This bill, filed on behalf of MassCPAs, would increase the range of the entry-level tax imposed on S corporations from $6 million - $9 million to $12 million - $18 million, and ties future increases to the CPI. Initially enacted in the 1980s, the surtax was designed to safeguard tax benefits for small businesses while fostering a level playing field between large S-corporations and C-corporations. However, the thresholds for net income triggering the additional excise tax have not been updated nor adjusted since its original enactment and an increasing number of small businesses have been adversely affected.

With the introduction of an additional 4% surtax, many small businesses and other S-corporations now find themselves in the position where their shareholders are subject to a tax burden exceeding the Massachusetts corporate tax rate of 8%, which is in direct conflict with the original intent of the law. The framework of imposing an extra tax on S-corporations serves as a substantial disincentive to business expansion within Massachusetts. Coupled with the surtax, this structure negatively sets Massachusetts apart from other states in terms of its taxation policies.