Abstract
Proposed reforms in Massachusetts bank tax legislation would mitigate 2 problems with the current bank tax. First, it distorts the allocation of economic resources between banking and other Massachusetts industries, especially those providing financial services. Secondly, it imposes different liabilities on banks in the state, even though they receive similar benefits from government services. The proposed reform would: 1. broaden the types of financial institutions subject to the tax, 2. lower the bank tax rate by about 2% effective in 1989, 3. tax multistate banks' income on the source principle rather than the residence principle, and 4. give the state revenue commissioner the power to have affiliates of bank holding companies doing business in Massachusetts to file tax returns based on combined unitary accounting. However, the reforms would complicate the tax structure.