| Date: | 10/18/2018 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Personal Income Tax/Corporate/Sales and Use/Tax Administration/Miscellaneous
This Technical Information Release (TIR) explains provisions in recent legislation relating to the personal income tax, G.L. c. 62, the corporate excise, G.L. c. 63, the sales and use tax, G.L. c. 64H and c. 64I, the motor fuels excise, G.L. c. 64A, the special fuels excise, G.L. c. 64E, the cigarette excise, G.L. c. 64C, tax administration, G.L. c. 62C, and set-off debt collection, G.L. c. 62D.
The legislation discussed in this TIR includes:
- An Act Making Appropriations for the Fiscal Year 2013 to Provide for Supplementing Certain Existing Appropriations and for Certain Other Activities and Projects (the Fiscal Year 2013 Supplemental Budget)[1]
- An Act Making Appropriations for the Fiscal Year 2014 (the Fiscal Year 2014 Budget) [2]
- An Act Relative to Transportation Finance (Transportation Finance Act)[3]
I. Extension of Brownfields Credit; Personal Income Tax and Corporate Excise
The Fiscal Year 2014 Budget extends the Brownfields Credit, previously scheduled to expire on August 5, 2013, for five additional years.
Taxpayers subject to the personal income tax or corporate excise under General Laws chapters 62 and 63 and tax-exempt organizations within the meaning of § 501(c) of the Internal Revenue Code are allowed a transferable Brownfields Credit for incurring eligible costs to remediate a hazardous waste site on property used for business purposes and located within an economically distressed area.[4] The credit may be either 50% or 25% of the “net response and removal costs” as that term is defined in G.L. c. 21E, § 2, depending upon whether an activity or use limitation has been imposed.
Under prior law, to qualify for a Brownfields Credit, the relevant work must have been started on or before August 5, 2013 and the net response and removal costs must have been incurred prior to January 1, 2014. Under the Fiscal Year 2014 Budget, to qualify for a Brownfields Credit, the taxpayer must “commence and diligently pursue” the relevant environmental response action(s) on or before August 5, 2018.[5] Also, under the Fiscal Year 2014 Budget, the net response and removal costs must be incurred prior to January 1, 2019.[6]
II. Community Investment Tax Credit; Personal Income Tax and Corporate Excise
Pursuant to St. 2012, c. 238, and codified at G.L. c 62, § 6M and G.L. c. 63, § 38EE, a Community Investment Tax Credit is allowed for tax years beginning on or after January 1, 2014 for qualified investments (certain cash contributions made to a community development corporation, community support organization, or a community partnership fund) made on or after January 1, 2014.[7]
The Community Investment Tax Credit is equal to 50% of the total qualified investment made by the taxpayer for the taxable year. The credit may be claimed by individuals or entities subject to taxation under General Laws chapters 62 and 63, i.e., the personal income tax and the corporate excise. The credit is set to expire December 31, 2019.
Pursuant to the Supplemental Budget, the Community Investment Tax Credit has been made refundable.[8] Alternatively, the credit may be carried forward 5 years. If a taxpayer elects to carry forward a credit balance, then the option to claim a credit refund does not apply.
The Department of Housing and Community Development and the Department of Revenue will develop regulations and procedures to implement the Community Investment Tax Credit.
III. FAS 109 Deduction; Corporate Excise
A “FAS 109”[9] deduction was previously approved for certain publicly held companies as part of a Massachusetts tax law change that, among other things, lowered the corporate tax rate in stages and adopted combined reporting for tax years beginning on or after January 1, 2009. In general, if the enactment of the combined reporting requirement for a unitary business resulted in an increase in the net deferred tax liability of certain combined groups, such groups became eligible to claim a FAS 109 deduction.[10]
The Fiscal Year 2014 Budget delays by an additional year the implementation of the FAS 109 deduction. Under prior law, if applicable, the FAS 109 deduction was to be prorated over the 7-year period beginning with the combined group’s taxable year that begins in 2014. Under the Fiscal Year 2014 Budget, the first year of the 7-year period to claim the FAS 109 deduction is the combined group’s taxable year that begins in 2015.[11]
IV. The Sales Factor of the Corporate Excise Apportionment Formulas; Explicit Market-based Sourcing of Sales other than Sales of Tangible Personal Property
The Transportation Finance Act replaces the existing apportionment method for sourcing sales other than sales of tangible personal property.
