Tax Expenditure Appendix A

The following tax expenditures have been revised or created due to recent law changes:

The Personal Income Tax:

Circuit Breaker Tax Credit Increased (see item 1.609):  A credit is allowed to an owner or tenant of residential property located in Massachusetts equal to the amount by which the real estate tax payment or 25% of the rent constituting real estate tax payment exceeds 10% of the taxpayer’s total income, not to exceed $1,000. The amount of the credit is subject to limitations based on the taxpayer’s total income and the assessed value of the real estate, which must not exceed $705,000.  For tax year 2012, an eligible taxpayer’s total income cannot exceed $53,000 in the case of a single filer who is not a head of household filer, $67,000 for a head of household filer, and $80,000 for joint filers. In order to qualify for the credit, a taxpayer must be age 65 or older and must occupy the property as his or her principal residence. See TIR 12-8 for more information.

Deduction for Expenses of Human Organ Transplant:  Effective for tax year 2012, an individual may deduct certain expenses and other costs incurred in the process of donating an organ for a human organ transplant to another individual. For purposes of this deduction, “human organ” shall mean all or part of human bone marrow, liver, pancreas, kidney, intestine or lung. In the case of an individual who donates an organ to another person for human organ transplantation, the individual may deduct the following expenses that are incurred by the individual and related to the individual’s organ donation: (i) travel expenses; (ii) lodging expenses; and (iii) lost wages not to exceed $10,000. An individual who is a nonresident of Massachusetts for all or part of the taxable year is not eligible to claim this deduction. See TIR 11-6.

Current Code Provisions

As a general rule, Massachusetts will not adopt any federal tax law changes incorporated into the Internal Revenue Code (“Code”) after January 1, 2005. However, certain specific provisions of the personal income tax automatically adopt the current Code. Provisions of the Code adopted on a current Code basis are (i) Roth IRAs, (ii) IRAs, (iii) the exclusion for gain on the sale of a principal residence, (iv) trade or business expenses, (v) travel expenses, (vi) meals and entertainment expenses, (vii) the maximum deferral amount of government employees’ deferred compensation plans, (viii) the deduction for health insurance costs of self-employed, (ix) medical and dental expenses, (x) annuities, (xi) health savings accounts, and (xii) employer-provided health insurance coverage and amounts received by an employee under a health and accident plan. See TIRs 98-8, 02-11, 07-4, and 09-21 for further details on the Massachusetts personal income tax current Code provisions.

Conversion of Traditional IRA to Roth IRA in 2010:  Under the federal Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), taxpayers regardless of income level are allowed to convert traditional IRAs to Roth IRAs effective for tax years beginning after December 31, 2009. Previously, only taxpayers with federal adjusted gross incomes of $100,000 or less could exercise this option. For federal income tax purposes, for Roth IRA conversions completed in 2010, unless a taxpayer elected to include the entire amount of income in 2010, the amount includible in gross income as a result of the conversion is included in federal gross income half in 2011 and half in 2012. See IRC sec.

408A(d)(3). The amount includible in Massachusetts gross income may differ from the amount includible in federal gross income. However, a taxpayer must follow the federal rules regarding the year (or years) when the taxable amount is includible in Massachusetts gross income. For more information and a discussion of applicable Massachusetts adjustments, see TIR 10-8.

Parking, Combined Commuter Highway Vehicle Transportation and T-Pass Fringe Benefit — IRC sec. 132(f):  Massachusetts follows IRC sec. 132(f) as amended and in effect under the January 1, 2005 Code.  For tax year 2012, the IRS has calculated, based on inflation adjustments contained in the January 1, 2005 Code, the 2012 exclusion amounts for employer-provided parking and combined transit pass and commuter highway vehicle transportation benefits as $240 and $125 per month respectively.  Massachusetts adopts these 2012 tax year monthly exclusion amounts because they are based on the January 1, 2005 Code.  For further discussion, see TIR 12-1.  Note: It is possible that Congress could make further changes to IRC sec. 132(f) after the publication of these form instructions.  Massachusetts will not adopt any changes to IRC sec. 132(f) unless the Massachusetts legislature acts to adopt such changes.

