Massachusetts Gov. Charlie Baker (R) approved a $47.6 billion fiscal 2022 budget that contains new and extended tax credits, but sent back a provision that would create a workaround for the federal cap on the state and local tax deduction.
The budget, signed by Baker July 16, includes changes to the film tax credit's minimum requirements and elimination of the January 2023 sunset date, a credit for some employers who hire disabled workers, and an extension of the sunset date for the historic rehabilitation credit from December 31, 2022, to December 31, 2027.
The budget as approved by the legislature and sent to Baker included a provision that would allow passthrough entities to file and pay taxes at the entity level. Eligible passthroughs would pay a 5 percent excise tax on their Massachusetts income, for which passthrough owners could claim a refundable credit equal to 90 percent of each member's share of the taxes paid. The $10,000 SALT deduction cap created by the Tax Cuts and Jobs Act doesn't apply to taxes paid at the entity level, so the workaround would allow passthrough owners to skirt the cap.
But Baker sent that section of the budget back to lawmakers with a recommendation that the provision be amended to allow a credit equal to 100 percent of each member's share. "While I strongly support providing this type of benefit to Massachusetts residents who are members of pass-through entities, 100% of the optional excise should be returned to the taxpayer," he said in the amendment letter. "Where struggling businesses are still emerging from the pandemic and state revenues are strong, taxpayers should be allowed to reap the full benefit of this policy."
Baker’s office did not respond to a request for comment by press time.
In a July 16 release, Baker said, “The FY22 budget makes historic investments in our communities, schools, economy, and workers as Massachusetts emerges from the pandemic.” He also noted that the budget did not include any new taxes.
He said he vetoed a budget provision that would have delayed implementation of the charitable tax deduction because “the combination of strong state revenues and serious needs facing non-profits and charitable organizations necessitate this tax deduction’s going into place.”
Further citing the state's revenue projections, the release noted that the budget's two-month sales tax holiday will "provide further relief for small businesses and residents, especially lower-wage workers who are most impacted by the sales tax.”