Under current law, in effect for taxable years beginning before January 1, 2014, such sales are sourced to Massachusetts if the income-producing activity is performed in Massachusetts. In contrast, if the income-producing activity is performed both within and without Massachusetts, the sale is deemed to be a Massachusetts sale if the greater proportion of the income-producing activity is performed in Massachusetts, based on cost of performance.[12] Further, in the case of licensing of intangible property, the income-producing activity is deemed to be performed in Massachusetts to the extent the intangible property is used in Massachusetts.[13]
Effective for tax years beginning on or after January 1, 2014, the Transportation Finance Act amends G.L. c. 63, § 38(f) to provide:
Sales, other than sales of tangible personal property, are in the commonwealth if the corporation’s market for the sale is in the commonwealth.[14]
Elaborating on this explicit market sourcing rule, the Transportation Finance Act provides further that a corporation’s market for a sale is in Massachusetts and the sale is thus assigned to Massachusetts in the following circumstances:
- in the case of the sale, rental, lease or license of real property, if and to the extent the property is located in Massachusetts;
- in the case of the rental, lease or license of tangible personal property, if and to the extent the property is located in Massachusetts;
- in the case of the sale of a service, if and to the extent the service is delivered to a location in Massachusetts;
- in the case of the lease or license of intangible property, including a sale or exchange of such property where the receipts from the sale or exchange derive from payments that are contingent on the productivity, use or disposition of the property, if and to the extent the intangible property is used in Massachusetts;[15] and
- in the case of the sale of intangible property, other than as provided in clause (4), above, where the property sold is a contract right, government license or similar intangible property that authorizes the holder to conduct a business activity in a specific geographic area, if and to the extent that the intangible property is used in or otherwise associated with Massachusetts; provided, however, that any sale of intangible property, not otherwise described in this clause or clause (4), shall be excluded from the numerator and the denominator of the sales factor.[16]
The Transportation Finance Act further provides that in the case of sales, other than sales of tangible personal property, if the state or states to which sales should be assigned cannot be determined, the proper assignment shall be reasonably approximated; and as to such sales, if the taxpayer is not taxable in a state to which a sale is assigned, or if the state or states to which such sale should be assigned cannot be determined or reasonably approximated, such sale shall be excluded from the numerator and denominator of the sales factor.[17]
Pursuant to the Transportation Finance Act, the new rules referenced above also apply in the context of financial institutions subject to the excise imposed under G.L. c. 63, § 1 et seq. with respect to sales other than sales of tangible personal property where such sales are “not otherwise apportioned” under the chapter 63 financial institution excise provisions.[18] In the context of these residual “not otherwise apportioned” sales, the “throwback” rule applicable to certain sales as set forth in G.L. c. 63 § 2A(d)(xiii) would not apply; instead, the new rules, as referenced above, would source the sales to the market as stated, except in those situations described in the new rules where the sale is to be excluded from both the numerator and denominator of the sales factor.[19]
The Department will issue regulatory guidance on the application of these statutory changes.
V. Repeal of the Separate Corporate Excise Provisions for Utility Corporations
Under current law in effect for taxable years beginning before January 1, 2014, G.L. c. 63, § 52A imposes a public utility excise on a “utility corporation” at the rate of 6.5% of its net income, with the income apportioned using an evenly weighted three-factor formula, consisting of property, payroll and sales. As specified in § 52A, a “utility corporation” includes certain electric, gas, water, telephone, railroad, or similar businesses.
Effective for tax years beginning on or after January 1, 2014, the Transportation Finance Act repeals G.L. c. 63, § 52A, the separate corporate excise provisions for utility corporations.[20] As a result of this repeal, entities that formerly were subject to the excise under G.L. c. 63, § 52A will instead be subject to a corporate excise under G.L. c. 63, § 39, the corporate excise imposed on “business corporations.” For years beginning on or after January 1, 2014, a utility corporation taxed as a business corporation will be subject to tax on the sum of two measures:
(a) an income measure equal to 8% of taxable net income, derived using the applicable apportionment factors, plus
(b) a non-income measure equal to $2.60 per $1,000 of value of taxable Massachusetts tangible property (if classified as a tangible property corporation) or taxable net worth (if classified as an intangible property corporation).[21]
There is a minimum tax of $456.
