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Tech trade group ‘evaluating’ legal challenge to Legislature’s tax cap law reforms

Democrats confident in the legality of proposal heading to the Senate.

The House approved a compromise tax relief bill Wednesday that lowers the state’s short-term capital gains tax and boosts several housing-related initiatives that top Democrats have said will help residents struggling with the cost of living.

But as the bill advances to the Senate, where lawmakers are expected to take final votes Thursday, at least one group is weighing a potential legal challenge to a provision that requires refunds under a tax cap law known as Chapter 62F to be distributed in equal amounts to all residents regardless of how much they paid into the system.

The Massachusetts High Technology Council argued the change to the distribution formula is unconstitutional. The voter-approved law has only been triggered twice, 1987 and 2022, and refunds were distributed based on personal income tax from the preceding tax year.

The council is “evaluating” whether it will take the matter to court, said Elizabeth Mahoney, vice president of policy and government affairs at the Massachusetts High Technology Council.

“The reason that we flagged this for the Legislature in the first place is because we do think it is a serious legal and constitutional concern,” Mahoney told the Herald. “I think we want to see what the options are. But if this really is something that is unconstitutional, I think we would want to try to continue to address that.”

But top Democrats who helped craft the tax relief bill and the refund reform pushed back against the criticism, with Revenue Committee Co-Chairman Rep. Mark Cusack saying “it is absolutely not unconstitutional.”

“The Constitution doesn’t speak to anything about refunds,” the Braintree Democrat said. “We have lawyers. I’ve read the Constitution. I have no doubt that this is a constitutional change. And I have no doubt that they like seeing their name in print so they throw out the constitutional question. But it’s absolutely irrelevant.”

The council first raised constitutional questions in a May letter to Gov. Maura Healey, House Speaker Ronald Mariano, Senate President Karen Spilka, and others that included a legal brief from Goodwin Procter Attorney Kevin Martin.

Martin, who was retained by the council to review the Chapter 62F changes, argued the reform violated Article 44 of the Massachusetts Constitution, or the uniformity requirement, which requires tax rates to be “levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property.”

Martin and the council said requiring tax refunds to be distributed equally among all residents no matter how much they paid would effectively tax income at different rates for different taxpayers.

“It is clear that the proposed amendment to Chapter 62F, Section 6 would replace the existing formula for calculating tax credits with one that violates Article 44’s uniformity requirement,” Martin wrote in the legal brief. “Taking the numbers for the 2022 fiscal year as illustrative, the proposed amendment would result in dramatically different effective tax rates for taxpayers at different income levels.”

Residents will not receive refunds this year, State Auditor Diana DiZoglio announced earlier this month.

Republicans in both the House and Senate pushed back against the distribution change when the tax relief bill first came up for debate over the summer. And some of them have not changed their tune as the legislation inches closer to Healey’s desks.

Sen. Patrick O’Connor, a Weymouth Republican, said he thought the way refunds were disbursed last year “worked really well.” He also questioned the legality of the change, arguing residents who paid a certain amount in taxes should receive a proportional refund.

“There are some significant problems that I’ve had with this,” he said, adding he has not yet decided how he will vote when the Senate takes up the compromise.

Lawmakers and advocates have been “extremely passionate” about changes to Chapter 62F, said Rep. Todd Smola, the ranking Republican on the House’s budget-writing committee.

“I’m not 1,000% happy with the way that the language has ended up in this particular bill,” he said. “But given the fact that this provision has only been utilized once in 35 years, I think compared to everything else that’s in the bill, we’ve got a good bill that’s before us.”

House budget chief Rep. Aaron Michlewitz said there are always outside groups who question the legality of bills brought up in the Legislature.

“We feel pretty confident in the way we structured the bill, that it will hold up and any type of challenge and we feel that it’s the appropriate steps to be taking,” the North End Democrat said, adding lawmakers did take into consideration the concerns from the technology council.