Analyst Says Surtax Revenues Present There’s No “Tidal Wave” Of Departures
STATE HOUSE, BOSTON, JUNE 20, 2024…..Accountants proceed to sound the alarm over high-income residents leaving Massachusetts, partly to keep away from the brand new earnings surtax that even the CPAs acknowledge has led to a “surge” in state tax revenues.
In its new 2024 public coverage and competitiveness report, the Massachusetts Society of Licensed Public Accountants stated two-thirds of accounting professionals surveyed reported that not less than one high-income consumer relocated out of Massachusetts within the final 12 months.
Ninety % of accounting professionals indicated high-income shoppers are contemplating leaving Massachusetts, the report stated, and 64 % of respondents indicated the 4 % surtax on family earnings above $1 million per 12 months is a think about relocation selections.
The survey concerned 128 CPAs who collectively characterize 3,600 shoppers with annual taxable earnings of greater than $1 million.
“The highest three states to which Massachusetts residents are shifting or contemplating shifting are New Hampshire, Florida and Texas,” the report stated. “Fifty-three % of accounting professionals say that their shoppers are contemplating shifting throughout the border to New Hampshire, suggesting that the tax burden imposed by Massachusetts performs an essential half within the choice to relocate — and refuting the claims that people are simply relocating resulting from a need for sunnier climate and extra shoreline.”
Massachusetts collected $1.84 billion from the voter-approved surtax on the state’s highest earners by way of the primary 9 months of fiscal 2024, the Division of Income reported in Might. Collections from the surtax seem on observe to simply surpass $2 billion per 12 months, and Beacon Hill Democrats proceed to advance huge plans to speculate the brand new income in public schooling and transportation.
Final month, the Elevate Up Coalition, which efficiently pushed for the tax change as a constitutional modification, used information of the $1.84 billion in collections to level to investments that it stated are “making a actual distinction within the lives of individuals throughout Massachusetts.” Examples ranged from elevated public faculty scholarships and free faculty meals to upgrades on the MBTA and street restore funding for cities and cities.
Whereas collections are roughly aligning with income projections that date again to 2015, the Elevate Up Coalition used final month’s information to claim that those that claimed that multi-millionaires would flee Massachusetts relatively than pay the brand new tax “are being confirmed improper every single day.”
Evan Horowitz, govt director of the Middle for State Coverage Evaluation at Tufts College, stated some persons are leaving Massachusetts because of the new tax, however stated the income collections present that it’s not a “tidal wave.”
The tax is just too new to gauge its impression on households that earn simply greater than $1 million per 12 months versus households with incomes nicely above that threshold. Horowitz stated tax avoidance amongst high-income households is a “a lot larger problem” than the specter of households leaving Massachusetts for lower-tax states.
The surtax switched Massachusetts away from a flat earnings tax fee of 5 %. Revenue over $1 million is now taxed at an efficient 9 %, placing the speed in step with “extra burdensome states” comparable to New York, New Jersey and Vermont, based on the report, which notes the surtax was listed for inflation so the edge for the 2024 tax 12 months might be $1,053,750.
In its report, the accountants group acknowledges “a short-term surge in revenues from the surtax,” whereas contending that “the long-term uncertainty is regarding given the share of complete state revenues derived from this group of residents.”
Whereas main tax coverage adjustments don’t seem like a spotlight of high Democrats over the past six weeks of formal periods, the CPA group is asking on the Legislature to move three measures it says would make Massachusetts extra aggressive.
First, the society says Massachusetts ought to be a part of 21 different states by decoupling from the federal restrict on enterprise curiosity expense to assist firms which have already invested in Massachusetts and to “be sure that companies based mostly in Massachusetts deduct extra curiosity from borrowing, which ends up in extra infrastructure investments in our yard.”
A 2023 tax reform regulation elevated the property tax exemption to $2 million and the CPA group recommends elevating it additional to $5 million, and adjusting it for inflation. Neighboring states supply extra beneficiant exemptions, together with New York ($6.1 million), Vermont ($5 million) and Connecticut, which is aligned with the federal threshold at $12.92 million. New Jersey repealed its property tax in 2018.
“Regardless of progress, we consider there stays room for enchancment,” the report stated. “With the tax reform package deal signed into regulation, Massachusetts has transitioned from possessing the bottom property tax exemption to now rating because the third lowest within the nation.”
CPAs additionally proceed to name on Beacon Hill to eradicate or reform the “sting tax,” an entity-level tax imposed on bigger S-corporations. The group says the tax was enacted within the Eighties to safeguard tax advantages for small companies and degree the enjoying subject between massive S-corporations and C-corporations, however now “negatively units Massachusetts aside from different states by way of its taxation.”
“The thresholds for web earnings triggering the extra excise tax ($6 million and $9 million) have been neither up to date nor adjusted since its authentic enactment,” the group stated. “Consequently, an growing variety of small companies have been adversely affected.”
With the brand new earnings surtax, many small companies and S-corporations discover themselves able the place shareholders are topic to a tax burden exceeding the 8 % company tax fee, “which is in direct battle with the unique intent of the regulation,” the report stated.
