Big Mass. employers land a long-awaited win
Maybe it was the map that made the difference?
Several big Massachusetts employers sent a letter to key lawmakers during last summer’s tax debate on Beacon Hill with a map showing just how many states have adopted what’s known as the “single sales factor” approach to determine corporate taxes. Most of the states — including all but one in the Northeast — were colored blue, meaning they determine a company’s income taxes using its in-state sales alone.
Then there was Massachusetts, left in white, one of a handful of states that use a “three factor” method that sets corporate tax bills based on a mix of instate property, local employees, and sales.
The argument implied by the map: It’s time for Massachusetts to join the crowd and adopt “single sales” for everyone. Particularly in this era of remote work and relocations, Massachusetts risks being left behind. Taxing a company based on real estate holdings and local employment could incentivize growth elsewhere. Executives who signed the June 28 letter came from BNY Mellon, Citizens Bank, Dunkin’, Santander, State Street, TJX, and Tripadvisor.
Their wish may soon be granted. Last Thursday, the House of Representatives overwhelmingly approved a $1.1 billion tax reform package with a wide range of changes. They include more tax breaks for renters, seniors, and dependent care; a cut in short-term capital gains taxes; and doubling the minimum threshold for the estate tax. Included, too, is language shifting how corporate taxes get calculated, from the
“three factor” apportionment method to a “single sales” system for all companies that do at least some business outside of the state. The net cost to the state, according to a top House aide, would be $79 million a year.
The single-sales debate has simmered on Beacon Hill for quite some time. In 1995, after Raytheon complained, the Legislature created a carve-out for defense companies, allowing them to go with the single-sales factor. That change was later broadened to encompass all manufacturers. Mutual fund managers quickly asked for similar treatment, and got it. These companies and their lobbyists argued they would maintain job levels in the state, if not grow them, if they weren’t being penalized by the tax code.
In many cases, it didn’t quite work out that way. As manufacturing jobs continued to disappear, progressives took aim at the tax breaks. So much for delivering on those job-growth promises, they said.
But other states continued to switch to single sales across the board, in turn strengthening the argument for extending the single-sales treatment to all industries in Massachusetts.
State Street, one of the state’s biggest financial companies, has helped lead the crusade. (Only a small fraction of State Street’s business currently benefits from the mutual fund exception.) By early 2020, State Street joined with several other like-minded employers in pushing the matter. But the idea sat on the back burner during much of the COVID-19 pandemic.
Now, though, economic competitiveness has become the issue of the day, particularly with the passage of the millionaires tax in November and the growing focus on people leaving the state.
On Feb. 1, the Greater Boston Chamber of Commerce and the Massachusetts Society of CPAs included the single-sales switch in a series of recommendations to the Legislature — and yes, they too produced a map, showing Massachusetts as an outlier. More recently, the 495/MetroWest Partnership, another business group, wrote to its State House delegation, arguing that the three-factor system puts Massachusetts-headquartered companies at a distinct disadvantage while favoring out-ofstate companies that do business in the state. (TJX, the retail behemoth in Framingham, is based in the Partnership’s coverage area and would benefit from the switch.)
After the House passed its bill, accolades began to flow from the companies behind that 2022 letter.
State Street spokesman Ed Patterson said the switch would remove barriers to in-state job growth and capital investments, and more fairly divide the tax burden between in-state and out-of-state companies.
Caitlin Brosseau, the head of government affairs at Tripadvisor, said home-grown businesses that sell in multiple states should be encouraged, not penalized, for adding jobs in Massachusetts — especially with the rise of remote work. And Lisa Murray, Citizens Bank’s Massachusetts president, said moving to the single-sales factor will help level the playing field for companies like hers with deep ties to Massachusetts. (Citizens, while based in Rhode Island, has a significant workforce in Massachusetts, and is the state’s no. 2 retail bank based on market share.)
Of course, not everyone is cheering.
Raise Up Massachusetts, the union-funded coalition that promoted the millionaires tax, slammed the single-sales switchover, saying it “would give a massive tax break to large, profitable multi-state corporations that don’t already pay their fair share,” while the Massachusetts Budget & Policy Center, a leftleaning think tank, referred to it alongside the capital gains and estate tax cuts as regressive tax breaks for the wealthy.
Jared Walczak, a researcher at the pro-business Tax Foundation, said that if a standard corporate tax system could be imposed on all states, it would make sense to include property and payroll, to reflect the use of state services such as roads and schools. That’s not the case, he said, as evidenced by the fact that 31 states plus Washington, D.C., use the sales factor across the board (and another six have no corporate income tax whatsoever).
The single-sales factor shifts more of the Massachusetts tax burden to companies in other states, he added, and it’s hard to blame state lawmakers for picking that option when most other states take advantage of it.
Of course, the House bill is the start of the process. It’s hard to know if the Senate will include the measure in its upcoming tax plan, or if it will need to be resolved in a House-Senate conference committee. Senate president Karen Spilka and Senate Ways and Means chairman Michael Rodrigues have previously backed single-sales factor bills. All Rodrigues would say now is that he has supported “single sales” in the past, and that it will be on the table for conversations with his Senate colleagues. A spokeswoman for Spilka, whose district includes the TJX headquarters, said she’s not going to comment on the House package at this time.
Who knows? Maybe soon, this tax break won’t just be available to certain favored industries, but to every multistate company with significant operations here. And maybe the next time a map gets passed around highlighting state tax policies, there won’t be a Massachusetts shaped hole anymore.