By Ryan J. McDonell, CPA, MSA, MSLT
Tax Director
Massachusetts voters were poised to consider a proposal to reduce a state personal income tax rate from 5% down to 4%. The measure was collecting additional signatures to place the question on the November 2026 ballot but was stopped in its tracks by the Massachusetts Supreme Judicial Court.
In a June 18th opinion in Finfer v. Attorney General, the SJC rejected the proposal because its summary was “significantly misleading and likely to influence voters.” The rejection largely related to the implication in the proposal summary that the long-term capital gains tax rate would be unchanged by the proposal. However, long-term capital gains taxed at 5% would have been impacted by the ballot question. Proponents of the initiative may look to include this on the next ballot in two years.
The reduced rate would have applied to income currently taxed at 5%, including wages, interest, dividends, and many long-term capital gains. If implemented, the change would have affected one of the Commonwealth’s largest revenue sources.
Recently enacted legislation included a mechanism to alter Massachusetts’ conformity to federal tax provisions. On June 12, 2026, the Governor signed supplemental budget bill H.5470 into law. The legislation included several tax provisions, such as a delay in conformity to federal research & development expensing, Section 179 expensing, and the interest expense limitation under Section 163(j). However, this law also included a ballot trigger whereby the state would fully decouple from these provisions if the ballot question passed. In effect, this provision would have subsidized lost revenue from the decrease in the personal tax rate. This ballot trigger is no longer applicable.
Residency Considerations Persist
The failed ballot question may be another reason for high-income Massachusetts taxpayers to consider a change in state residence. The proposal would not have modified the 4% surtax on taxable income above approximately $1 million (adjusted for inflation), enacted by voters in 2022. However, income below the surtax would have decreased from 5% to 4% and the combined highest marginal rate would have declined from 9% to 8% when the rate reduction was fully phased in. Instead, higher-income taxpayers will continue to pay income subject to surtax at the existing 9% combined rate.
Massachusetts taxes residents on all income, regardless of source, and nonresidents only on Massachusetts-source income. This system makes it appealing to relocate to a low-tax or no income tax state to save on taxes. However, maintaining a residence in another state, such as Florida or New Hampshire, is not sufficient by itself to avoid Massachusetts residency. Both domicile and day-count considerations must be evaluated based on the totality of facts and circumstances.
Residency is determined under two tests: domicile and statutory residency. Domicile is an individual’s true, fixed, and permanent home. A taxpayer may have multiple residences, but only one domicile at a time. Changing domicile requires both intent to abandon Massachusetts as a primary home and objective steps demonstrating that intent. Relevant factors include relocation of personal, financial, and social ties, changes in legal documentation such as voter registration and driver’s license, and the location of family and primary activities. These determinations are fact-specific and closely evaluated.
Statutory residency applies even if domicile is outside Massachusetts. An individual will be treated as a resident if they maintain a permanent place of abode in Massachusetts and spend more than 183 days in the state during the year. This rule commonly affects individuals who maintain a second home in Massachusetts while claiming residency elsewhere. Taxpayers should approach tax residency with caution to avoid exposure from Department of Revenue residency audits and from accidentally being considered a dual resident.
Looking Ahead
The tax rate decrease proposal may have failed this time, but proponents will have opportunities in the future to try again. Given the potential impact on taxpayers and state revenues, the proposal is expected to remain a central topic in Massachusetts tax policy discussions in the following years.
See also: IEEPA Tariff Refunds
