November 29, 2005
Honorable Robert E. Travaglini
President of the Senate
State House, Room 332
Boston, MA 02133
Dear Mr. President:
I would like to urge you to seriously consider the Governor’s proposed amendments to the Capital Gains Tax dilemma that has been presented to us by the Supreme Judicial Court’s determination that the Legislature cannot establish different tax rates in the same calendar year.
When the Capital Gains Tax was reinstituted in 2002 in May of that year, the original proposal was to make it retroactive to January 1, 2002. I was among the senators who argued that this was unfair because taxpayers had not had sufficient notice of the tax change. At the time, I agreed that we should follow the process used in Congress to consider the announcement of the proposal to be sufficient notice and that the tax be applied only on Capital Gains from May 1, 2002 and thereafter.
As you know, the Supreme Judicial Court rejected this concept in the Peterson Case and also rejected our efforts to abate the taxes for those taxpayers who would be required to make payments for capital gains received between January 1, 2002 and May 1, 2002. Clearly, the Legislature intended to be fair in applying this change in the tax laws necessitated by the state’s fiscal crisis in 2002.
I agree with the Senate Ways and Means Committee that a change in the tax laws making the effective date January 1, 2003 would raise concerns about our ability to finance the required refunds of between $225 and $275 million in the current fiscal year without cutting important planned FY 06 expenditures.
However, the Governor has proposed a potential solution that, while it will cost the state money, would be affordable by spreading the refunds over the next three fiscal years. I believe that this is a reasonable proposal as far as it goes. However, it may be appropriate and fiscally prudent, if the Legislature were to agree with this concept, to include language that would provide for freezing the refund if revenues fall below certain benchmarks. In addition, we would need to direct the Department of Revenue to cease their efforts to collect the Capital Gains Tax from those who would otherwise be subject to the Capital Gains Tax in any part of 2002, and we would need to forgive any interest and penalties that would apply.
Since the Department of Revenue has notified taxpayers that the Capital Gains Tax for January 1 through April 30, 2002 must be paid before the end of this calendar year, it is important that the Legislature either take up the Governor’s amendment in some form in the coming weeks or, at least, give direction to the Department of Revenue to suspend collection of the tax pending a legislative resolution when we return to formal sessions in January. Thank you for your consideration of this proposal.
Sincerely,
RICHARD T. MOORE
State Senator
Worcester & Norfolk District
