BOSTON (SHNS) – Tax credits for harbor maintenance and medical device companies’ user fees and a tax exemption for certain patent-related income “no longer serve their desired purpose,” according to Sen. Adam Hinds.
His Senate colleagues seemed to agree, voting Tuesday to adopt his budget amendment that would strike those three tax breaks from state law.
Hinds, the Senate Revenue Committee chair, is among the members of a state Tax Expenditure Review Commission created under a 2018 law to analyze the different tax exemptions, deferrals, credits and deductions that have been adopted over the years with the intention to accomplish certain goals and behaviors.
The commission put out its first report in March, and Hinds said his amendment tries to convert that report “into us taking action on those recommendations and recognizing when a tax expenditure is out of date and no longer necessary.”
“We don’t take the time to understand basic questions about these expenditures,” the Pittsfield Democrat said before his amendment was approved on a voice vote. “Does it go to the intended beneficiaries? Is it a meaningful incentive for the purpose that we had agreed to? Does it justify the cost? Is it relevant for our daily lives in our modern economy?”
The commission said Massachusetts is the only state to provide “a dollar-for-dollar offset of the federal harbor maintenance excise tax,” and that credit is claimed by a “small number” of filers — there were 79 to 88 claims annually during the 2015 to 2018 tax years.
“We conclude that while this credit does provide an incentive to use Massachusetts ports, we find it does not have a measurable benefit, and does not have any relevance today,” the report said.
The commission members also strongly disagreed that the medical device user fee credit — which reimburses companies for certain fees paid to the U.S. Food and Drug Administration — “provides a meaningful incentive.” The report said, “The use of this credit by less than half a dozen large companies is a strong indication that it is not relevant. While its low cost suggests it might be easily justified, we conclude the average tax credit is too small ($34k) to provide a meaningful incentive to the relatively large businesses that claim it.”
Massachusetts exempts from taxes for five years the income derived from the sale or transfer of certain patents that support energy conservation or alternative energy, and are approved by the commissioner of energy resources, according to the report, but the exemption is “so narrowly structured that no one has ever actually used it.”
According to figures in the report, the two tax credits for harbor maintenance and medical device fees would add up to an estimated $2 million in revenue loss in fiscal 2022, the year covered by the $47.6 billion budget the Senate is debating.
When he unveiled his committee’s version of the budget earlier this month, Senate Ways and Means Chairman Michael Rodrigues also pointed to the commission’s findings around the state’s film and television production tax credit.
The commission landed between “strongly disagree” and “somewhat disagree” as to whether the film tax credit justified its annual cost of $56 million to $80 million. “Commission members suggested that alternative approaches, such as direct subsidy of construction of film studios in the Commonwealth might lead to more investment than the existing credit, which instead tends to promote immediate short-term spending, and might promote creation of more permanent jobs in the Commonwealth at lower expense,” the report said.
The credit is set to expire at the end of 2022, and while the House during its budget deliberations unanimously voted to remove the sunset and make it permanent, the Senate plan instead calls for pushing the sunset date to Jan. 1, 2027 while also overhauling the credit itself.
To qualify for the credit, a production company must spend at 50 percent of its filming budget or conduct at least 50 percent of its principal photography days in Massachusetts. The Senate budget (S 3) would increase that threshold to 75 percent, plus cap salaries or compensation eligible for the credit at $1 million and eliminate transferability of credits.
The Senate on Wednesday rejected a series of amendments Minority Leader Bruce Tarr had proposed around the film tax credit. The House and Senate differences on the film tax credits, and the tax law changes adopted by the Senate on Tuesday, will be reconciled by a six-member conference committee.