A small Boston media company is staring down a state tax bill of more than $100,000 after Massachusetts decoupled its state tax treatment from the federal Section 174A deduction and disallowed the deduction for specified Massachusetts tax years. Trivium Interactive, a media firm with about $8 million in annual revenue and more than 40 employees, is one of several Massachusetts businesses caught off guard by the state's decision to decouple from a federal research and development deduction that Congress restored last year.
The company's predicament was first reported by The Boston Globe, which detailed how the Massachusetts Legislature delayed implementation of a key R&D tax provision even as businesses across the state relied on the federal rule change to plan their 2025 filings. Trivium principal Kirsten Holmes described the situation as devastating after receiving an email from her accountant, according to the Globe's reporting. Holmes said the state's move disproportionately affects research-driven businesses that Massachusetts should be trying to retain and grow.
At the center of the dispute is Section 174A of the federal tax code. The One Big Beautiful Bill Act established the Section 174A deduction, while Massachusetts returned to the older Section 174 rules for state purposes. The law also changed rules involving business-interest deductions, Section 179 expensing, and depreciation for qualifying production property, according to the Globe.
Massachusetts Hits the Brakes on Conformity
Massachusetts historically operated under what's known as rolling conformity, automatically adopting federal Internal Revenue Code changes as Congress enacted them, according to EY. That changed in June 2026, when Governor Maura Healey signed House Bill 5470, formally delaying the state's adoption of immediate R&D expensing until tax years beginning on or after January 1, 2026, per a tax alert from RSM US. The result: businesses that had already relied on the federal rule for their 2025 filings were forced to continue capitalizing and amortizing domestic research costs over five years at the state level, even though federal law no longer required it.
The same legislation delayed Massachusetts' adoption of three other major OBBBA provisions — bonus depreciation, expanded business interest expense deductions, and increased Section 179 expensing thresholds — for tax years 2025 and 2026, RSM US reported. Grant Thornton's analysis of the law notes that Massachusetts also built a new statutory mechanism into its tax code that automatically decouples the state from future federal IRC amendments enacted mid-year, ending the old rolling-conformity model going forward.
Why Beacon Hill Pulled Back
Why Beacon Hill Pulled Back The move came amid concerns about the effects of federal policy changes and funding cuts on the state budget. The costliest OBBBA tax changes, including the R&D deduction, were among the provisions Healey sought to delay. Healey filed a bill in January 2026 seeking to delay implementation of the costliest OBBBA changes, writing that it would offer a phased approach to the federal reforms while preserving the state budget and services.
Lawmakers approved the one-year delay of the R&D deduction change in June 2026, pushing full state conformity to the 2026 tax year. That timing gap meant companies that had already amended returns or planned around the federal rule change suddenly owed the Massachusetts Department of Revenue more than they expected, based on the Globe's account. A spokesperson for the Department of Revenue did not respond to the Globe's request for comment.
Small Firms Feel the Squeeze Most
Businesses that incur R&E expenditures are among those exposed to the delay, since R&D work covers everything from testing and refining prototypes and designs for real-world use to researching materials, technologies, and user needs. Businesses affected by the delay may need to revise their state tax calculations to account for the five-year write-off schedule required if they had used the federal law's retroactive expensing feature. According to the U.S. National Science Foundation, businesses continued to increase their research and development performance in 2023, spending $722 billion on R&D in the United States. According to the U.S. National Science Foundation's National Center for Science and Engineering Statistics, the business sector performed $697.3 billion of R&D in 2022, compared with companies' $722 billion in R&D spending in 2023.
Businesses can still recoup their R&D outlays over the longer amortization period, just not as quickly as federal law now allows. Some relief exists: small businesses can retroactively claim the R&D deduction for tax years 2022 through 2024 by amending returns, though that window closed July 6, 2026. House Bill 5470 also included penalty and interest waivers for taxpayers whose 2025 Massachusetts liabilities increased retroactively because of the decoupling, as long as updated filings are submitted within designated windows, per Grant Thornton.
A Broader Pass-Through Tax Shift
The same law created a new elective pass-through entity tax under Chapter 63E, effective for tax years beginning on or after January 1, 2026, letting pass-through businesses pay tax at the entity level to help owners offset the impact of the state's 4% Fair Share surtax on high earners. Electing entities receive a 90% refundable state tax credit for entity-level taxes paid on income above the surtax threshold, according to KPMG International's analysis of the legislation.
The decoupling debate also unfolded against a broader political backdrop. On June 18, 2026, the Massachusetts Supreme Judicial Court blocked a ballot initiative that sought to cut the state's personal income tax rate from 5% to 4%, keeping it off the November 2026 statewide ballot, per EY. State lawmakers had been closely watching the potential revenue impact of that proposed cut as they weighed the R&D conformity decision.
Not Just a Massachusetts Problem
Not Just a Massachusetts Problem Massachusetts isn't alone in wrestling with how to handle the federal R&D expensing change. Other states have taken different approaches to Section 174A, according to Crowe's national roundup of state responses. Multi-state companies now have to maintain separate state and federal tax calculations depending on each state's individual code.
California took a different approach to limiting research tax benefits. Lawmakers there considered budget measures in June 2026 to permanently cap corporate tax credit usage — including R&D credits — at $5 million or 50% of tax liability starting in tax year 2027, as Hoodline previously reported. California fiscal analysts estimated that cap would preserve $1.7 billion to $1.8 billion annually for the state's general fund once fully phased in.
For Trivium, based in Boston, the immediate concern is more basic. The company, co-founded by Jillian Domenici and Kirsten Holmes to build customized digital exhibit technology for institutions like Worcester Polytechnic Institute, Simmons University, and the Cincinnati Black Music Walk of Fame, now faces a tax bill following the state's decision. Holmes and other Massachusetts business owners caught in the same timing gap are left absorbing a cost tied not to their own research spending, but to the space between when Washington changed the rules and when Beacon Hill decided to catch up.
