Massachusetts
Massachusetts Tax Relief Package Is a Step in the Right Direction
Massachusetts still has a long way to go to modernize its tax infrastructure, but the decision to enact the first comprehensive tax relief package in more than 20 years removes some of the most obvious tax downsides of living and investing there.
The package includes 17 relief provisions for businesses, estates, and individuals. The total estimated cost of the tax expenditures is $951 million, $571 million of which is attributable to fiscal year 2024.
Some provisions, such as the transition to single sales factor apportionment, are a significant departure from Massachusetts’ current tax system. Other components, such as the reduced short-term capital gains rate, are more modest changes that represent the concessions required for major tax reform.
Single Sales Factor Apportionment
The package mandates single sales factor apportionment for corporate income tax purposes starting Jan. 1, 2025. Although this is a tax expenditure, supporters maintain that it will help Massachusetts to attract and retain employers.
Not every out-of-state company will applaud the transition—companies with minimal Massachusetts payroll and property likely will see their liabilities increase. The switch to single sales factor makes relocating to Massachusetts a tax-neutral decision for these companies, but it doesn’t necessarily create a tax incentive to relocate.
Consequently, single sales factor might not lead to major corporate relocations to Massachusetts even though it brings the commonwealth closer to the tax rules of other states.
Estate Tax Cap
Massachusetts’ $1 million estate tax exemption was tied for the lowest in the country. The package increases the estate tax exemption to $2 million and introduces a uniform estate tax credit starting Jan. 1, 2023.
This change not only eliminates Massachusetts estate tax liability for taxable estates between $1 million and $2 million, but also eliminates the “cliff effect” of the prior law through a $99,600 uniform estate tax credit. Gov. Maura Healey (D) said the increase intends to “reduce the tax burden on smaller estates, which historically have filed over 70% of estate tax returns.”
The increase is a major change in estate tax policy, but crystallizing the exemption at a set dollar figure creates the same vulnerabilities as the prior system. While $2 million might seem like a generous exemption today, inflation will erode the significance of the increased cap for middle-class families.
Short-Term Capital Gains Rate
Massachusetts’ short-term capital gains rate of 12% was among the highest state income tax rates in the country. The tax package reduces the short-term capital gains rate to 8.5% starting Jan. 1, 2023. Although the House proposed to reduce the rate to 5% over two years, the final bill split the difference—business-oriented proponents and progressive opponents of cutting the rate are both dissatisfied with this compromise.
An 8.5% rate is still punitive on a category of income that’s arguably “derived from the same class of property” as long-term capital gains. Whereas the federal tax code rewards long-term capital gains through a lower tax rate, Massachusetts punishes short-term gains at a higher rate and imposes the standard 5% rate on long-term gains.
This discrepancy with federal tax policy—rather than the difference between long-term and short-term rates—presents the most significant obstacle to high-net-worth individuals who are considering investing in the commonwealth.
Family Assistance
The package includes several tax breaks directed toward lower-income residents. These provisions—including a child and dependent tax credit, an increased earned income tax credit match, an increased senior circuit breaker credit, and an increased renters’ deduction—received bipartisan support in the House and Senate.
Joint Filing Requirement
The package requires individual taxpayers to file a joint Massachusetts return when filing a joint federal return starting Jan. 1, 2024. This provision closes a loophole that married couples might have used to avoid or mitigate the newly approved 4% millionaires’ surtax.
Because the relevant Massachusetts constitutional amendment refers to an “additional tax of 4% on that portion of annual taxable income in excess of $1,000,000 (one million dollars) reported on any return related to those taxes,” wealthy couples have considered jointly filing at the federal level, but separately in Massachusetts, starting in 2023.
The new law likely will be challenged, but there’s nothing in the constitutional amendment that constrains the commonwealth’s ability to require state conformity with an individual’s federal filing status.
Pass-Through Entity Tax Analysis
The current pass-through entity excise tax rate is 5%, which is equal to the standard individual income tax rate. The package requires the Department of Revenue to analyze the feasibility and potential impact of a new pass-through entity excise tax rate of 4%, which is designed to allow individuals subject to the 4% millionaires’ surtax to benefit from a supplemental PTE excise election.
