Lots of. Small business sales mostly won’t trigger ‘millionaire tax’, report finds

Small business sales in Massachusetts will overwhelmingly not trigger the so-called Fair Share Amendment or millionaires if the contentious ballot question is successful in next month’s polls, a new report released Monday found. Tax.

Opponents of ballot question 1, which would impose a 4% surtax on income over $1 million, warned that one-time income — including from business sales — could disproportionately cost small business owners and their savings hurt as they grapple with the referendum. Funding from the tax is aimed at increasing spending on transportation and education.

But only 123 small businesses had sales between $1 million and about $3.5 million from the first quarter of 2017 to the third quarter of 2022, according to a report from the left-leaning Massachusetts Center for Budget and Policy, which is based on data from BizBuySell.com. In other words, only 21 problematic businesses sell for more than $1 million each year on average.

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This was culled from a dataset that identified about 1,400 businesses selling for less than $3.5 million, which the Massachusetts Center for Budget and Policy describes as “the ceiling for what most of us consider ‘small businesses’. Reasonable cut-off for value.” The median sale price was under $290,000.

“But even for owners who manage to sell their business for more than $1 million, that doesn’t mean they have to pay any fair share of tax. When determining the resulting “net gain” or taxable income , many costs are deducted from the sale price—only filers whose taxable income exceeds $1 million are subject to fair share tax…” senior policy analyst Kurt Wise said in that report.

Depreciation of property, equipment or inventory can be deducted, as well as real estate brokerage and legal fees associated with commercial sales, among other things, the report said.

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“Deductible costs significantly reduce the taxable income generated by business sales,” Wise continued. “This means that a typical business would have to sell for more than $1 million in order for the sale to generate more than $1 million in taxable income.”

The organizational structure can also exempt business owners from voting question 1. For example, if multiple owners split the sale price equally and their shares are $1 million, the fair share tax would not be in effect, the report noted.

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Commercial sales that span several years may also evade the surcharge due to a “significant” reduction in taxable income.

“Few small businesses would sell at a price that would require the seller to pay any fair share of tax on the sale proceeds,” Wise concluded.

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