A Taxing Problem for Massachusetts Businesses

This is a blog post about taxes. But, unlike most of our other posts on the topic, it has nothing to do with how much people have to pay in taxes. It has to do with how our state collects tax revenue. And, for the sake of full disclosure, it's an issue near and dear to our entrepreneurial hearts.

We'll begin at the beginning.

A couple of years ago, the Patrick Administration imposed new tax rules on Massachusetts businesses in an effort to recapture revenue being sheltered out of state by large, multi-state businesses. As part of the effort, state tax forms got more complicated. To make a long story short, if you want to collect that extra money, you need to ask people more questions.

We disagree with the basic premise of that legislation, but that's for another post. Back to the subject at hand.

Along with more complicated tax forms came a requirement that basically any business that earns any money in Massachusetts must file their tax return electronically.

To the extent that this was a proposal aimed at reducing paperwork and improving efficiency, we think that electronic filing is a great idea. However, there's a problem.

Certain entities, most notably partnerships, are required to file their taxes with the state electronically -- but there's no vehicle available to them to do it on their own. You might expect there to be some online form, or an address to e-mail, or some other way to file taxes. But (at least for this type of return, which is typical for many businesses), there's not. You have to either buy expensive software to do it, or pay a certified public accountant to do it for you. And, what's most frustrating is that you have to do this even though much of the tax information requested by the state is the same as what is filed with the federal government. Filing the state return is mostly a fill-in-the-blanks game once you've done the federal return.

Now, we're sure that many businesses have an accountant do their taxes anyway; that's probably a good thing. And, paying fifty or a hundred bucks for a computer program won't break the bank for most big businesses. But, there's just something wrong about the notion that you should be required by the state to pay a large sum of money just to file your tax return. Taxes are a burden on their own; complying with that burden shouldn't have to cost you money.

This is an issue that came to our attention when, after filling out our business tax returns, we were forced to pay an accountant to file our returns electronically this year, whereas we had expected to just have to put a stamp on them and mail them in. We hope the state will revisit its practices in this area and, at the very least, provide taxpayers next year with some vehicle to file taxes online if an electronic filing is required.