Pending the results of the Department of Revenue’s analysis, the legislature likely will consider additional legislation to enable pass-through entities to make supplemental allocations of 4% PTE excise credits to high-income members.
Although it’s aimed at high-income taxpayers, a supplemental PTE excise credit shouldn’t be very controversial because it’s likely to be as revenue neutral as the standard credit.
Outlook
The extent to which the $951 million in estimated tax expenditures will stimulate new investment in the commonwealth remains to be seen, but business groups, policy leaders, and practitioners are generally optimistic about the changes.
The compromise bill illustrates the ability of the governor and the legislature to build consensus around a central theme of competitiveness and tax relief, even if some of the provisions are less generous than those originally proposed.
The governor, legislature, and Department of Revenue must devote more time to paring down the idiosyncrasies and anachronisms of Massachusetts’ tax system, but the package is a significant step forward.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Matthew A. Morris is a tax partner at Sherin and Lodgen, a law firm in Boston.
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Massachusetts
Massachusetts court weighs whether all prostitution is sex trafficking
“So every John is a sex trafficker?” asked Massachusetts Supreme Judicial Court Scott L. Kafker in the courtroom last week.
“Yes, your honor,” replied Plymouth County Assistant District Attorney Julianne Campbell.
The case—Commonwealth v. Garafalo—represents the latest assault on civil liberties and basic language to be carried out in the name of stopping sex trafficking.
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Victimizing ‘A Fictitious Individual Created by Law Enforcement’
It’s long been a goal of certain radical feminists to define all sex work as sex trafficking. If you completely remove agency and free will from the equation—at least for women—then anyone who accepts money for sexual activity can be a victim and anyone who makes or facilitates this payment a criminal.
This paradigm is the basis for the “Nordic Model” of regulating prostitution, in which paying for sex is illegal but the basic act of offering sex for money is not. The Nordic model is established in many European countries, was adopted last year in Maine, and is gaining ground in the U.S. (where it’s sometimes, confusingly, called the Equality Model).
In keeping with this paternalistic mindset, some places have also started to raise penalties for prostitution customers, even elevating solicitation from a misdemeanor to a felony. Meanwhile, at the federal level, trying to pay for sex with someone under age 18 counts as sex trafficking even when the solicitor does not know the minor’s actual age.
Massachusetts may take these ideas one step further and declare anyone who tries to pay for sex at all to be a sex trafficker, thereby defining all prostitution, even between consenting adults, to be a form of sex trafficking.
A case that came before the Massachusetts Supreme Judicial Court (SJC) last week involves a prostitution sting conducted by Massachusetts state cops in 2021. The officers, posing as adult sex workers, posted ads online and arrested people who responded to the ads and attempted to meet up for paid sexual activity.
Regrettably, this type of sting is incredibly common in the U.S. It typically results in solicitation charges—still a misdemeanor in most places—for those ensnared. But in this case the state indicted those who responded to the sham ads on sex trafficking charges.
Massachusetts law says that anyone who “subjects, or attempts to subject, or recruits, entices, harbors, transports, provides or obtains by any means, or attempts to recruit, entice, harbor, transport, provide or obtain by any means, another person to engage in commercial sexual activity, a sexually-explicit performance or the production of unlawful pornography” is guilty of trafficking of persons for sexual servitude—a.k.a. sex trafficking. The crime is a felony, punishable by at least 5 years in prison (without eligibility for probation, parole, or work release) and a possible 20 years, plus a potential fine of up to $25,000.
The five defendants in Garafalo, arrested in the 2021 sting and charged with trafficking of persons for sexual servitude, pushed back against the charges, filing a motion to dismiss them in 2022.
State Judge Maynard Kirpalani agreed to dismiss the charges. “The grand jury heard no evidence that there were any actual victims in the cases involving any of the Defendants, as the woman in the advertisements was a fictitious individual created by law enforcement, and there was no money and/or sexual services exchanged,” wrote Kirpalani. “Consequently, there was no evidence that any of the Defendants knowingly enabled or caused, or attempted to enable or cause, another person to engage in commercial sexual activity.”
