Massachusetts taxpayers are due to receive nearly $3 billion from the state after a windfall of tax collections triggered an obscure 1980s-era law for just the second time in nearly four decades, officials said Thursday, clearing the way for potentially millions of taxpayers to get a slice of the unprecedented credit.
State Auditor Suzanne M. Bump said her office certified that the state is required to return $2.94 billion under a 1986 voter-passed measure intended to limit state tax revenue growth to the growth of total wages and salaries, and return any excess to taxpayers.
Still, several crucial details remained unclear, notably how, and when, people could receive money and how much individuals should expect.
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Governor Charlie Baker‘s office released a statement promising to share “more details soon” about how his administration intends to distribute the money.
He told reporters Wednesday before Bump’s announcement that his goal is to distribute the excess revenue “sometime this fall.”
“Given the difficulties associated with inflation, which continues to rage, we would like to get that money back to people sooner rather than later,” Baker said.
This is just the second instance the law has been triggered, though it will carry far larger financial consequences this time.
The only other time the law was triggered was in 1987 when tax collections exceeded the allowable amount by $29.2 million, according to a previous report from Bump’s office. At the time, the state added a line to the 1987 version of the individual income tax return form where individual taxpayers could “insert his or her individually calculated share.” The state ultimately issued $16.8 million in credits, leaving nearly $12.4 million unclaimed.
The law stipulates that any credit is applied on a “proportional basis.” The Baker administration has previously said more than 3 million taxpayers could get back roughly 7 percent of the income taxes they paid in 2021.
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That, analysts and lawmakers say, promises a regressive distribution, effectively ensuring that those who pay more in taxes stand to benefit the most.
Baker suggested in July the money returned to residents could be issued as rebates — a more direct form of payment than a credit, which typically reduces the taxes a person owes.
But whether the administration can do that appears to be an open debate. Kurt Wise, a senior policy analyst at the Massachusetts Budget and Policy Center, said the law is clear in calling the refund a “tax credit,” effectively limiting the form it can take, and noted that Bump in her own statement described it as taking the “form of a credit.”
The language, however, also leaves it to the state revenue commissioner to set the rules for implementing the law. That effectively gives the department a “good bit of leeway” in determining how to issue the money, said Leanne Scott, an attorney, a state and local tax principal, and member of the Department of Revenue’s advisory council.
“With the election coming up this fall and wanting to make people happy, I imagine they’ll get this out as quickly as possible,” Scott said, adding it’s possible the state could issue the credit in the form of checks or even a direct deposit into someone’s account.
The state ended the last fiscal year in June with a nearly $5 billion surplus after collecting nearly 21 percent more in tax revenue than it did a year ago, an extraordinary jump. Aides to Baker said the surplus is large enough to cover the credit, and estimated the state would still have some $2 billion in surplus revenue, itself a whopping figure.
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“Our tax cap was intended as an automatic release valve for when revenue surpluses reach an unnecessary level, especially such an extraordinary level as recently,” said Chip Ford, executive director of Citizens for Limited Taxation, which pushed the original ballot measure with the Massachusetts High Technology Council in the mid-1980s. “It was meant as a check on unlimited taxation and unsustainable spending.”
The potential — and now certainty — of billions flowing back to taxpayers has roiled Beacon Hill, and lands amid a separate ongoing debate about whether the state should raise taxes on some of its wealthiest residents.
Baker’s disclosure during the final days of the Legislature’s formal sessions in July that the state was poised to trigger the decades-old law upended talks over a $4.5 billion spending package that included roughly $1 billion in proposed tax relief.
The Legislature gaveled its formal sessions to close the morning of Aug. 1 with no deal on the legislation, leaving the fate of a final package in limbo.
Some in the Legislature have also advocated that lawmakers take a more proactive role in determining how the excess revenue is divided up. Representative Mike Connolly, a Cambridge Democrat, has advocated for capping what is returned to higher-income earners, to ensure low- and middle-income residents get a larger share of the $2.9 billion.
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By determining credits on a proportional basis, it ensures those who make the most — and pay the most in taxes — would benefit the most at a time when low-income workers feel the pain of inflation the most, Connolly said.
“I certainly don’t think that someone like Patriots owner Bob Kraft should be getting back tens of thousands of dollars when someone working at minimum wage would only see a minuscule return,” he mused.
But legislative leaders gave no indication Thursday that they plan to change the law or potentially slow distribution of the excess revenue.
In a statement, House Speaker Ronald Mariano said that with Bump’s certification, legislative leaders intend to continue talks over a potential economic development package “under these new circumstances.”
“I look forward to the plans to distribute the money back to the taxpayers,” the Quincy Democrat.
Voters in November are also weighing a ballot question that would impose a 4 percent surtax on annual earnings above $1 million. It pushes before residents a debate about who should be taxed more, and just how much revenue the state needs, at a time taxpayers stand to reap a windfall.
Proponents such as labor unions have argued the proposed constitutional amendment, known as the millionaires tax, would help raise billions of new dollars in revenue. The measure says the money would be steered toward education and transportation, though it would be at the Legislature’s discretion.
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Business leaders and others have railed against the proposed amendment, charging that a tax surcharge will hurt Massachusetts’ competitiveness and spur entrepreneurs and companies to grow elsewhere. And, critics have argued, state coffers are already overflowing with cash.
Matt Stout can be reached at matt.stout@globe.com. Follow him on Twitter @mattpstout.