and the
Citizens Economic Research Foundation

Friday, June 10, 2005

Gov. Romney, CLT support capital gains tax fairness

Several CLT members responded to our request yesterday for effected taxpayers on the retroactive capital gains tax issue. Governor Romney initially needed an example to stand with him at a press conference when he filed his bill to remedy the situation. In the end, because of his tight schedule, he did a news release instead of a news conference.

The Governorís office chose as his example Col. Gaylord MacCartney, featured in the Governorís news release (below). CLT chose Joseph Svelnis, a retired baker, for ours. Others who offered to help but whose situations were not quite as typical were Duane Batista, Suzanne & David Bloore, Barrie & Claire Brozenski, Bill Connolly, Thomas Murphy, and Liz Wrobleski. Thank you all, and prepare to call or write your state representatives and senators in support of the Governorís bill.

Weíll let you know when it gets assigned a number and hearing date.

Barbara Anderson

The Commonwealth of Massachusetts
Executive Department
State House Boston, MA 02133
(617) 725-4000

June 10, 2005

Contact: Julie Teer
Felix Browne
(617) 725-4025

Romney files legislation to "fix" capital gains error:
Citizens will get refunds, not retroactive tax bills

Governor Mitt Romney today filed legislation to protect Massachusetts taxpayers from the unfairness of retroactive taxation.

The bill was made necessary by the April 26 decision of the Supreme Judicial Court, which found that a capital gains tax increase that was part of the 2002 tax bill passed by the Legislature violated the Massachusetts Constitution. The Court said because the increase took effect May 1, 2002, it failed to observe the requirement that taxes be uniform throughout the entire year.

The SJC determined the effective date of the capital gains tax increase to be January 1, 2002, meaning thousands of taxpayers who filed their 2002 returns on time and paid their taxes in good faith will be assessed additional taxes that were not owed under the law as it existed at the time.

However, the Court offered advice on how to avoid the burden of retroactive taxation: "It is, of course, within the Legislature's power to amend the Act yet again, if it wishes, to set the effective date at January 1, 2003."

Romney said the bill he is filing is consistent with the SJC's guidance in this case.

"It is fundamentally unfair to tax people retroactively. If we are to keep faith with the taxpayers of Massachusetts, we need to correct the constitutional error that occurred here," said Romney.

According to the Department of Revenue, if the January 1, 2002 effective date is allowed to stand, the state would have to collect an additional $150 million to $200 million from as many as 120,000 taxpayers. By changing the date to January 1, 2003, the state would send out refunds to up to 145,000 taxpayers at a cost of between $225 million and $275 million.

Romney said there are sufficient surplus revenues to cover the cost of the refunds without affecting current state services.

Gaylord MacCartney, of Westford, is among those affected by the capital gains mix-up. MacCartney sold real estate in the first half of 2002 to help pay for his retirement, netting a gain of $150,000. Without a change in the law, he would be hit with a retroactive tax bill of approximately $8,000.

"I'm a middle class person. I merely invested in some real estate and after I sold it, all of a sudden the rules changed," said MacCartney, a retired air force colonel.

House Minority Leader Bradley H. Jones Jr., who worked closely with the Governor's Office in drafting the legislation, said, "It is wrong for us to surprise taxpayers with an unexpected demand for more money. Fairness and equality are the underpinnings of any good tax code. If the Governor's bill does not pass, our capital gains tax law will not reflect these basic principles."

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