Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2015

Tax Expenditure Appendix A


Recent Law Changes Affecting Tax Expenditures

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

The Personal Income Tax:

Circuit Breaker Tax Credit Increased (TE 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 $1,030. 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 $700,000. For tax year 2013, an eligible taxpayer’s total income cannot exceed $55,000 in the case of a single filer who is not a head of household filer, $69,000 for a head of household filer, and $82,000 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 13-16 for more information.

Employer Wellness Program Tax Credit (TE item 1.616) Effective for tax years beginning on or after January 1, 2013, a Massachusetts business that employs 200 or fewer workers may qualify for a tax credit for up to 25% of the cost of implementing a “certified wellness program” for its employees. A taxpayer seeking to claim the credit must apply to the Department of Public Health (DPH) for certification of its wellness program. DPH will approve a dollar amount of credit for a qualifying taxpayer and issue a certificate to be provided in connection with filing a tax return in order to claim the credit.  The amount of the credit that may be claimed by a taxpayer cannot exceed $10,000 in any tax year.  DPH has promulgated a regulation, 105 CMR 216.000, entitled Massachusetts Wellness Tax Credit Incentive, which sets forth criteria for authorizing and certifying the credit. The credit is set to expire on December 31, 2017.

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.

Earned Income Credit (TE item (1.605) For federal income tax purposes, the American Taxpayer Relief Act (P.L. 112-240) makes permanent or extends through 2017 enhancements to the earned income tax credit. 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 TE item 1.305) Under the American Taxpayer Relief Act of 2012 (P.L. 112-240), effective for tax years beginning in 2012 and 2013, the dollar limitation for an election under IRC sec. 179 to expense property in its initial year is $500,000, and the IRC sec. 179 overall investment phase-out threshold is $2,000,000.  Massachusetts adopts these changes because IRC sec. 179 is a trade or business expense deduction; these deductions are adopted by Massachusetts on a current Code basis. 

Parking, E-Z-Pass, and T-Pass Fringe Benefit — IRC sec. 132(f) (TE item 1.030) The American Taxpayer Relief Act (ATRA) of 2012 (P.L. 112-240) amended sec. 132(f) to increase the maximum monthly excludable amount for employer-provided commuter highway vehicle transportation and transit pass benefits to an amount equal to the maximum monthly excludable amount for qualified parking. The federal exclusion amounts for tax year 2013 are $245 per month for qualified parking, and $245 per month for transit pass and commuter highway vehicle transportation benefits.  However, Massachusetts follows IRC sec. 132(f) as amended and in effect under the January 1, 2005 Code and does not adopt the increased exclusion allowed by ATRA. For tax year 2013, the Massachusetts monthly exclusion amounts are $245 for employer-provided parking and $125 for combined transit pass and commuter highway vehicle transportation benefits. See TIR 13-2.  For 2014, federal and state amounts are:  $250 for qualified parking and $130 for transit pass and commuter highway vehicle transportation benefits; see TIR 14-2. 

Federal Deductions 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, 2014 (before January 1, 2015, for certain longer-lived and transportation assets). 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.

The Corporate and Other Business Excise:

Updated corporate and business 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:
    Income Measure Tax
Tax Year Non-income
Measure Tax
Rate on C
Corps' income
and S Corps'
Qualified and
Passive Income
S Corp. Rate
(Gross Sales $6M-$9M)
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%
2014 0.26% 8.00% 1.87% 2.80%
2015 0.26% 8.00% 1.87% 2.80%

 

S Corporations:
Size Rate is equal to:
Large S Corp (Gross Sales > $9M): C Corp rate minus Part B individual income tax rate
Medium S Corp ($6M < Gross Sales < $9M) 2/3 of Large S Corp rate
Small S Corp (Gross Sales < $6M): 0%

 

Financial Institutions:
    Income Measure Tax
Tax Year Non-income
Measure Tax
Rate on C
Corps' income
and S Corps'
Qualified and
Passive Income
S Corp. Rate
(Gross Sales $6M-$9M)
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%
2014 9.00% 2.53% 3.80%
2015 9.00% 2.53% 3.80%

 

Public Utilities:
Tax Year Non-income
Measure Tax
Income
Measure Tax
Net
Operating Loss
Carryovers
Apportionment Rule
2011 No 6.50% No Equally weighted tangible, payroll, property factors
2012 6.50%
2013 6.50%
Prior to January 1, 2014, public utility corporations were subject to an excise tax of 6.5% on net income. Legislation enacted in 2013 repealed the separate excise tax for utility corporations, which are now subject to the corporate excise imposed on business corporations.

 

Security Corporations:
    Income Measure Tax    
Tax Year Non-income
Measure Tax
Class 1 Excise Class 2 Excise Net
Operating Loss
Carryovers
Apportionment Rule
2011 No 0.33% 1.32% No NA
2012 0.33% 1.32%
2013 0.33% 1.32%
2014 0.33% 1.32%
2015 0.33% 1.32%

 

Insurance Companies:
    Insurance Companies: Tax rates  
Tax Year Non-income
Measure Tax
(tax on Tangible Property
or Net worth)
Taxable Premiums Gross Investment Income Net Operating Loss Carryovers Apportionment Rule
2011 No 2.28% Applicable rate (*) No No
2012 2.28% Applicable rate (*)
2013 2.28% Applicable rate (*)
2014 2.28% Applicable rate (*)
2015 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:
  Life Insurance Companies: Tax Rates    
Tax Year Taxable Life Premiums Taxable Accident & Health Premiums Net Operating Loss Carryovers Apportionment Rule
2011 2.00% 2.00% No NA
2012 2.00% 2.00%
2013 2.00% 2.00%
2014 2.00% 2.00%
2015 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, sections 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, which we regularly reported in prior years. But to facilitate comparison to tax expenditure estimates in prior years, these items (3.203, 3.422, 3.501, 3.502, 3.503 and 3.504) have been listed in appendix D.

On September 27, 2013, the Governor signed a bill that repealed the expansion of the sales tax on computer software and systems design services that had been enacted by the Legislature on July 24, 2013, retroactive to its effective date, July 31, 2013.

The estimates for tax expenditure items for sales and use tax reflect these tax law changes.


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