Business groups ask Baker to keep tax deduction
Major business interest groups are calling on Gov. Charlie Baker to veto legislation that would eliminate a tax deduction for multinational corporations.
In a letter sent to the governor last week, the four organizations – Associated Industries of Massachusetts, the Massachusetts Taxpayers Association, the Massachusetts Business Roundtable and the Greater Boston Chamber of Commerce – contend that reversing the deduction would threaten the state’s credibility with business.
The deduction, FAS 109, is a financial accounting standard that requires that the effects of income taxes resulting from transactions occurring in the current and preceding years be reported on an entity's financial statements for current and future years, according to the Mass. Department of Revenue. It includes accounting for certain deferred tax liabilities and assets to reflect the future tax consequences of events that have been recognized in a corporation's financial statements or tax returns.
However, FAS 109 was not implemented in Massachusetts. It was born within a larger corporate-tax raising reform in 2008 and would have allowed writeoffs over seven years to minimize the impact on state tax revenues. But lean budget years that followed after 2008 meant lawmakers never let the deduction bear fruit.
The $38.1 billion budget for fiscal year 2016 that the legislature passed last week uses the money that will continue to roll in following the repeal of FAS 109 to pay for expansion of the state’s earned income tax credit, which benefits low-income workers.
“The deduction was never meant to be permanent,” the organizations’ letter states. “It is a single deduction, phased in over seven years. “If the state had followed its original plan and allowed the deduction beginning in 2012, it would have been phased out in about three years.”
The letter said FAS 109 is necessary “because there are differences in the way companies treat assets for calculating taxes compared with financial reporting.” The 2009 federal economic stimulus legislation allowed companies to use accelerated depreciation for tax purposes, “which means they could reduce the value of their assets at a faster pace than permitted in financial statements,” the letter added.
The letter said Massachusetts has a “poor” reputation for tax predictability, based on a “perpetually low” ranking CFO Magazine, “and this repeal will undoubtedly amplify that perception.”
Read more about FAS 109 here.
(Material from State House News Service was used in this report.)
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