More than two decades ago, the state’s largest employer group successfully pushed Massachusetts lawmakers to adopt a tax break for manufacturers.
Now, they’re back for more on Beacon Hill. This time, though, Associated Industries of Massachusetts wants all companies to benefit.
At issue is a term that only an accountant could love, something known as a “single sales factor.” Corporate taxes in Massachusetts are typically determined by three factors for a multistate company: its in-state payroll and property, and its sales to local customers. Proponents for the single-sales factor say including local operations — in-state employees and facilities — in the calculations could deter businesses from growing here.
Raytheon kicked off the fun back in 1995 when it threatened to move jobs out of state if it didn’t receive the single-sales break. Raytheon got what it wanted — but not before the measure was broadened to include other manufacturers, a change championed by AIM. Legislators later gave the same special treatment to Fidelity and other mutual fund managers.
Over time, other companies essentially became jealous. They wanted a piece of the action. Three years ago, Governor Charlie Baker proposed expanding the single-sales treatment to all sectors. The governor suggested making up for the subsequent shortfall by trimming the tax credits that the state offers to filmmakers. That didn’t go over well with movie industry supporters. A seed was planted, though.
AIM executive vice president John Regan says some out-of-state companies had complained they could be penalized if forced to switch to the single-sales approach. As a result, AIM had some concerns. But he says his group has agreed to champion a bill this time around that would give companies the option to pick between the two formulas.
On Friday, AIM’s board endorsed the single-sales bill as part of a broader legislative agenda. Representative Betty Poirier, a North Attleborough Republican, has already filed the bill at AIM’s request, Regan says. He declined to name the companies that prodded AIM to take up the cause. (AIM represents a wide swath of manufacturers, but has members from other sectors as well.)
Regan doesn’t have an estimate yet for how much the tax shift would cost. But it wouldn’t be cheap, especially if corporate taxpayers get to choose. Baker’s 2016 proposal, by one estimate, would have eventually cost nearly $70 million a year in lost tax revenue.
The potential cost guarantees that AIM will run into resistance. Senator Jamie Eldridge, a vocal warrior against corporate tax breaks, promises to fight the proposal. The Acton Democrat has already refiled a bill to strip away the special treatment from mutual fund companies; he apparently hasn’t forgiven Fidelity for shutting down a major office in Marlborough and moving jobs out of state. The left-leaning Massachusetts Budget and Policy Center has estimated that the mutual-fund tax break cost the state $143 million in 2018, while the manufacturers’ portion cost $81 million.
Jared Walczak, an analyst with the nonprofit Tax Foundation in D.C., says many states adopted the single-sales approach in the last decade. The number is up to 23 now. The prevailing idea, of course, is to hit up out-of-state companies, and lessen the burden for the local ones. You know the old saying: Don’t tax me, tax the man behind the tree.
Critics would argue there isn’t enough proof that the shift to single-sales helps stoke local job growth. But AIM would probably respond by saying that the longer Massachusetts waits to update the tax code, the more it risks being left behind.
Jon Chesto can be reached at email@example.com. Follow him on Twitter @jonchesto.