Temporary Increase in Federal Earned Income Credit:  For federal income tax purposes, the Tax Relief and Job Creation Act of 2010 (P.L 111-312)  provides a temporary increase in the earned income tax credit for two years, through December 31, 2012. The Massachusetts earned income tax credit equals 15% of the federal earned income tax credit received by the taxpayer for the taxable year. Therefore, Massachusetts allows 15% of the amount the taxpayer receives federally under IRC sec. 32.

Temporary Change to IRC Sec. 179 Expensing:  For federal income tax purposes, effective for tax years beginning in 2012, the dollar limitation for an election under sec. 179 to expense property in its initial year is $139,000, and the sec. 179 overall investment phase-out threshold for the 2012 tax year is $560,000. Massachusetts adopts these changes because sec. 179 is a trade or business expense deduction; these deductions are adopted by Massachusetts on a current Code basis.

Federal Deduction — Not Allowed

Federal “Bonus” Depreciation — IRC sec.168(k):  For federal income tax purposes, under IRC sec.168(k), bonus depreciation applies to eligible property acquired after December 31, 2007 and placed in service before January 1, 2013. The bonus depreciation rate for property placed in service during this period is generally 50%. Under 2002 legislation, Massachusetts decoupled from bonus depreciation allowed under IRC sec. 168(k), as amended and in effect for the current year. Therefore, Massachusetts does not adopt this additional depreciation deduction. See TIRs 02-11 and 03-25 for further details.

Domestic Production Activity Deduction — IRC sec. 199:  For federal income tax purposes, a business entity that pays wages to employees and conducts eligible domestic production activities is allowed a deduction for domestic production activities under IRC sec. 199. Generally, in the case of a non-corporate taxpayer, the deduction allows a business with qualified production activities to deduct 9% of its U.S. adjusted gross income. Under 2004 legislation, Massachusetts de-coupled from the production activity deduction allowed under IRC sec.199, as amended and in effect for the current year. Therefore, Massachusetts does not adopt this deduction. See TIR 05-5.

Federal Exclusion — Not Allowed

Mortgage Forgiveness — IRC sec. 108(a):  The federal Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142)  amended IRC sec. 108(a) by adding an exclusion for indebtedness that is discharged before January 1, 2010 and is qualified principal residence indebtedness. The Economic Stabilization Act of 2008 extended this exclusion for three years, until January 1, 2013. Massachusetts does not adopt this exclusion or the extension because they were enacted after January 1, 2005.

Voluntary Contributions to the Homeless Animal Prevention and Care Fund:  Legislation passed in 2012 enables taxpayers to make voluntary contributions on their income tax returns to the newly established Homeless Animal Prevention and Care Fund. Contributions to this fund are used to vaccinate and spay/neuter homeless dogs and cats and those owned by low-income residents, and to assist with the training of animal control officers.

The Personal Income and Corporate (Joint)

Two new credits have been added that are available to income or corporate filers: The "Employer Wellness Program Ceredit (income item 1.616 and corporate 2.620) and the "Community Investment Tax Credit" (income item 1.617 and corporate 2.621). See these items for detailed descriptions.

Corporate and Other Business Excise:

Updated corporate excise tax rate reduction schedule: The following tables have been created by referring to G.L. Ch. 63 Sections 32 D and 39, and Ch. 62 Section 4.

Corporations:
Tax Year Non-income
Measure Tax
Income
Measure Tax
C Corp. Rate
Income Measure Tax
S Corp. Rate
(Gross Sales $6M-$9M)
Income Measure Tax
S Corp. Rate
(Gross Sales > $9M)
2009 0.26% 9.50% 2.80% 4.20%
2010 0.26% 8.75% 2.30% 3.45%
2011 0.26% 8.25% 1.97% 2.95%
2012 0.26% 8.00% 1.83% 2.75%
2013 0.26% 8.00% 1.83% 2.75%
S Corporations: Rate is equal to:
Large S Corp
(Gross Sales > $9M):
2.75%   C Corp rate minus
Part B individual income tax rate
Medium S Corp
($6M < Gross Sales < $9M)
1.83%   2/3 of Large S Corp rate
Small S Corp
(Gross Sales < $6M):
0%   0%

 

