As budget writers prepare for the Fiscal Year (FY) 2027 budget development process, they continue to closely monitor FY 2026 revenue collections and the myriad factors—stemming from both state and federal action—that impact the stability of the state budget. The task before the Administration, House and Senate is to develop a budget for the coming year that responds to the immediate and longer-term fiscal and economic challenges and opportunities that confront the state. One of the decision points before them is how to address potential revenue impacts stemming from federal tax policy changes made in the One Big Beautiful Bill Act (OB3).

This Brief provides an overview of the issue and a framework for any policy response. In doing so it provides a basic understanding of how federal conformity works in relation to the Massachusetts tax code and how critical it is to corporate tax simplicity, predictability and competitiveness. The Brief also explains that reliable estimates for the impacts of federal changes are challenging, as well as the dangers in hasty, uncoordinated action on conformity. It concludes with four principles that should be central to any tax conformity policy discussion.

Authored by: Doug Howgate and Philip Lynch