Massachusetts: Income Tax Surcharge

An Income Tax Surcharge Will Mean Higher Taxes for Small Business Owners

On November 8th, Massachusetts voters will decide on a ballot measure that institutes a graduated income tax levying a 4% surcharge on all income over $1 million. This will include pass-through small businesses like partnerships, limited liability companies, subchapter S-corporations, and sole-proprietorships.

While proponents claim Income Tax Surcharge only impacts the state’s wealthiest earners, they fail to mention many small businesses will also be subjected to this 80% tax hike. While most small employers who file their taxes as pass-through entities may never earn $1 million in revenue annually, many will exceed that threshold when they opt to sell their business at retirement triggering the new tax.

Perhaps the biggest danger is that this effort changes the state constitution, ending Massachusetts’ current 5% flat income tax rate. This mean if this tax hike irreparably damages the state’s economy it will take, at minimum, four years to undo.

How the Income Tax Surcharge Impacts Small Business

  • Nearly two-thirds of Massachusetts small businesses are pass-through entities (partnerships, limited liability companies, subchapter s-corporations, and sole-proprietorships) and file their taxes as individuals that could trigger the 9% income tax rate.

  • Reports indicate half of the revenue generated from the income tax surcharge will be from one-time events. That includes a small business owner selling their business or an individual selling their home. Small business owners often do not have pensions or 401Ks and rely on the sale of their operation to fund their retirement. Taxing them at a 9% rate will deplete their retirement nest egg, money they have to live on for the rest of their lives.

  • The Income Tax Surcharge also threatens small business growth. Owners will often sell a portion of their business to fund capital improvements and expansion, and the proposed tax increase will reduce investment and hinder small business job creation and economic growth.

  • Massachusetts is flush with revenue right now and does not require additional taxes. In fact, Massachusetts collected so much excess revenue in 2022 that the state will return nearly $3 billion to the taxpayers under the 62F law (the tax cap law). Additionally, the state received billions of dollars in federal aid for education and transportation, with billions of dollars in aid currently left unspent.

  • Proponents are falsely claiming the revenue from the Income Tax Surcharge will be used for additional transportation and education funding. However, Massachusetts law authorizes the state legislature to allocate funds and lawmakers can simply replace existing revenue with the money generated from the income tax surcharge. The Income Tax Surcharge simply writes a blank check for Beacon Hill lawmakers to continue their out-of-control spending.

NFIB urges Massachusetts voters to reject this dangerous 80% tax hike that will impact the small business owners that spent a lifetime investing in the communities and creating jobs for our families, friends, and neighbors.

Boston Globe Millionaires tax proceeds are supposed to bolster education and transportation. Lawmakers would decide if they actually do.

Published by The Boston Globe on October 4, 2022

Boston Herald Carlozzi: Income tax hike unfair & unnecessary.

Published by Boston Herald on October 27, 2022

ACTION ALERT

Even though state lawmakers have already voted twice to advance this proposal to the voters, they must hear from you! Tell them that if Income Tax Surcharge is approved by voters, it will negatively impact small businesses.

Tell your elected state lawmakers, I’m a Small Business, NOT a Millionaire.

TAKE ACTION NOW

IN THEIR OWN WORDS

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