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Chesto Means Business

Big Mass. employers join together to push for corporate tax switch

The State Street Bank building in Boston in 2017.David L Ryan/Globe Staff/File/Globe Staff

When it comes to corporate taxes, mutual fund managers and manufacturers enjoy a special status in Massachusetts.

Maybe not for much longer.

A coalition of several major employers is pushing state lawmakers to spread the love. At issue is a wonky-sounding prize known as “single-sales factor” apportionment. The mutual funds and manufacturers already have the tax benefit, estimated to be worth more than $200 million for those sectors alone. Plenty of other businesses have long envied them for it.

It can be a touchy topic at the State House. Critics will inevitably decry this as yet another giveaway to big corporations — especially coming after the massive tax cut they received from Congress in late 2017.


This new coalition sent a letter on Dec. 30 asking Beacon Hill leaders to extend the single-sales factor to all industries in the state. The letter was addressed to the co-chairmen of the revenue committee and was also sent to several other top legislators, including House Speaker Bob DeLeo and Senate President Karen Spilka.

Corporate taxes in Massachusetts are typically determined by three factors for employers that have operations in multiple states: their in-state payroll and properties, and their sales to customers here. That system, the coalition says, puts competitors based in Massachusetts at a competitive disadvantage. They’re essentially penalized, the argument goes, for having sizable operations here. Better, they say, to calculate the taxes on in-state sales alone.

The list of companies that signed this letter is varied, intentionally so: retailers BJ’s Wholesale Club and TJX, financial giants State Street and BNY Mellon, Spanish banking giant Santander, money manager Eaton Vance, and travel website operator TripAdvisor. (BNY Mellon is based in New York, but it has large operations in Boston and Everett, and Santander’s US operation is based in Boston.)


This debate dates back to 1995, when Raytheon threatened to move jobs out of state if it didn’t get the single-sales tax break. Eventually, Raytheon got what it wanted from the Legislature, but the measure was broadened to include other manufacturers. Then, Fidelity Investments and other fund managers won the break as well.

This new coalition notes in its letter many states that compete with Massachusetts for businesses have switched to the single-sales factor in recent years, including New York, Rhode Island, and Connecticut. The letter describes the shift as a “conscious policy decision . . . to more fairly balance the tax burden between in-state employers and out-of-state employers.”

Jared Walczak, an analyst at the nonprofit Tax Foundation, said the once-traditional three-factor apportionment is dying off, with only five states using it exclusively for most industries at this point. Instead, he said, 23 states and the District of Columbia use the single-sales factor, and other states are moving in that direction. Is it time for Massachusetts to join the crowd?

Executives at Needham-based TripAdvisor sure seem to think so. Spokesman Brian Hoyt said a move to single-sales for all industries would put local companies on an equal footing with rivals based elsewhere. A move to single-sales, he said, could encourage local employers to invest more here and possibly attract new companies to the state.

As a mutual fund manager, Eaton Vance already benefits from the break, to some extent. But a significant portion of the company’s revenue comes from products that aren’t mutual funds and is thus taxed with the three-factor system. Spokeswoman Robyn Tice said Eaton Vance supports extending single-sales to all because it will streamline the state’s tax system and balance the tax burden between in-state and out-of-state employers.


Associated Industries of Massachusetts began a lobbying effort a year ago for a bill that would give companies the option to choose between the single-factor and three-factor approaches. The revenue committee discussed the bill in a public hearing last June, and it remains before that committee today.

Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation, said the single-sales switch has been a hot topic of conversation for a working group that Spilka assembled to look at various tax policies. Governor Charlie Baker has supported the switch in the past, McAnneny said, and Spilka has shown a willingness to consider it.

So what’s the downside? In a word: money. There’s widespread agreement that the move to single-sales will result in lost tax revenue for the state. How much is an open question.

The left-leaning Massachusetts Budget and Policy Center previously estimated that the breaks for mutual-fund companies and manufacturers cost the state $224 million in fiscal 2018 alone. Kurt Wise, a tax policy analyst at the Boston-based think tank, said the shift to single sales has been proven, in state after state, to be a money-loser.

Wise doesn’t buy the argument it will stoke economic development. Taken together, he said, the mutual fund and manufacturing industries have shed tens of thousands of jobs in Massachusetts during the 20-plus years they’ve benefited from the tax break.


But state lawmakers may decide it’s ultimately a fairer approach, rather than continuing to play favorites.

Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.