Introduction

It is hard to believe, but 48000 Massachusetts taxpayers have received or will soon receive tax bills, including interest, for income they received more than 3 years ago in early 2002 and already paid taxes on. Anyone who reported long term capital gains for the period 1/1/02 – 4/30/02 is affected.

This BLOG is intended to be an information resource for those who are fighting this retroactive tax increase, whether they are directly affected or only oppose it due to its inherent unfairness.

Here’s how this retroactive tax increase came about. During 2002, the tax rate on long-term capital gains was increased, effective May 1, 2002. In 2005 (Peterson v. Commissioner of Revenue, 444 Mass. 128) the Supreme Judicial Court ruled that the rates cannot be changed mid-year and the court reset the effective date of the increase to January 1, 2002. Taxpayers who reported capital gains in early 2002 are now being billed for the difference between the old and new tax rates, plus three years of interest.

The Supreme court ruling left open to the legislature the possibility to change the effective date of the tax increase to 1/1/03. That would mean that there would be no retroactive tax increase, but it would also mean that the state would have to refund taxes to anyone who reported a capital gain from 5/1/02 – 12/31/02. Such refunds would total over $200 million.

Here is a document from the Department of Revenue with more detailed information on the retroactive tax: TIR 05-13

During November, the legislature passed a bill (HB 4169) which eliminates the interest and exempts anyone for whom the total amount due is less than $100. However, this bill did not become law because the governor did not sign it. Instead, Governor Romney sent it back to the legislature with an amendment that would set the effective date of the tax increase to 1/1/03. Taxes paid at the higher rate for the period 5/1/02-12/31/02 would be refunded to the taxpayers over 3 years rather than all at once to lessen the impact to the state budget, an idea the Governor credits to Senator Cynthia Creem, cochairman of the Joint Committee on Revenue. Here is Governor Romney’s press release: ROMNEY PROPOSES TAX FIX TO PREVENT RETROACTIVE TAXATION

Information on how to fight the tax increase can be found at www.noretrotax.org. That web site was created by CITIZENS AGAINST RETROACTIVE TAXATION, a group formed by Mark Bernardin and others for this purpose.

Some historical perspective on this tax can be found on the web site of Citizens for Limited Taxation here: The Unconscionable Retroactive Tax.