Under current law, a utility corporation is not permitted to deduct a net operating loss (“NOL”) carry forward.[22] Under the Transportation Finance Act, a company previously subject to tax under G.L. c. 63, § 52A as a utility corporation for taxable years beginning before January 1, 2014 will not be permitted to carry forward or deduct any NOL generated prior to its taxable year beginning on or after January 1, 2014.[23] However, a former utility corporation that becomes taxable as a business corporation will be allowed to carry forward a post-2013 NOL incurred as a business corporation (i.e., for a taxable year beginning on or after January 1, 2014), subject to applicable limitations on business corporation loss carryovers.
Effective for tax years beginning on or after January 1, 2014, chapter 63 has been revised to remove any reference to utility corporations and to § 52A.[24]
VI. Motor Fuels Excise
Pursuant to G.L. c. 64A, Massachusetts imposes an excise at the wholesale level on each gallon of gasoline that is used to operate motor vehicles on Massachusetts highways.
Under prior law, the gasoline excise was imposed at the rate of 21 cents per gallon of gasoline.
Pursuant to G.L. c. 64E, the special fuels excise applies to all sales of fuel used by motor vehicles in operation on Massachusetts highways, with the exception of gasoline. For example, the special fuels excise applies to sales of diesel, ethanol, biodiesel, gasohol, and liquefied gas. Like the gasoline excise, the special fuels excise is imposed at the wholesale level.
Under prior law, the special fuels excise for fuels other than liquefied gas was imposed at the rate of 21 cents per gallon. For liquefied gas (e.g., propane, CNG and LNG) the rate is 19.1% of the average price per gallon (as determined by the Commissioner for each calendar quarter).
Effective July 31, 2013, as a result of the Transportation Finance Act, the excise on gasoline and special fuels such as diesel, ethanol, biodiesel and gasohol, will increase 3 cents per gallon to 24 cents per gallon.[25] The excise on liquefied gas has not been changed.
The separate Underground Storage Tank (UST) delivery fee will remain at 2.5 cents per gallon.[26]
Effective January 1, 2015, both the excise on gasoline and special fuels and the UST delivery fee will be subject to future rate increases based on increases in the consumer price index.[27]
VII. Tobacco Excise
Pursuant to G.L. c. 64C, Massachusetts imposes an excise at the wholesale level on cigarettes, smokeless tobacco, cigars and smoking tobacco sold in Massachusetts.
The Transportation Finance Act recently amended G.L. c. 64C to provide an increase to the excise on cigarettes, smokeless tobacco, cigars and smoking tobacco. The new law was effective July 31, 2013.
- The excise imposed on cigarettes was increased by 50 mills per cigarette ($1.00 per pack of 20 cigarettes and $1.25 per pack of 25 cigarettes). The excise rate has consequently increased from $2.51 per pack of 20 cigarettes to $3.51 per pack, and from $3.1375 per pack of 25 cigarettes to $4.3875 per pack.[28]
- The excise on smokeless tobacco was increased from 90% to 210% of the wholesale price.[29]
- The excise on cigar and smoking tobacco was increased from 30% to 40% of the wholesale price.[30]
VIII. Sales and Use Tax Relating to Certain Computer and Software Services; Retroactive Repeal
Effective July 31, 2013, the Transportation Finance Act amended General Laws chapters 64H and 64I with respect to certain computer system design and software modification services.[31] However, recent legislation repealed the provisions in the Transportation Finance Act relating to computer and software services retroactively to July 31, 2013, the date the provisions took effect.[32]
TIR 13-17, Repeal of the Computer and Software Services Tax, explains the effect of the retroactive repeal on vendors who have collected tax, remitted tax or filed returns prior to repeal of the tax.
IX. Information Reporting by Liquor Wholesalers; G.L. c. 62C, § 16(k)
Under current law, G.L. c. 62C, § 16(k) provides:
Every person subject to taxation under section 21 of chapter 138 shall file a return with the commissioner for each calendar month covering his sales of all alcoholic beverages or alcohol and all malt beverages imported into the commonwealth by him. Every such return shall be filed within 20 days after the expiration of the period covered thereby.
The FY 2014 Budget Act amends § 16(k) to require an annual information return by liquor wholesalers reporting their sales of alcohol to restaurants and other retailers.[33]
Each such person shall annually, on or before March 20, file an information return for the prior calendar year in such form and containing such information as the Commissioner may, by rule or regulation, require including, but not limited to the following:
- the total monthly sales amount to each person to whom sales have been made, exclusive of deposits required by G.L. c. 94, §§ 321 to 327, inclusive, and
- identifying information for such purchasers.
