A Thumbs Up for Combined Reporting in Massachusetts


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Massachusetts' corporate taxation study commission this week released a set of interim findings that endorsed two key reforms to the Bay State's tax code. Appointed by Governor Deval Patrick and legislative leadership in April, the commission recommended that Massachusetts immediately enact changes in its corporate income tax - commonly referred to as "check the box" rules - that would prevent companies from exploiting differences in state and federal law that determine how they are classified for tax purposes and that allow them to avoid taxes in Massachusetts.

Forty-five other states already have these rules in place; instituting them in Massachusetts would generate an additional $100 million in FY 2008. The commission also expressed its support for combined reporting - a still more comprehensive reform that New York and West Virginia approved this year and that twenty states now employ - but will study implementation and design issues further in the coming months. Of note, the commission also found that the absence of such safeguards as effective "check the box" rules and combined reporting has allowed Massachusetts corporate income tax to fall from 11.5 percent of corporate profits in 1989 to 5.5 percent last year.

The commission also points out that "Insisting on greater shared responsibility for our Commonwealth's future, principally by asking a fairer share from larger, multi-state businesses, will not harm competitiveness and economic growth; influential economists cited to the Commission have concluded that, while taxes are one factor that businesses consider in deciding where to locate or expand, the predominance of other factors usually renders business taxation a much less significant consideration."

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