If you’re considering a move to New Hampshire to take advantage of its lack of a state income tax, you certainly wouldn’t be the first person to do so. However, there may be an issue if you’re a business owner planning to sell your company after moving to the Granite State. Due to the “Massachusetts Millionaire Tax,” that revenue might not be entirely safe from the reach of the Massachusetts Revenue Department.
Massachusetts’ 4% Surtax on Taxable Income targeting “high earners”—commonly called the “Massachusetts Millionaire Tax”—has created complex challenges for business owners who sell their companies even after relocating. Recent court decisions show Massachusetts is aggressively pursuing former residents who cash out after making the move. The financial stakes are higher than just the surtax itself.
In this article, we’ll explore how this complex tax environment works, what it means for business owners, and how you can reduce your exposure to it. We’ll also share insights from Joshua England, LLM, Esq., a tax attorney and partner at AAFCPAs who specializes in wealth preservation strategies for high-net-worth individuals and business owners.
Understanding the Massachusetts Millionaire Tax
Massachusetts voters approved the Fair Share Amendment in 2022. This created a 4% additional surtax on taxable income over specific threshold amounts. According to the Massachusetts state website, this tax applies to taxpayers who are required to file:
- Form 1 (residents)
- Form 1-NR/PY (nonresidents and part-year residents)
- Form 2 (trusts and estates)
- Form M-990T-62 (exempt trusts and unincorporated associations)
- Form 3M (clubs and other organizations not engaged in business for profit)
When individuals, trusts, estates, and unincorporated associations add Massachusetts’ regular 5% income tax rate to the equation, they reach a total potential tax burden of 9%.
“By moving to New Hampshire, you aren’t just potentially protecting yourself from the 4% surtax,” says Mr. England. “It’s the entire 9% tax rate you could avoid, and that’s not an insignificant amount of money when your income is more than a million dollars.”
Annual Threshold Adjustments
The 4% surtax only applies if the taxpayer’s income is above a specific threshold. The original threshold was $1,000,000. That means only the income someone receives above the threshold in a given tax year is taxed with an additional 4%.
In other words, if you make $1,000,001 in a year, only $1 will be subject to the additional 4% tax.
However, lawmakers designed the thresholds to adjust annually for inflation. This makes the “Millionaire Tax” label somewhat misleading. These adjustments mean some millionaires may not face the surtax, while others who earn slightly above the threshold will.
What started as a $1 million threshold in 2023 has already increased in each subsequent year:
- Tax year 2024: $1,053,750
- Tax year 2025: $1,083,150
This indexing feature maintains the law’s impact on high earners despite inflation. At the time of this writing, the anticipated threshold for tax year 2026 is still $1,083,150. That could change.
Lessons from the “Welch v. Commissioner of Revenue” MA Supreme Court Case
At the heart of the tax is “source income.” This is “generally taxable on non-residents,” according to mass.gov. Massachusetts has expansive definitions of source income that can include business sales, even for former residents.
The state’s tax law covers “income derived from or effectively connected with any trade or business, including any employment carried on by the taxpayer in the commonwealth, whether or not the nonresident is actively engaged in a trade or business or employment in the commonwealth in the year in which the income is received.”
This broad language means that business equity built during your Massachusetts residency years could remain subject to state taxation even after you’ve moved to New Hampshire.
A Warning for Business Owners
A recent ruling by the Massachusetts Court of Appeals illustrates the risks facing business owners who relocate before selling their companies. The court issued the ruling for an appeal of a case called Welch v. Commissioner of Revenue.
“The problem with moving out of state is that there was a recent case – the Welch case – which is problematic,” says Mr. England. “The Department of Revenue was willing to let it go to court because they knew it would come back in their favor.”
“The Appellate Tax Board, which is the first step in the appeals process, ruled against the taxpayer,” says England. “This individual had moved to New Hampshire only a few months before selling his interest in the business, reporting it for federal purposes but not for New Hampshire because there’s no income tax there.”
Business Equity Built Over Time
Massachusetts successfully argued that Welch’s capital gains were “effectively connected” to his Massachusetts trade. That is, they were the result of the business he conducted while he was a resident of the Bay State.
“While living in Massachusetts, he held onto his stock and didn’t make a dime,” England explains. “When he moved to New Hampshire and sold, he earned that money as a New Hampshire resident.”
Because the United States tax system “operates on an annual basis,” England says, “If I sell shares in Apple this year, I pay income taxes on that revenue this year. I don’t pay taxes on an investment I made five years ago just because the value of that investment increased.”
Assigning Income
Nonetheless, Massachusetts argues that business equity appreciation occurring during residency years remains taxable regardless of when the sale occurs. If the state can retroactively assign income to a former resident, this suggests that potentially any economic benefit earned while the taxpayer was a Massachusetts resident is taxable, even if the taxpayer doesn’t receive income until after they’ve moved out of state.
At the time of this writing, Welch is considering an appeal to the Massachusetts Supreme Judicial Court. This is an evolving area of law that could significantly impact business owners’ tax planning strategies in the coming years.
In the next few sections, we’ll explore what Mr. England suggests for business owners who may find themselves in a similar situation.
