Chapter 62F: What is it?

Chapter 62F: What is it?

Chapter 62F: Limitation on the Growth of State Tax Revenues was approved in 1985 and was first used in 1987. It is a Massachusetts General Law that requires the Department of Revenue to credit taxpayers when the total tax revenues exceed the revenue cap set that year. It defines allowable state tax revenues as an amount equal to the computed maximum state tax revenues for a fiscal year. Allowable state tax growth factor means a number that is one-third of the sum of the three calendar years ending prior to said fiscal year, the quoteints that result for each calendar year from dividing total wages and total salaries for each year by the wages and salaries for the previous year. All that legal jargon basically means that the government collected more taxes than anticipated and because it can only grow state tax revenue by so much, it is now required to give that money back to taxpayers because of the Chapter 62F law.

The Department of Revenue is required to submit a report to the State Auditor on tax revenues for each FY who will then determine whether the net state tax revenue exceeds allowable state tax revenue. This past fiscal year (FY22) the MA tax collections exceeded the revenue cap by $2.941 billion.

Why is there a surplus?

According to Lt. Governor Karyn Polito, “Strong economic growth throughout our Commonwealth, combined with careful management of state tax dollars, has resulted in a significant surplus this past fiscal year”. And Governor Charlie Baker had some similar remarks applauding the relief as he looks forward to “working with the Legislature to invest this funding into our economy, communities, and families”.

Who can receive a refund?

All eligible taxpayers who paid personal income taxes in the state of Massachusetts in FY 2021 and filed a tax return are eligible for a refund.

How much of a refund can taxpayers expect?

Massachusetts taxpayers can expect a return in proportion to their personal income tax liability. According to the Baker-Polito Administration, that credit will be approximately 13% of FY21 personal income tax liability. Residents can go to Mass.gov for a refund estimator to help calculate what one can expect in refund amounts.

When can taxpayers expect the refund?

The refund will be mailed to homes on a rolling basis through December 15.

Is Chapter 62F fair?

The law states that excess revenue must go back to the taxpayers, but this brings up questions. Some argue that the way the refund is calculated is unfair to lower-income individuals who may not have income tax liability but paid other taxes that contributed to the surplus on which the refund is based. Since the entire refund is based on income tax liability, which only represents about 35% of all Massachusetts’ state and local tax revenue, it ignores the fact that taxes come from other sources which taxpayers still pay.

How does Chapter 62F compare to TABOR?

TABOR is the state of Colorado’s Taxpayer Bill of Rights. TABOR also limits the amount of revenue governments can retain and spend and requires excess revenue to be refunded. TABOR provides different mechanisms for refund such as a property tax reimbursement. This makes it much more likely that contributing taxpayers receive some refund, alleviating concerns of disproportionate benefits to higher-income taxpayers.

Are there other uses for the excess revenue?

The short answer is yes. Since constituents voted to pass Chapter 62F, the state of Massachusetts is legally obligated to refund that money to taxpayers. However, some may argue that there are other, beneficial uses of excess revenue that can help the state. A rainy day fund could be bolstered in case of unforeseen events like a recession. Excess revenue could also be used to pay state debt. For Massachusetts in particular, this could be in pension liabilities. Still, sending money back to taxpayers is helpful since owners can do what they see fit with their money while still helping the economy.

What if this keeps happening?

While taxpayers might not be complaining about a refund, a state itself is leery of a consistent budget surplus. If a state continually runs into excess revenue, the obvious answer would be tax reform. This may mean lowering tax rates and increasing incentives to invest.

The bottom line?

Because of Chapter 62F, the state of Massachusetts is required to refund Massachusetts taxpayers a proportionate amount of the $2.941 billion tax revenue surplus that occurred this FY22.