‘We’re Going To Take Tvery Single John…and Put Them in Prison for Five Years?’
The state appealed, but the Appeals Court judge also sided with the defendants. So the state appealed again.
The Massachusetts high court heard oral arguments for the case on January 6.
Massachusetts’ position is that the state’s sexual servitude statute clearly captures paying for sex among its prohibited activities. It comes down to the word “obtain,” the state argued.
But at the same time the state legislature enacted a sex trafficking statute in 2011, it also raised the penalty for “soliciting a prostitute,” making this misdemeanor crime punishable by “a fine of not less than $1,000 and not more than $5,000” and up to two and a half years in jail.
“We’re going to take every single John, charge them with sex trafficking, and put them in prison for five years? I don’t think that was the intent,” defense attorney Patrick Noonan told Massachusetts Supreme Judicial Court justices last week. It would make the misdemeanor offense completely redundant.
It’s unclear when a decision will be issued, but “SJC cases are typically decided within 130 days,” the Boston Globe reports.
The Dangers of Exploitation Creep
This is an important case to watch for folks concerned with the inflation of human trafficking and sex trafficking—concepts that have undergone a massive case of what sometimes called “exploitation creep.” In recent decades, we’ve seen a series of attempts to expand the parameters of these crimes from truly heinous and coercive acts to much less serious offenses.
In many cases, this has involved roping in third parties—drivers, websites, hotels, social media platforms, sales software companies, etc—into liability for coercive or violent acts that did take place but of which they had only the most tangential and unwitting involvement. Another element of this impulse involves defining consenting adult sex workers as prima facie victims and anyone who pays them as a victimizer or trafficker.
If Massachusetts’ high court justices side with the state, it obviously won’t bind other states to similar interpretations of their own sex trafficking statutes. But plenty of police agencies and prosecutors across the country already refer to plain old prostitution stings as “sex trafficking operations” and the arrest of potential prostitution customers as a “human trafficking bust,” even when the only charges brought are misdemeanor solicitation charges. The authorities in many states would clearly welcome the opportunity to include attempting to pay for sex under the official rubric of sex trafficking.
If Massachusetts’ top court greenlights the state’s attempt to charge sex-work customers as sex traffickers, you can bet it will encourage authorities in other states to play faster and looser with their own definitions. If the court sides with the state here, I think we’ll be looking at a major escalation of an already dangerous trend.
Labeling people who want to pay a willing adult for sex as sex traffickers is certainly unfair to those people, and not just because they can be imprisoned for so much longer. It’s one thing to have a misdemeanor arrest on your record or to have to disclose a solicitation conviction; it’s quite another to have a felony record and have to tell people you’re a convicted sex trafficker.
And the negative consequences of this shift don’t stop with those convicted. Defining all prostitution as sex trafficking threatens to drive the industry further underground and to make customers less likely to engage in screening protocols and other safety measures, making the work more dangerous for adult sex workers and for adult and minor victims of sexual exploitation alike.
It also takes resources away from fighting crimes where there are actual victims, instead encouraging cops and prosecutors to conduct sure-thing stings where the only “victim” is an undercover cop.
And it does all this while letting authorities ratchet up sex trafficking arrest and conviction numbers, confusing the issue by conflating two very different things in public data. This spike in arrests and convictions can then be used to stoke public fear and build demand for more action. It’s can be used to justify raising police budgets, expanding surveillance power, suppressing online speech, and generally calling for more tough-on-crime policies. It can also be used to call for new regulations on businesses as diverse as massage parlors, hotels, and social media platforms.
Policies like these affect people far beyond sex workers and their clients, and they do nothing to help actual victims of sexual violence, coercion, and abuse. Let’s hope Massachusetts justices see the state’s ploy for what it is and make the right call here.
