formation of the current TERC may be seen as an implementation of certain recommendations of the previous Commission, which advocated for the periodic review of tax expenditures to ensure their continued relevance and effectiveness. The current TERC represents an institutionalization of such an ongoing review process. The 2012 Report, along with its multiple appendices, provide a wealth of information regarding state and federal tax expenditures. Additionally, the Tax Expenditure Budget, published annually by the Commissioner of Revenue, provides current cost estimates associated with tax expenditures applicable to the particular fiscal year. Readers are referred to these sources for background information related to Massachusetts tax expenditures. The 2012 Report, with associated materials, is available at: https://www.mass.gov/lists/2011-2012-tax-expenditure-commission-materials. The annual Tax Expenditure Budget is available at: https://www.mass.gov/lists/tax-expenditure-budget. The current Tax Expenditure Review Commission was created under Chapter 207 of the Acts of 2018 to review each tax expenditure in the Tax Expenditure Budget every five years; to consider the purpose, goal, and effectiveness of each Tax Expenditure in this review; and to report its findings biennially to the Legislature. The full text of Chapter 207, which is now codified at Chapter 14, section 14 of the General Laws, is reproduced at Appendix A. The TERC is chaired by the Commissioner of the Department of Revenue. Other members include the State Auditor; the State Treasurer; the Chairperson of the House Committee on Ways and Means; the Chairperson of the Senate Committee on the Ways and Means; the House and Senate Chairpersons of the Joint Committee on Revenue; the Minority Leader of the House of Representatives; the Minority Leader of the Senate; and three members with expertise in economics or tax policy, to be appointed 3 by the Governor. The three members appointed by the Governor will serve four-year terms. The statutory