December 8, 2005
ROMNEY SIGNS BILL ABOLISHING RETROACTIVE TAX
Tens of thousands of taxpayers spared retroactive tax bills from 2002
Governor Mitt Romney today signed legislation that prevents thousands of Massachusetts taxpayers from having to pay retroactive taxes on financial transactions that occurred more than three years ago. Under the new law, no additional taxes are due and affected taxpayers may disregard any retroactive bills they received.
“By making this important correction we will keep faith with the taxpayers and prevent thousands of families from enduring any financial hardship from an unfair retroactive tax,” said Romney. “I commend the Legislature for approving a solution that fixes this problem once and for all.”
The change in the law was made necessary by an April 26, 2005 decision of the Supreme Judicial Court, which found that a 2002 state capital gains tax increase violated the Massachusetts Constitution because it took effect May 1, part way through the year.
The court set the effective date of the tax increase at January 1, 2002. However, this action exposed nearly 50,000 taxpayers to an additional $200 million in state taxes on gains realized during the first four months of 2002.
Through a bill filed in June and an amendment made to existing legislation last month, Romney proposed to set the effective date of the tax law change at January 1, 2003, a change that would prevent retroactive taxation. Earlier this week, the Legislature adopted Romney’s proposal.
“This difficult issue was the result of two highly unusual Supreme Judicial Court decisions,” said House Speaker Salvatore F. DiMasi. “Working together, we have delivered a swift and fair resolution to the taxpayers of the Commonwealth.”
“The passage of this bill is a real victory for taxpayers,” said House Minority Leader Bradley H. Jones Jr. “This is a great example of how the voice of the citizenry can positively impact public policy.”
With the change in date, the state is required to refund between $225 million and $275 million to the estimated 157,000 taxpayers who paid the higher capital gains tax rate in the last eight months of 2002. To lessen the impact of these refunds on the state treasury, payments will be spread out over four years. Anyone owed a refund of $1,000 or less will receive one lump sum. Eligible taxpayers must apply for the refund before June 30, 2006.
“Retroactive taxes are simply unfair,” said Senator Cynthia Creem. “People make financial decisions based upon the tax consequences and they need a stable and predictable tax system.”
“If this tax situation hadn’t been corrected I’m not sure how we would have afforded our son’s last two years of college,” said Loretta LaCentra of Revere. Loretta and her family would have owed nearly $100,000 from the sale of a long-time family asset if the law had not been changed.
“I think I can speak for thousands of other taxpayers like us who breathed a huge sigh of relief when we found out we didn’t have to worry about this anymore. A lot of people are very thankful to Governor Romney and the Legislature for doing the right thing,” she added.
“The Legislature did the right thing in agreeing to stop this unfair retroactive tax increase,” said Massachusetts High Technology Council President Christopher R. Anderson. “This process shows that Massachusetts residents can have an impact on important issues like tax policy when they engage in the debate.”
Tags: Taxes
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