CPAs to Well Off Warn on State Policies

Massachusetts accountants representing wealthy residents renewed their calls Wednesday for a bevy of tax reforms, including overhauling the "sting tax" on companies, to prevent the ongoing outmigration of Bay Staters and businesses.

Seventy percent of certified public accountants surveyed had at least one client change their tax domicile last year, primarily as they sought lower taxes and costs of living elsewhere, according to a new report from the Massachusetts Society of CPAs.

Meanwhile, 27% of CPAs' business clients were mulling leaving Massachusetts when surveyed at the start of 2025, compared to 22% in 2023. Top obstacles to business growth in the commonwealth included the sting tax, the individual income tax rate and and the estate tax threshold, the group said.

"This year's survey echoes what we hear regularly from firms and financial leaders across the state: Massachusetts is losing its competitive edge," Zach Donah, MassCPAs president, said. "While the findings in this report are concerning, what's even more troubling is what's not captured, the individuals and businesses who won't ever consider Massachusetts because of policies that make us an outlier. State leaders have a real opportunity to build on the momentum from the 2023 tax reform initiative to position Massachusetts for long-term success."

The survey captured responses from in-state "industry leaders" and about 200 CPAs representing 4,600 clients whose annual taxable income exceeds $1 million, which means they are subject to the 4% income surtax that voters approved in 2022. Nearly half of CPAs signaled their business clients view Massachusetts "as becoming less competitive."

The report comes a day after the Healey administration retooled the Economic Development Incentive Program tax credit, as officials look to attract and retain early-stage companies -- and promote their job creation efforts.

The majority of residents who left the state were of working age, between 30 and 60 years old, according to the MassCPAs report. Popular relocation destinations included Florida, New Hampshire, Texas and South Carolina. Of those four, only South Carolina has a state income tax.

MassCPAs recommended that Massachusetts eliminate or reform the so-called sting tax, which imposes an additional 2% excise tax on S-corporations earning between $6 million and $9 million. The society said those thresholds have not changed since the tax was enacted in the 1980s. The report laments that "an increasing number of small businesses now find themselves unfairly subject to this outdated tax," which was intended to "protect tax benefits for small businesses while ensuring a level playing field between large S-corporations and C-corporations."

"The recent addition of a 4% surtax has further compounded the issue, pushing many S-corporation shareholders into a tax burden that exceeds Massachusetts' corporate tax rate of 8%, directly contradicting the law's original intent," the report says. "This additional tax on S-corporations acts as a significant deterrent to business growth and investment in the Commonwealth."

In another business-friendly solution, MassCPAs says Massachusetts should decouple from a federal tax provision that limits the deductibility of business interest expense.

"Removing this limitation would allow Massachusetts-based companies to deduct more interest from borrowing, encouraging further infrastructure investments and strengthening the local economy," the report says. "Additionally, Massachusetts would align itself with 21 other states that have chosen not to impose the full federal interest expense limitation, reinforcing its commitment to fostering a pro-business environment."

Lawmakers and Gov. Maura Healey increased the estate tax threshold from $1 million to $2 million under a 2023 tax reform package. MassCPAs is urging policymakers to revisit that threshold and bump it up to $5 million, with the aim of making Massachusetts more competitive and retaining "high-net-worth individuals." The report points out nearby states have significantly higher thresholds, including Connecticut that is aligned with the federal level of $12.92 million.

"To prevent continued outmigration of wealth and investment, Massachusetts must remain proactive in modernizing its estate tax policies," the report says. "Raising the exemption further and indexing it for inflation would make the state a more attractive place to live, retire and pass down generational wealth, ensuring long-term economic stability and competitiveness."