Strategic Planning Options for Business Owners
According to Mr. England, the four most effective strategies for reducing your exposure to the Massachusetts Millionaire Tax are timing your move correctly, using trust structures to shield your income, spreading the income over multiple recipients, and receiving the income in installments rather than as a lump sum.
Timing the Move
“When considering the assignment of income, timing is crucial,” England says. If the sale occurs long enough after the taxpayer has moved out of state, it may become more difficult for Massachusetts to argue tax liability.
England recommends that business owners plan far in advance if they are considering relocation. “If you’re thinking about selling while living in a different state, wait at least two years after moving before doing so,” he advises.
“File your partial tax return for Massachusetts, and then your return for the year in the new state. By the time the year of the sale comes, there should be no Massachusetts tax return at all.”
England cautions against filing unnecessary Massachusetts returns after moving. For example, if you file a partial Massachusetts tax return the second year after moving, “You’re just inviting an audit” by the Massachusetts Department of Revenue, England says.
The goal is to establish a “clean break” from Massachusetts tax obligations while maintaining proper documentation of your residency change.
Trust Structures
One of the most effective strategies involves transferring business stock to a New Hampshire trust before any potential sale.
“Let the trust pay the tax on that income,” England says. “That taxpayer was never engaged in any business in Massachusetts and received no compensation. It has always been a New Hampshire trust. This creates at least a second layer of defense that the state has to get past to come after you.”
Critical requirements for effective trust planning include:
- The trustee must not be a Massachusetts resident
- Administrators must manage the trust outside of Massachusetts
- All trust operations must occur in New Hampshire
“Everything must be New Hampshire,” England emphasizes. Maintaining any connection to Massachusetts can compromise the strategy and potentially subject the trust to Massachusetts taxation.
If the people or organization managing the trust reside in Massachusetts, “a court can find that a trust is ‘being administered in Massachusetts’ even if the trust is technically located in New Hampshire. If the people working on the trust are in Massachusetts, if the trustees are in Massachusetts, then you haven’t accomplished your goal.”
Income Spreading and
Another approach involves spreading income over multiple recipients. This way, no single taxpayer receives a yearly income exceeding the 4% surtax threshold. For example, if an income totaling $1,500,000 is distributed to three taxable entities equally, each receives $500,000 and is therefore not subject to the surtax.
“You could accomplish this with family members, even your children and siblings, or with trusts,” says England. Keep in mind that this strategy requires thinking ahead.
Installment Strategies
Similarly, you could choose to receive the income in installments over multiple years to avoid receiving a single yearly income above the threshold. The challenge with this approach is that you usually need permission from the state.
“Massachusetts requires you to ask permission to do that, and you have to file a bond,” England notes. Furthermore, “The state is also known to be very unresponsive when it comes to granting permission to this type of installment sale process”.
Documentation and Audit Defense
Massachusetts actively audits wealthy individuals claiming residency changes, particularly those moving to tax-free states like New Hampshire. The Massachusetts Society of Certified Public Accountants reported that two-thirds of its members had at least one client who moved away from Massachusetts in 2023. Additionally, 90% of the members surveyed said other clients were considering leaving.
Many of these individuals may have no reason to fear an audit from a legal standpoint, but an audit itself is a problem. They could end up paying significant legal fees just to protect themselves. If their documentation isn’t in order, the audit could drag on, leading to additional costs.
Regardless of how you decide to structure your income, it’s critical to maintain proper documentation. Working with a CPA is one of the best ways to maintain your records and prepare an audit defense, should you need it.
Estate Planning Implications
The Massachusetts estate tax code adds another layer of complexity and must be considered when moving to New Hampshire. There is only a $2 million state exemption, compared to an approximately $13.9 million federal exemption as of 2025.
You could mitigate exposure to Massachusetts estate taxes by establishing LLCs in New Hampshire.
“One solution for real estate is to put any Massachusetts real estate you own into a New Hampshire LLC. This way, you own intangible personal property rather than real estate directly,” England suggests.
A Step-Up in Basis
However, there’s a strategic consideration due to the way real estate assets are valued.
“Any assets includable in your estate get a step-up in basis to fair market value at the date of your death, whereas if you gift it while you’re alive, the recipient maintains your original basis,” says England.
England sometimes recommends clients pay the estate tax just to get the step-up in basis.
“If you have a zero-basis asset, you might want to include it in your estate because it gets valued at fair market value. You might pay the Massachusetts estate tax at 10%, but you’ll avoid the federal capital gains tax, the additional Massachusetts ‘Millionaire Tax,’ as well as the Massachusetts 3.8% net investment income tax.”
Get Help Navigating This Complex Tax Environment
For business owners with significant equity built up over years of Massachusetts residency, the stakes are high when attempting to navigate this tax environment. It’s critical to seek guidance from experienced tax attorneys and CPAs familiar with both Massachusetts and New Hampshire tax law.
The key is to start the planning process well before any potential business sale, liquidity event, or relocation to another state. As England emphasizes, “This is not an area where you want to invite scrutiny.”
Proper planning executed with sufficient advance notice provides the best protection against Massachusetts’ increasingly aggressive tax collection efforts.
If you’re thinking about moving to New Hampshire, consider moving to the state’s beautiful coastal region. Contact us at Madden Group to learn more about your real estate opportunities.
