On June 22, 2022, the Massachusetts Supreme Judicial Court issued its decision in Anderson vs. Attorney General, a highly anticipated decision addressing whether the 4% ‘Millionaires’ Tax’ ballot summary will remain on the Nov. 8, 2022, general election ballot. The decision addresses whether Massachusetts Attorney General Maura Healey’s summary for the proposed amendment to the Commonwealth’s Constitution is misleading to voters. The Court ultimately found the summary in compliance with the Massachusetts Constitution, rejecting any assertion it was misleading.
This decision clears the final objection to the ballot question through which Massachusetts voters will decide whether to impose a 4% surtax on an individual’s income in excess of $1 million beginning on Jan. 1, 2023. For additional information on the Millionaires’ Tax including how the additional tax will be calculated, please read our previous article, Massachusetts so-called Millionaires’ Tax heads to 2022 ballot.
The challenge and decision
This case is the result of an appeal challenging the Attorney General's summary for the proposed amendment to the Commonwealth’s Constitution. As noted above, the tax, if approved, would add an additional 4% tax to incomes over $1 million. The Attorney General and Secretary of the Commonwealth prepared materials in preparation of the ballot, including a summary of the proposed amendment and a ‘yes’ and ‘no’ statement. The summary statement is as follows:
This proposed constitutional amendment would establish an additional 4% state income tax on that portion of annual taxable income in excess of $1 million. This income level would be adjusted annually, by the same method used for federal income-tax brackets, to reflect increases in the cost of living. Revenues from this tax would be used, subject to appropriation by the state Legislature, for public education, public colleges, and universities; and for the repair and maintenance of roads, bridges, and public transportation. The proposed amendment would apply to tax years beginning on or after January 1, 2023.
The ‘yes’ statement at issue is as follows:
A YES VOTE would amend the state Constitution to impose an additional 4% tax on that portion of incomes over one million dollars to be used, subject to appropriation by the state Legislature, on education and transportation.
The plaintiffs challenging the language identified that the underlined portions, specifically the verbiage referring to revenues “subject to appropriation,” as potentially misleading to voters because it does not bind future legislators to use the money raised for the purpose stated on the ballot. The plaintiffs noted that existing spending on education and transportation already exceeded the amount of revenue the Millionaire’s Tax was projected to generate, and thus future legislatures could replace existing education and transportation funding with the new revenue. Effectively, the plaintiffs contended that the Millionaires’ Tax could be used for other funding purposes.
Ultimately, the Supreme Judicial Court found the summary statement and ‘yes’ and ‘no’ statements in compliance with the constitution and state law. In its reasoning, the Court noted that the summary need not opine on whether revenue historically spent on education and transportation could, at some future point, be spent elsewhere. Further, the summary need only describe the amendment itself. Accordingly, in order to be compliant with state law, the summary statement only had to explain the amendment and was not required to detail how the funds could potentially be spent.
This case has been closely watched by many due to the potential impacts an additional 4% tax on high incomes could have on the Massachusetts economy and business community. Anderson was at least the fifth challenge to the measure after a similar measure failed to make it to the ballot in 2018. Massachusetts voters will have the option to approve or reject the Millionaires’ Tax during the general election on Nov. 8, 2022.
As the tax remains highly controversial among the business community, both businesses and individuals should consider modeling how the potential approval of the tax could impact their state and local tax footprint. Affected taxpayers considering a relocation should not do so without due diligence and a thorough understanding of how such a relocation could impact future tax planning. It is important for taxpayers to plan for a residency change well in advance due to a number of complexities. Notably, it has been common for state taxing authorities and courts to call into question changes in residency where taxpayers relocated with the sole intent to reduce tax liabilities, even in cases where the taxpayer registered a car, cast a vote, and purchased a home in the new jurisdiction. There are dozens of factors that taxpayers should review when considering tax minimization planning through residency changes.
Additionally, general residency planning should consider all state and local tax burdens, including property taxes and sales and use taxes. Taxpayers should also consider the impact of residency changes on social security benefits, pension income, retirement plan distributions, inheritance taxes, and other estate and gift tax obligations.
Taxpayers with questions about the Millionaires’ Tax should speak to their Massachusetts state and local tax advisers for more information.