Financial Institutions:
Tax Year Non-income
Measure Tax
Income Measure Tax
C Corp. Rate
and S Corps' Qualified
and Passive Income
Income Measure Tax
S Corp. Rate
(Gross Sales $6M-$9M)
Income Measure Tax
S Corp. Rate
(Gross Sales > $9M)
2009 No 10.50% 3.4667% 5.20%
2010 10.00% 3.13% 4.70%
2011 9.50% 2.80% 4.20%
2012 9.00% 2.50% 3.75%
2013 9.00% 2.50% 3.75%

 

Public Utilities:
Tax Year Non-income Measure Tax Income Measure Tax Net Operating Loss Carryovers Apportionment Rule
2009 No 6.50% No Equally weighted tangible, payroll, property factors
2010 6.50%
2011 6.50%
2012 6.50%
2013 6.50%

 

Security Corporations:
Tax Year Non-income Measure Tax Income Measure Tax
Class 1 Excise
Income Measure Tax
Class 2 Excise
Net Operating Loss Carryovers Apportionment Rule
2009 No 0.33% 1.32% No NA
2010 0.33% 1.32%
2011 0.33% 1.32%
2012 0.33% 1.32%
2013 0.33% 1.32%

 

Insurance Companies:
Tax Year Non-income
Measure Tax
(tax on Tangible Property
or Net worth)
Tax rates
Taxable Premiums
Tax rates
Gross Investment Income
Net Operating Loss Carryovers Apportionment Rule
2009 No 2.28% Applicable rate (*) No NA
2010 2.28% Applicable rate (*)
2011 2.28% Applicable rate (*)
2012 2.28% Applicable rate (*)
2013 2.28% Applicable rate (*)
(*) Property and casualty insurers may reduce their tax rate on gross investment income from the 1% tax rate if they contribute the required amount to the initiative over a five-year period. The reduced rate schedule is as follows: 0.8% for the first year on or after January 1, 1999, in which it makes the required contribution and 0.6% for the second year it makes the required contribution or 0.4% for the third year it makes the required contribution. The tax rate is 0.2% in the fourth year it makes the required contribution. No gross investment income tax shall be due for the tax years beginning on or after the fifth year in which said company contributes its full proportionate share. A Certificate of Contribution issued by the Property and Casualty Insurance Company Initiative must accompany the return if claiming the lower rate. A company that does not make the required contribution in any year will continue to be taxed at the rate for the last year in which it did make the required contribution.

 

Life Insurance Companies: Tax Rates
Tax Year Taxable Life Premiums Taxable Accident & Health Premiums Net Operating Loss Carryovers Apportionment Rule
2009 2.00% 2.00% No NA
2010 2.00% 2.00%
2011 2.00% 2.00%
2012 2.00% 2.00%
2013 2.00% 2.00%

 

The Sales and Use Tax:

In June 2009 legislation was enacted that amended c. 64H (sales tax) and c. 64I (use tax), changing the rate of tax for sales and use of tangible personal property and telecommunications services from 5% to 6.25%.  See Stat. 2009, c. 27, s. 53, 55-57, 59.  In addition, the new legislation repealed the exemption for alcoholic beverages, including beer, wine, and liquor, sold at retail by amending G.L. c. 64H, s. 6(g) to omit reference to c. 138. These changes were effective on and after August 1, 2009. See TIR 09-11 for further details. 

As the result of a referendum question on the November 2, 2010 ballot, the law extending the Massachusetts sales and use tax to alcoholic beverages sold at package stores and liquor stores for off-premises consumption, which was enacted on August 1, 2009, has been repealed, effective for sales on or after January 1, 2011. See TIR 10-24 for further details. 

Effective July 1, 2011, physician-prescribed, medically necessary breast pumps are exempt from sales and use tax. See St. 2011, c. 68, s. 72.

In July 2012 legislation was enacted stating explicitly that "sales that do not involve tangible personal property shall not result in tax expenditures". See St 2012, c. 165, s. 112. Pursuant to this legislation, from fiscal year 2014 on, we remove some items from our tax expenditure estimates in prior years, these items (3.422, 3.501, 3.502, 3.503, and 3.504) have been listed in appendix D.

The estimates for TEB items for sales and use tax reflects these tax law changes.