For many years, Massachusetts taxpayers have been used to paying a bit more than 5% on wages, interests, dividends, and long-term capital gains. The amount has decreased somewhat and currently sits at 5.1%. Given that most business owners operate on a “pass-through” basis (for example, “S” Corporations), their tax burdens are the same as the individual taxpayer. Of course, this is only part of what Massachusetts business owners are concerned about. As always, legislators are considering various bills that business owners should pay close attention to.
There is a good chance that voters of the Commonwealth may make significant changes in tax and wage laws this November. Here are three potential initiatives that may be on the ballot that could affect the business community.
Massachusetts $15 Minimum Wage Initiative
If the voters approve, the minimum wage in Massachusetts, which is currently $11 per hour, would increase by $1 per hour on January 1 of each year until 2022, when the rate would reach $15. Passage of this initiative would also call for an adjustment each year after 2022 based on the Consumer Price Index (CPI). Minimum wage for tipped employees would also increase.
- Chances of passage: A March 2018 WBUR poll indicates that 78% of voters approve.
- Impact: While this may not affect all businesses, many small retail businesses and restaurants could be profoundly affected.
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Massachusetts Sales Tax Decrease Initiative
Currently, Massachusetts consumers pay a 6.25% sales tax. The Retailer Association of Massachusetts is pursuing an initiative that would decrease the tax to 5%. Also included would be a scheduled tax-free holiday weekend.
- Chances of passage: A November 2017 poll conducted by MassInc Polling Group indicated that 69% of voters would vote in favor of the initiative.
- Impact: All consumers and retailers would experience tax relief. In the fiscal year ending June 30, 2017, $4.252 billion were collected in sales taxes. Arguably, a 25% decrease could amount to a loss of more than $1 billion in revenue.
Fair Share Amendment
Also known as the “Millionaire’s Tax,” if implemented, this law means individuals earning more than $1 million would be subject to a 4% surcharge on all income in excess of that amount. Sponsors of the initiative currently face a legal battle, as the Supreme Judicial Court (SJC) has agreed to hear a challenge that questions the constitutionality of the referendum.
Supporters want the revenue to be earmarked for education and infrastructure projects only. Those opposed argue that earmarking taxes is not supported by the Massachusetts constitution. A decision by the court is expected in summer 2018.
- Chances of passage: If the initiative finds its way to the ballot, passage is highly likely. The same November 2017 poll cited above shows that 76% of voters would approve.
- Impact: Supporters hope to see an increase of $2 billion in revenue, but detractors argue that the revenue can’t be counted on annually due to future recessions and the potential that millionaire tax payers may elect to leave the state. (See “What is the Fair Share Amendment?” to learn more.)
At this point, trying to gauge what this means for business owners is a bit premature. Legislators might enact laws that would spur sponsoring groups to forego ballot initiatives. The SJC has yet to rule on the constitutionality of the Fair Share Amendment.
Lastly, if past experiences are an accurate predictor, much could happen before the end of the 2017-2018 legislative cycle. But if the sales tax initiative and Fair Share Amendments ultimately pass, Massachusetts may see a shift in tax burden from a relative “flat-tax” environment to one that is somewhat more graduated. Stay tuned!