Business leaders screamed and hollered, and the leaders on Beacon Hill listened.
House Speaker Robert DeLeo and Senate President Stanley Rosenberg reversed course Friday on their plans to eliminate a corporate tax deduction after hearing complaints that the repeal would worsen the impression that Massachusetts is an unpredictable place to do business.
It’s hard to imagine that something as bureaucratic sounding as “FAS 109” would inspire much passion. But a number of companies rely on this tax deduction in their accounting of liabilities — even though lawmakers have delayed it from taking effect every year since its creation in 2008.
DeLeo and Rosenberg surprised business leaders last week by announcing that the deduction would be eliminated, as part of the new state budget, to pay for an increase in the state’s earned income tax credit. The repeal would free up an estimated $76 million annually over seven years. Governor Charlie Baker, in statements to the media, seemed to publicly support the move.
But by the time Baker signed the state’s new $38 billion budget on Friday for the new fiscal year, the governor and legislative leaders agreed that the repeal didn’t make sense.
This new plan would instead delay the deduction’s implementation for another five years, and then phase in the deduction over a 30-year period instead of seven years. That would shrink the annual cost to the state to under $20 million a year.
“In conversation with a number of companies that were affected by this, we are confident that this change meets their needs,” said Chris Geehern, an executive vice president at Associated Industries of Massachusetts.
Even as state lawmakers repeatedly postpone this deduction, a number of publicly traded companies still benefit from the fact that it remains as an anticipated future benefit. If this tax deduction had been repealed, the affected taxable assets would have moved to the liability side of these companies’ ledgers, causing their deferred tax liability to increase suddenly and significantly.
The Associated Industries of Massachusetts, Greater Boston Chamber of Commerce, Massachusetts Business Roundtable, and Massachusetts Taxpayers Foundation had urged the Legislature to reconsider the deduction repeal when it first became public last week. Also, individual companies such as Verizon expressed concerns.
AIM had a familiar face to hear its grievance: Kristen Lepore, Baker’s budget chief, had been a vice president of government affairs at the employer group before joining the Baker administration.
Lawmakers created the deduction in 2008 to offset some of the new costs imposed by a tax law change known as “combined reporting” that affected many companies with locations in multiple states. The deduction would go to a number of public companies that account for the depreciation of certain assets such as equipment and utility lines.
The state Department of Revenue reported in 2009 that more than 120 companies had claimed the new deduction, and three companies in particular accounted for roughly half of the corporate tax savings.
Verizon issued a statement Friday praising the latest move by Beacon Hill leaders, but declined to disclose the financial benefit to the company. Donna Cupelo, Verizon’s regional president, said the earned income tax credit would help low-income workers while FAS 109 will assist capital-intensive companies that “steadily invest in the infrastructure that forms the platform for our economy.”
A spokesman for Eversource Energy, another likely beneficiary, said the utility company supports Friday’s accord and will continue to monitor its progress.
The plan still needs to be enacted by the full Legislature, although this approval is expected with DeLeo and Rosenberg on board.
Baker told reporters Friday that it was important to avoid creating a negative impression of the state’s business climate. He said his administration heard from several big companies that were concerned about the repeal.
“Because we wanted to preserve the earned income tax credit and not send the message that the Commonwealth is a difficult place to do business with, we managed to structure a solution on this that works for those businesses,” Baker said.