11-18-2005


November 18, 2005

ROMNEY PROPOSES TAX FIX TO PREVENT RETROACTIVE TAXATION

If Legislature approves it, taxpayers would see refunds, not retroactive bills

 

Governor Mitt Romney today proposed a change in the law that would help tens of thousands of Massachusetts citizens avoid the burden of retroactive taxation.

 

Earlier this year, the Supreme Judicial Court ruled that a 2002 state capital gains tax increase was unconstitutional because it took effect May 1, part way through the year. Under the court’s ruling, the effective date of the tax increase was moved back to January 1, 2002, which exposed nearly 50,000 taxpayers to an additional $200 million in retroactive state taxes on gains realized during the first four months of 2002.

 

In a bill sent to the Governor, the Legislature let stand the January 1, 2002 date, but waived interest, penalties and amounts owed of less than $100. However, even with those changes, approximately 40,000 taxpayers will get surprise tax bills.

 

“It is simply wrong to change the rules after the fact on taxpayers who sold assets in reliance on the tax code in effect at the time,” Romney said.

 

Romney sent back the bill with an amendment establishing January 1, 2003 as the effective date of the tax law change. This will result in refunds of $225 million to $275 million to people who paid the higher capital gains tax rate in the last eight months of 2002. In order to lessen the impact of the refund, the amendment authorizes the Department of Revenue to pay those refunds over three years. Taxpayers must apply for the abatement before June 30, 2006.

 

“We have tried to come up with a solution that addresses the concerns of legislators worried about the impact of the refunds on the state treasury. By spreading out the payment of refunds over three years, rather than all at once, we can soften the revenue impact,” said Romney. “Ultimately, it’s going to cost the state some money. But if we don’t act, thousands of taxpayers who played by the rules will be punished for a mistake they did not make.”

 

Romney noted Massachusetts has available surplus revenues to make refunds.

 

Romney was joined at today’s news conference by individual citizens, as well as representatives from business and taxpayer organizations.

 

“I’ve never invested in my life, except for a property I bought in Mission Hill in 1979 and maintained as a rental until 2002,” said Arthur Johanningsmeier, a retired teacher from Ashburnham. “Now four years later I’m probably going to have to take out a loan to pay the $20,000 tax bill. I hope the right decision will be made here, and I appreciate that Governor Romney is doing this for everyone who’s getting hit with these bills.”

 

“To get a bill like this years after the fact would have a devastating effect on our family financially,” added Loretta LaCentra of Revere.

 

Unless the law is changed, Loretta and her family would owe nearly $100,000 from the sale of a long-time family asset. “This is not pocket change for us – it’s several years of college tuition for our son and daughter. We don’t know how we’re going to pay for that now. This defies logic in addition to being just plain wrong,” she said.

 

“Retroactive taxes are inherently unfair. With the Governor’s leadership today, I hope we can use this as a second chance to rally on the taxpayers’ behalf,” said House Minority Leader Bradley H. Jones, Jr. “The Legislature should reverse its money grab by accepting the Governor’s amendment without delay. We can’t allow procedural tactics to stand in the way of principle.”

 

“I am hopeful that the Legislature will embrace Governor Romney’s proposal to avoid this retroactive capital gains tax and make sure the taxpayers of the Commonwealth are treated fairly,” said Senate Minority Leader Brian P. Lees.

 

“While permanently raising the capital gains tax in 2002 was a mistake, allowing that increase to be retroactive would be patently unfair and financially destructive to thousands of Massachusetts families,” said Massachusetts High Technology Council President Christopher Anderson. “As a result of the 2002 tax increase, next year the state will collect nearly $1 billion more in capital gains revenue than predicted by pro-tax hike advocates. Supporting Governor Romney’s amendment goes a long way toward fairness, and should help focus debate on restoring a lower capital gains tax rate to create a stable, predictable and competitive tax structure for Massachusetts.”


Tags: Taxes