New Tax Law Changes for Massachusetts - Enacted July 25, 2002

1.          Beginning January 1, 2002, ordinary income will be taxed at the rate of 5.3%.  Once the personal exemption will reach the level as it was in effect for the taxable year 2001, ordinary income will be taxed at the lesser of (1) the rate in effect for the prior year taxable year minus 0.5%; or (2) the rate I effect in the prior year.  The ordinary income tax rate will not decrease below 5%.

2.          Effective for sales on or after May 1, 2002, all long-term capital gain income will be combined in one class and defined as capital gain income from the sale or exchange of capital assets held for more than 1 year; and will be taxed at 5.3% tax rate. (The former rule was as low as 0%.)

3.          Effective May 1, 2002, the deduction for short-term and long-term losses against interest and dividend income is limited to $2,000 per year.  Any remaining excess of short-term losses will be applied against long-term capital gains.  If the short-term capital loss exceeds long-term gains for the year, the remaining loss will be short-term capital loss in the succeeding taxable year.  The excess of net long-term capital losses will be applied against short-term capital gains in that year.  The remaining long-term capital loss will be applied against long-term capital gains in the succeeding taxable year.

4.          Beginning January 1, 2002, there will be no charitable contribution deduction allowed.  Such deduction would be allowed in a future year when the tax rate would be 5% for the prior taxable year, based on growth of the economy.  In any event, there will be no charitable contribution deduction allowed for non-cash contributions.  Taxpayers will not be required to itemize their deductions in their federal income tax return to claim charitable deduction for state tax purpose.

5.      Beginning January 1, 2002, the personal exemption will be as follows:

* Every year the exemption will be adjusted for inflation.

6.          Any amount of income attributable to earnings or distributions from Section 529 educational plans, provided the distributions are used to pay for qualified educational expenses are not taxable in Massachusetts effective 1/1/2002.

7.          The excise tax on all tobacco products will increase to $1.51 from $0.76 per pack.

8.          The estate tax in Massachusetts will be retained and tied to the federal credit in place prior to the Economic Growth and Tax Relief Act passed by Congress in 2001, effective January 1, 2003.

9.          An Amnesty tax program was also enacted.  Taxpayers will be able to have certain penalties waived without demonstrating reasonable cause by filing proper returns.  The corporate annual report fee was increased to $125 from $85 for reports filed on or after August 7, 2002.  The Amnesty filing period, which is yet to be announced will be a specified two-month period no later than June 30, 2003.

10.      A separate measure, signed by the Governor previously, decouples the Massachusetts corporate income tax from the accelerated depreciation provisions included in the Federal Stimulus package (a tax law change enacted March 9, 2002).

11.      Effective January 1, 2002, Massachusetts adopts the retirement and deferred compensation plan limits, conforming to the changes of the Economic Growth and Tax Relief Act by Congress in 2001.

The estimated tax payments you are currently paying may need to be modified due to these tax law changes.  Please contact us if you think these changes affect you.