Establishment of Massachusetts Income Tax

This article was in the Massachusetts Dept. of Revenue’s Div. of Local Services’ newsletter today-


A Brief Look Back: The Establishment of the Massachusetts Income Tax
Tony Rassias – Bureau of Accounts Deputy Director

City & Town is pleased to announce a new feature. “A Brief Look Back” will review issues that affected municipal finance in the early twentieth century as written in the Annual Reports of what is now known as the Massachusetts Department of Revenue. This month, City & Town features a brief history of the events that led to the Massachusetts income tax.


The high cost of the Civil War and the rapid growth of cities thereafter increased public expenditures and strained the Massachusetts property tax system, especially in the taxation of intangible personal property. Taxation of personal property was vexing. Taxpayers concealed their ownership of it and even moved their property out of state to avoid payment. The problem plagued assessors around the country.

After considerable discussion and review by special commissions, a Constitutional amendment and other legislation on the matter, the old system of taxing intangible personal property was scrapped and a state income tax, in some ways similar to the one already in effect in Wisconsin, was approved.

Revenue from the new tax, to be distributed to cities, towns and districts, was projected to replace the loss of revenue from the old personal property tax. In 1917, the first year of implementation, the new tax raised about $11.2 million, a significant jump when compared to the $8.8 million raised the previous year under the old tax system.

On January 23rd, 1918, Tax Commissioner William D. Trefry gave his annual report for 1917 to Speaker of the House of Representatives Channing Cox. The Tax Commissioner began his report with a brief history of the state’s early form of taxation after which he presented a summary of the new income tax law.

The following are excerpts from his full report.

By the Commissioner

In 1634 there was enacted in the Colony of Massachusetts Bay the first general tax law in any American colony, and included in this act was a provision for the assessment of each man “according to his estate and with the consideration of all other his abilityes whatsoever.” From that date to the present there has been at all times upon the statute books of Massachusetts legislation providing in some form or other for a partial tax upon incomes, although the colonial faculty tax, as this earlier form was called, bears little relation to the modern income tax.

Under the law, therefore, as it had existed for many decades, the income of intangible property, although this class of property had rapidly grown in amount and importance, was not subject to taxation, but in theory the property itself was subject to the varying local rates. With no provision for a compulsory return of this or any other class of property, local assessors were peculiarly at a disadvantage in discovering it for taxation, and there was a great incentive to overlook this class of property, when the usual result of taxing it at its full value at the local rate was either to drive the taxpayer to some other more favorable community with a low rate of taxation, or even to force him to remove his domicile from the Commonwealth.

These two evil results of attempting to apply the general property tax to this class of property gradually assumed alarming proportions.

The movement for a reform was furthered in the Governor’s inaugural in 1911, and after the determination that a constitutional amendment was necessary the proper amendment was enacted and ratified in 1915 by an overwhelming majority of the voters.

To view the Tax Commissioner’s entire piece, click here.

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