Taxes in Massachusetts

Business Taxes

Businesses pay several different kinds of taxes in Massachusetts (See Table 5). These include the business share of some taxes like the property tax and sales taxes. Business taxes are therefore a subsystem of the overall state and local tax system. Overall, business taxes in Massachusetts are significantly lower than the national average. Massachusetts, however, receives an unusually large share of our business taxes in the form of corporate income taxes, while businesses in Massachusetts pay substantially less in sales taxes and excise and gross receipts taxes than the national average.

A study conducted by Ernst & Young for the Council on State Taxation (COST), a Washington, DC based trade association that represents 550 multi-state and multinational corporations,²⁹ recently determined that in fiscal year 2007 businesses paid 37.4 percent of total taxes. Moreover, the Ernst & Young study found that 38 states collected a greater share of private Gross Domestic Product (GDP) by State³⁰ in business taxes in fiscal year 2007 than did Massachusetts, where state and local business taxes amounted to 4.5 percent of private sector GDP in the state(see Figure 18). Nationally this study found that business taxes were 5.0 percent of GDP by State. Thus, this study suggests that Massachusetts business taxes in fiscal year 2007 were $1.5 billion lower than they would have been if the Commonwealth was at the national average for business taxes as a share of GDP by State.

The difference between what these measures suggest about the overall level of business taxation in Massachusetts, and the specific tax rate on corporate income in Massachusetts in large part can be explained by the fact that Massachusetts collects relatively few taxes from corporations through other types of taxes. One example is the relatively small amount of tax Massachusetts collects from businesses through the sales tax. Ernst & Young estimates that the business share of general sales taxes nationally were 1.1 percent of GDP. In Massachusetts this was only 0.5 percent.

²⁹ Philips, Andrew, Robert Cline, and Tom Neubig, Total State and Local Business Taxes: 50-State Estimates for Fiscal Year 2007, Council on State Taxation, April 2008.

³⁰ Previously called Gross State Product.