The Department will be developing a form for information reporting by liquor wholesalers.
X. Providing Records in Electronic Format; G.L. c. 62C, § 24
The FY 2014 Budget contains the following provision that, for the purpose of verifying any return, requires a taxpayer to provide certain records in electronic format to the Department:
The taxpayer shall provide to the commissioner all accounting records and information in a searchable electronic format, as requested by the commissioner, to the extent that the taxpayer maintains such records in electronic format.[34]
XI. Unified Audit Procedures; G.L. c. 62C, § 24A
General Laws chapter 62C, section 24A, originally enacted in 2010, established separate unified audit procedures for pass-through entities. The recently enacted technical amendments to section 24A further streamline audit procedures for pass-through entities, consistent with the legislative goal of the original statute.[35]
The technical amendments distinguish the unified audit procedure from the regular audit process, creating a procedure for pass-through entities that is completely separate from regular audit procedures. A unified audit procedure generally supersedes the assessment and abatement process that would otherwise be applicable to members and indirect owners of a pass-through entity. Individual members may, however, elect not to participate in the separate unified audit procedure, as provided in the original statute.
Under unified audit procedures, the pass-through entity may have a conference with the Department prior to the issuance by the Commissioner of a notice of determination of pass-through entity items. The tax matters partner or other members of the entity may petition the Appellate Tax Board for review of the Commissioner’s determination of pass-through entity items. After judicial appeals have been exhausted or the right to judicial review has expired, a determination becomes a “final determination” and the Commissioner may assess or abate the entity’s members and indirect owners.
The Commissioner will issue regulations establishing unified audit procedures.
XII. Set-Off Debt Collection; Changes to Refund Intercepts
Under G.L. c. 62D, the Department has the authority to offset income tax refunds otherwise payable to a taxpayer by the amount of any outstanding tax liabilities of the taxpayer. Also, under G.L. c. 62D, the Department has the authority to intercept an income tax refund of an individual who owes a debt to a “claimant agency,” as defined in chapter 62D, and apply that amount to the debt. In addition, the Department has the authority under federal law to offset federal income tax refunds to pay outstanding state income tax and past-due child support owed by a taxpayer.[36]
In order to improve collection of unpaid state taxes and certain other state and federal debts, the FY 2014 Budget expands the Department’s authority under G.L. c. 62D. Effective beginning on July 1, 2013, the following provisions increase the Department’s ability to intercept refunds for debt collection:
1. The type of tax refunds that can be offset for debt collection includes all tax types, not just income tax. For purposes of chapter 62D, the definition of “refund” has the following meaning:
"Refund", an overpayment of a tax, including interest and penalties, that may be returned or credited to the taxpayer pursuant to section 30, 31A, 36, 36A, 37 or 39 of chapter 62C, section 27 or 27A of chapter 65, section 6 of chapter 65A or any other general or special law that authorizes such a return or credit; provided, however, the commissioner shall not offset any refunds under this chapter payable to an operator as defined in section 1 of chapter 64G, a vendor as defined in section 1 of chapter 64H or section 1 of chapter 64I or a direct broadcast satellite service provider as defined in section 1 of chapter 64M to the extent that the person is obligated under those chapters to repay the purchaser the amount for which the application for refund is made.[37]
2. The Commissioner of Revenue is authorized to participate in a Reciprocal Offset Agreement with the U.S. Department of the Treasury that will allow the Commissioner to submit state tax liabilities to be offset against federal payments to vendors and contractors and for federal agencies to submit federal nontax liabilities to be offset against tax refunds due to Commonwealth taxpayers; [38]
3. The Commissioner of Revenue is authorized to participate in Reciprocal Offset Agreements with other states that will allow the Commissioner to submit state tax liabilities to be offset against tax refunds of another State, and for other States to submit their tax liabilities to be offset against tax refunds due to Commonwealth taxpayers; [39]
4. The amendments make technical corrections to chapter 62D (e.g., the amendments update the names of agencies and correct the definitions of a “debt” and a “debtor”).
5. The Department of Revenue is authorized to retain certain set-off fees.
/s/Amy Pitter
Amy Pitter
Commissioner of Revenue
AP:MTF:adh
October 18, 2013
TIR 13-15