Gov's Plan For Corporate Taxes Draws Concern
Leaders question closing so-called 'loopholes'
Michael Ellis, president and CEO of the Greater Gardner Chamber of Com-merce, likes many of the spending priorities he sees in the state budget proposed by Gov. Deval Patrick.
He says new expenditures like a $15 million line item for regional workforce training could help spur the state economy in the face of the current nationwide economic downturn.
"It's exceptional," Ellis said. "That is very badly needed money." But Ellis and other business leaders in the area are less than thrilled about one of the ways the governor proposes to fund the new spending.
Patrick's plan calls for closing "corporate tax loopholes," but some business leaders say that's a misleading way to describe the proposals.
The two chief proposed changes to the state tax codes are known as "combined reporting" and "check the box conformity."
Combined reporting changes the way companies operating in multiple states report their earnings, something Patrick argues would keep them from shifting income between subsidiaries to minimize their tax burdens.
Check the box conformity would prevent companies from classifying themselves as corporations at the federal level while using a different designation on their state tax forms. According to the governor's office, Massachusetts is the only state that allows different designations on the state and federal level.
Passage of the tax code changes in the legislature is far from assured, but in the Worcester area, companies are already looking at how the new laws would affect their taxes.
Return To Taxachusetts?
Michael Lanava, business resource manager for the Worcester Regional Chamber of Commerce, said he sees many businesses checking with their accountants on what the changes would mean to them.
"They're just trying to figure out, if this is the case, what will the impact be on the bottom line," he said.
That flurry of activity at accounting offices could indicate another problem with the proposed tax code change, according to Eileen McAnneny, senior vice president of the Associated Industries of Massachusetts, which opposes the changes.
Ellis argues that the tax code changes could also hurt the state's prospects for attracting new companies. Over the past 15 years, he said, state officials have done a good job of shedding the "Taxachusetts" image.
"Then all the sudden we want to change that course? I would suggest that's a bad tack," he said.
Patrick argues that the tax code changes would simply level the playing field, making sure large corporations follow the same rules as smaller companies. And his budget also includes another tax change he says would help the business community as a whole: a reduction of the state corporate tax rate by 13 percent over three years, reducing the rate from 9.5 percent in fiscal year 2009 to 8.3 percent in fiscal year 2012.
But McAnneny says the cut would not balance out the tax code changes since it will take so long to go into full effect and could easily be reversed in later years.
At the same time that business leaders are fighting to keep taxes low, some say they need more state funds to encourage investment. Ellis says his biggest complaint about the governor's budget is that he'd like to see more money for local aid to help cities and towns pay for schools, public safety and other services. Those kinds of resources are crucial to draw companies to the state, he said.
As a chamber leader, Ellis said, he wouldn't advocate for an increase in any taxes to support those kinds of programs, but he said he doesn't understand why state officials aren't looking for new revenue sources such as an increase in the sales tax.
"We can't talk about cutting expenses anymore," he said. "What are you going to cut? At some point we have to fix our roads. Honestly if I were an elected official I would advocate for raising taxes. Somebody should be suggesting something."
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