Millions of Massachusetts taxpayers could begin receiving automatic state tax refunds in November at amounts nearly double what officials had initially projected, the Baker administration said Friday, as part of an unprecedented return of $3 billion under a once little-known 1980s-era law.
In all, roughly 3.6 million taxpayers stand to receive a payment, either by check or direct deposit, at a time when rising inflation continues to squeeze families and the prospect of other tax relief flowing from Beacon Hill this year remains muddy, at best.
Baker administration officials on Friday estimated that eligible taxpayers will get back about 13 percent of their personal state income tax liability from tax year 2021 — far more than the 7 percent they had initially projected in July.
To be eligible, taxpayers must have filed a 2021 state tax return by Oct. 17. State officials said someone’s refund could be reduced if they have unpaid taxes, unpaid child support, or other debts.
State officials said they plan to start sending payments in November, with the expectation that all refunds will go out before the end of the year.
It would mark a speedy — some argue unlawfully so — distribution of billions of dollars, and would effectively ensure millions of people get checks before Governor Charlie Baker, a Republican who thrice ran for the corner office pitching himself as a dependable steward of tax dollars, leaves office in January.
Some of the state’s highest earners also stand to be among those who benefit most. The law stipulates that any credit is applied on a “proportional basis,” meaning the more someone owed in income taxes, the higher the refund they’re due.
Baker administration officials cautioned that the 13 percent refund is a preliminary estimate and that officials will finalize it in late October, after all 2021 tax returns are filed.
“These are going to big checks for some people, but for most people they’re not going to be huge checks,” said Luke Stein, an assistant professor of finance at Babson College. Stein said given the checks’ timing shortly before the holiday season, it could nevertheless mean many people use the extra cash on discretionary items they “otherwise would not have bought.”
“Maybe to take a trip or eat a restaurant meal they wouldn’t otherwise have,” he said. “Every dollar helps.”
Baker released his plans for the payments a day after Auditor Suzanne M. Bump certified that the state is required to return $2.94 billion to taxpayers 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.
It marks just the second instance the law has been triggered in nearly 40 years.
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.
“With families facing continued pressure from high prices and inflation, these returns will provide some needed relief,” Baker, who is not seeking another term, said in a statement Friday. “Even with nearly $3 billion going back to taxpayers, significant state and federal resources remain.”
State officials have set up a website where people can calculate their estimated credit. The state also plans to launch a five-day-a-week call center starting Tuesday to help answer questions.
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 did not issue the credit directly, but instead 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.
Whether the Baker administration can, in fact, issue the credits as a direct refund may be an open debate.
Kurt Wise, a senior policy analyst at the Massachusetts Budget and Policy Center, told the Globe on Thursday that the law is clear in calling the refund a “tax credit,” effectively limiting the form it can take. Wise also noted that Bump in her own statement described it as taking the “form of a credit,” which typically reduces the taxes a person owes.
The language, however, also leaves it to the state revenue commissioner to set the rules for implementing the law. “That a different method was used in 1987 doesn’t preclude DOR from making a different choice now based on current circumstances,” a spokesperson for Baker’s budget office said.
State Representative Mike Connolly, a Cambridge Democrat who has advocated limiting what high-income earners could get back under the credit, said Friday that he is considering taking legal action in a bid to stop Baker from issuing checks in “this unprecedented fashion.” The law gives taxpayers the option to file litigation to “enforce the provisions of this chapter.”
Connolly said his objective is not to delay people receiving the money, but for the Legislature to “take action as soon as possible to explicitly and legally authorize distribution of these refund checks this fall, and at the same time, for us to adjust the distribution formula so middle-income and poor folks see a greater share” of the nearly $3 billion.
House and Senate leaders have not indicated they have any plans to change the law or reshape how the state distributes the excess revenue. And one top legislative official hinted he’s OK with Baker’s plan.
In a statement Friday, House Speaker Ronald Mariano said he is “glad to see the administration has quickly laid out plans to distribute the money back to taxpayers.”
“I look forward to [seeing] its implementation,” the Quincy Democrat said.
The likelihood of billions flowing back to taxpayers has roiled Beacon Hill, landing 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 a close the morning of Aug. 1 with no deal on the legislation, leaving the fate of a final package in limbo. Mariano said this week that legislative leaders intend to continue talks over a potential economic development package, though when and in what form it could emerge is unclear.
Matt Stout can be reached at email@example.com. Follow him on Twitter @mattpstout.