🔒Tax breaks for small businesses? Worcester could adopt little-used law to provide relief against one of the state’s highest property tax rates

In a December meeting, for one of the final times of his 14-year stint as a Worcester city councilor, District 3’s George Russell was faced with an all-too-familiar debate: The yearly tussle over how to set the City’s split tax rates for residential and commercial property owners. Russell compared the split tax rates to a see-saw. If you push down the residential property tax rate to provide relief to homeowners, the commercial rate has to go up to compensate. A move to lower the tax burden on commercial properties similarly increases the pain for residential property owners.

As the owner of a small, residential-focused real estate firm, Russell is all too familiar with the tax-related pain felt by both groups. “Members of this council have always fought over this before I was here and will fight over it long after I'm gone,” he said. In the end, the vote went as it has many times in the last four decades: The council chose the tax rate with the lowest possible residential rate of the 269 options presented to them. Worcester’s commercial tax rate is now $29.06 per $1,000 of assessed value, the highest in Central Massachusetts and higher than Boston’s rate of $26.96. Looking to break the dichotomy of the yearly discussion, he suggested a unique-but-rarely-used carve-out allowed under state law: a tax break for properties containing small businesses. The exemption allows for up to a 10% break for properties assessed at a value less than $1 million and exclusively housing businesses employing 10 or fewer workers. Of the 351 Massachusetts communities, 14 have adopted the exemption, including Auburn and Berlin in Central Massachusetts. As high-profile small businesses have closed in Worcester over the past two years, Russell and small business advocates say the City of Worcester could adopt this exemption, although they warn the savings needs to increase for the carve-out to substantially help struggling businesses. “We're at a tipping point, so I'm a huge fan of that tax exemption,” said Jimmy Kalogeropoulos, broker owner of Worcester-based RE/MAX Partners, who works with small business tenants and property owners.

Small business savings

Worcester city councilors have longest expressed support for small businesses; but council will set tax rates to more benefit residential property owners, and any tax break agreements typically benefit large businesses, Russell said. “When the business community talks about an equal tax rate, or moving the rate sort of closer to the equal tax rate, they always make the argument for the small businesses,” Russell said. “In reality, it's the large businesses that you know that are the ones that would mostly benefit if you made it more equal.” Worcester implementing an exemption would increase the tax burden on non-small-business commercial properties, and the relief brought by the exemption allowed under state law is unlikely to be enough to save a small business drowning in debt. Still, with Worcester losing multiple prominent small businesses since 2024, including Redemption Rock Brewing, Maker to Main grocery store, and The Queen’s Cups bakery, an exemption could serve as a useful tool in the toolbox to provide some measure of relief. Pointing to the large tax breaks given to Worcester developers, Lynn Cheney, former owner of Maker-to-Main, argued small businesses need that same level of support. “If we're looking to try to attract and keep and retain small businesses in the city of Worcester, why isn't there a more level playing field?,” Cheney said.

Providing substantial relief

Some Worcester small businesses own their own properties. Others have triple-net leases, where they are on the hook for their share of the property tax. Even if the business isn’t responsible for property taxes, it’s most certainly baked into the rent. If Worcester implemented the small business tax exemption, a property with an assessed value of $999,999 would see yearly savings of about $2,906 under the current tax rate. While better than nothing, Cheney said even the maximum possible exemption wouldn’t be a gamechanger for most small businesses. “Every penny counts in savings, but $2,900 doesn't even help me with one month's rent at either of my former locations,” she said. The exemption would be much more effective if it was updated to adjust for the modern realities of running a small business, Kalogeropoulos said. He suggests the tax break should be raised from 10% to 15%, the maximum property valuation should increase from $1 million to $2.5 million, and the cap on employees should go from 10 workers to 25. Municipalities like Worcester have the choice to opt-in to the exemption each year while setting their tax rates. To increase the tax savings beyond what’s in the state law, local governments can file a home rule petition to set their own parameters. At the town meeting in May, Auburn voters approved a petition to the legislature to raise the maximum property value to $5 million and the maximum number of employees to 25.

Kalogeropoulos said he expects at least three or four more prominent small businesses in Worcester will close in the coming months due to the impact of taxes and other market conditions in Worcester. He challenged the Worcester city council to provide some relief now before it is too late. “They all love ribbon cuttings,” he said. “When Maker-to-Main came to the Canal District, they were all here. But guess how many of them came down when she went out of business? Zero.” Eric Casey is the managing editor at Worcester Business Journal, who primarily covers the real estate and banking & finance industries.