More Sex & Tech News
Things aren’t looking good for TikTok after a U.S. Supreme Court hearing last week considering a law that would force the platform’s parent company, ByteDance, to sell off its U.S. operations or be banned. Reason‘s Robby Soave has written a rundown of what transpired in court. “The Supreme Court appeared largely—though not entirely—unmoved by arguments that a federal ban on TikTok would violate the First Amendment rights of the app’s millions of American users,” writes Soave:
During oral arguments before the Court on Friday, the justices seemed inclined to agree with the federal government that a national security rationale was sufficient to force the app’s Chinese parent company, ByteDance, to sell to an American company…. President-elect Donald Trump opposes the ban and petitioned the Court to delay it until he takes office so that an alternative can be worked out. Shark Tank investor Kevin O’Leary and billionaire Frank McCourt have offered to buy the app for $20 billion, but ByteDance has insisted that it would sooner comply with the ban than sell the company. Supporters of the ban tend to see this as evidence that the Chinese government deems TikTok too useful for its nefarious propagandistic purposes.
Of course, even if it were true that the app is rife with Chinese propaganda, Americans enjoy the First Amendment right to consume such content. The justices seemed most skeptical of the government’s case to the extent it hinged on this point. Justice Elena Kagan likened the banning of TikTok to the Red Scare, in which the federal government violated the free speech rights of American communists due to their affiliation with the Soviet Union.
“That’s exactly what they thought about Communist Party speech in the 1950s, which was being scripted in large part by international organizations or directly by the Soviet Union,” said Kagan.
Several justices also seemed disturbed by the secretive nature of the government’s case against TikTok. National security experts have posited that TikTok poses a fundamental risk, but the evidence they showed to lawmakers has not been released to the public. Justice Gorsuch objected to “the government’s attempt to lodge secret evidence in this case without providing any mechanism for opposing counsel to review it.”
If it was just a matter of TikTok itself being banned, the justices would probably deem this an impermissible, content-based suppression of speech. Unfortunately, most of the Court seemed sufficiently persuaded that forcing ByteDance—a foreign company that does not itself enjoy First Amendment rights—to sell the app was not necessarily a content-based restriction on speech.
What is Tubi? You might find Tubi tucked away among the apps preloaded on your Smart TV. The free, ad-supported streaming service owned by Fox fields “the kind of movies you might have once found mindlessly flipping through the channels, back before streaming came along and algorithms began crafting our entertainment diets,” writes The Washington Post‘s Travis M. Andrews:
Tubi isn’t only filled with so-bad-they’re-good movies. It’s got a bit of everything. A Criterion movie here. A strange Rob Lowe-hosted game show there. “Bad Boys,” “Dances With Wolves” and every episode of “Columbo” and “The Magic School Bus” are neighbors on the streaming service. It’s like a T.J. Maxx or a Marshall’s: an awful lot of bargain-bin fare, not particularly organized—currently, you’ll find “Despicable Me 3” but not its predecessors—but also packed with diamonds in the rough if you’re willing to spend time sorting through the riffraff.
Today’s Image
Massachusetts
Person sledding injured in collision with tree in Sherborn
One person was injured while sledding with their family in Sherborn, Massachusetts, on Sunday.
Sherborn Fire and Rescue says they were called to Pine Hill off of Pine Hill Lane for a technical rescue after an adult struck a tree while sledding.
Firefighters were able to rig a hoist system to safely lower the patient down the hill to the field where their UTV was waiting to take them to an ambulance.
The injured person was transported to a local hospital for treatment. There was no immediate update on the extent of their injuries.
Further details were not provided.
Massachusetts
New Hampshire man plays Mass. lottery, wins $25,000 a year for life prize
A New Hampshire man who played the lottery in Massachusetts won $25,000 a year for life.
Joseph DeFeudis, of Pelham, N.H. won $25,000 a year for life during a “Lucky for Life” drawing held on Nov. 16, 2024. The first five numbers on DeFeudis’ ticket matched the drawn numbers.
He bought his winning ticket Ted’s Stateline Mobil at 551 Broadway in Methuen.
DeFeudis claimed his prize on Jan. 2, and chose the cash option to receive a one-time payment of $390,000 before taxes.
The New Hampshire man told the Massachusetts State Lottery officials he plans on retiring with his prize.
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