On Tuesday, August 7th, Massachusetts Governor Deval Patrick vetoed a section of a jobs bill that would have helped the Massachusetts economy.
First, I live in Connecticut, so this has no effect on me. But I do have many business clients in Massachusetts, and the Commonwealth really doesn’t have a clue how to energize an economy. At least the Executive Branch doesn’t.
One provision, vetoed by the Governor, would have changed the corporate estimated tax payment structure from 40% (1st Qtr), 25% (2nd and 3rd Qtrs), and 10% (4th Qtr), to four equal payments of 25%. This would have been a welcome change, as having businesses pay 40% of their income tax in the first quarter of the year, is a real impediment to growth. Plus, the Commonwealth still gets their money in full, just in more rational and fair proportions. This would be similar to the U.S. Treasury, which requires four equal payments, and the rule for Massachusetts individuals. What was the Governor thinking?
Many businesses are busiest in the fall and early winter. Think Christmas for retailers and restaurants, for example. Yet they must pay most of their state tax in the first quarter, and 65% by June 15th? That just doesn’t seem right, yet it’s the law.
But it gets better. The bill also had a provision to give a $456 tax credit to newly created corporations for the first three years. This is equal to the minimum excise tax, obviously. This was a brilliant idea by the Statehouse (and they aren’t noted for brilliant ideas), as small businesses, newly created, need the most help. Once they are on their feet, after three years, this credit is gone. This was a silly veto, frankly. It takes no money out of the Commonwealth’s budget. It’s “new” corporations. You know, corporations that haven’t been formed yet. How can a credit to an entity that doesn’t exist yet affect the state budget?
In short, the Massachusetts Governor had the opportunity to extend a hand to small business and basically slapped the hand of reason away. He may be a great Governor, and his pros may vastly outweigh his cons as an executive, but I must admit, I am not seeing it from my lounge chair in Connecticut, and I’m not seeing it with this veto.
However, fight back! Ascertain whether S Corporation status works for you. In general, no more corporate income taxes, as the taxes are paid personally, in quarterly equal installments!! Thus, any small business can veto Governor Patrick’s veto by electing S status. Check with your advisor first of course, as S Corporation status may not work for everyone (believe it or not).
Can’t help with the vetoed tax credit. But the Commonwealth sure tanked a great opportunity to embrace new business. Again.