Updated June 4, 2009

(Revised section) - Which pass-through entities are exempt from having to withhold?
Certain pass-through entities are exempt from participation in the withholding program. Specifically, certain investment partnerships, trusts and estates subject to withholding on nonresidents under another Massachusetts provision, and upper-tier pass-through entities that can prove that a lower-tier pass-through entity has previously withheld and made payments of all Massachusetts tax are not required to withhold under this program. Pass-through entities that are prohibited under federal or state law from making tax payments on behalf of their members are not required to withhold under this program for a year in which distributions, including distributions to pay taxes, are prohibited. See "How should pass-through entities with legal limitations on distributions comply?" below. See "How should certain limited partners comply with the pass-through entity withholding program?" for compliance by limited partners in certain limited partnerships.

(New section) - How should certain limited partners comply with the pass-through entity withholding program?
Individual nonresident limited partner of a securities partnership. An individual nonresident limited partner of a limited partnership that is engaged exclusively in buying, selling, dealing in or holding securities on its own behalf and not as a broker, as described in M.G.L. c. 62, § 17(b), whose distributive share of income from the pass-through entity will not be taxable in Massachusetts, may comply with the pass-through entity withholding program by indicating on the Form PTE-EX that he or she agrees to file any required tax returns, make quarterly estimated payments as required, and accept personal jurisdiction in Massachusetts state courts (individual box 3). (Such partnerships may in some circumstances be engaged in a "trade or business" and thus not meet the definition of "investment partnerships" exempt from withholding under the pass-through entity withholding regulation.) No Massachusetts return is required to be filed if the non-resident individual's income is not subject to Massachusetts tax.

Corporate nonresident limited partners qualifying for the securities partnership exception under 830 CMR 63.39.1(8)(b) or the de minimis exception under 830 CMR 63.39.1(8)(d). A corporate nonresident limited partner of a limited partnership that is engaged exclusively in buying, selling, dealing in or holding securities on its own behalf and not as a broker, as described in 830 CMR 63.39.1(8)(b), is not subject to tax in Massachusetts on the income from the limited partnership. A corporate nonresident limited partner of a limited partnership that meets the de minimis exception of 830 CMR 63.39.1 (8)(d) is not subject to tax in Massachusetts on the income from the limited partnership. A corporate nonresident limited partner of a limited partnership that will not, under the corporate nexus regulation, 830 CMR 63.39.1(8)(b) or (d), be subject to the corporate excise in Massachusetts on its distributive share of income from the pass through entity, may comply with the pass-through entity withholding program by indicating on the form PTE-EX that it is: a corporate limited partner in a limited partnership, exempt from tax under 830 CMR 63.39.1 (8)(b) or (d), and not a member of a combined group with members subject to Massachusetts tax jurisdiction. If the corporation is exempt from tax under 830 CMR 63.39.1 8(b) or (d) but is a member of a combined group with members subject to Massachusetts tax jurisdiction, it should so indicate on the form PTE-EX.

(New section) - How should pass-through entities with legal limitations on distributions comply?
Pass through entities with legal limitations on distributions are not required to withhold for years in which distributions are prohibited under federal or state law. Pass-through entities that are permitted to make distributions to pay taxes must participate in the withholding program in any year in which such distributions are permitted. If distributions to pay taxes are permitted in some years but not others, a pass-through entity must participate in years in which distributions to pay taxes are permitted. A pass-through entity that is permitted to make distributions to pay taxes in a subsequent year based on a prior year's distributive share must comply with the withholding requirements in the year in which distributions are made with respect to the prior year's distributive share (i.e., catching up on the deferred withholding), as well as withholding for the current year on any current year distributive share. To be exempt from the withholding requirement, a pass-through entity should indicate on its annual return (e.g., Form 3 or Form 355S) that distributions to pay taxes are prohibited under federal or state law for that tax year.

(New section) - What documentation is required from an individual non-resident participating in a composite return?
An individual nonresident who has filed a Composite Return Filing Statement (DOR Form CRFS, available on the DOR website) need not also file a Form PTE-EX, since the individual acknowledges, on the Form CRFS, that he or she has an obligation to file a return, make estimated tax payments if required, and pay his or her pro rata share of any penalty and interest due for any underpayment of estimated taxes, and, further, agrees to be subject to jurisdiction in Massachusetts. A Form CRFS filed with the pass-through entity in lieu of the Form PTE-EX must be filed according to the Form PTE-EX filing dates. An individual that elects not to participate in a composite return must file with the pass-through entity a Form PTE-EX within 30 days after his or her exemption status changes.

(New section) - How should certain entities complete exemption certificates?
The following entity types, if they choose to execute exemption certificates, should identify themselves according to these instructions. Generally, an entity should identify itself according to its entity classification for Massachusetts tax law purposes.

Common trust under c. 62, § 17(e). A common trust treated as a partnership for Massachusetts tax purposes should check the appropriate box as a pass-through entity.

Disregarded entity. An entity that is disregarded for Massachusetts tax purposes is also disregarded for purposes of the Form PTE-EX. The owner of the disregarded entity should check the box that reflects the owner's circumstances.

Limited Liability Company. A Limited Liability Company that is treated as a partnership for Massachusetts tax purposes should check the appropriate box as a pass-through entity. A Limited Liability Company that is treated as a corporation for Massachusetts tax purposes should check the appropriate box as a corporation.

S-Corporation. An S-Corporation completing the Form PTE-EX should check the appropriate box as a pass-through entity. It should not check any box available to corporations.

(Deleted section) - How many non-residents whose distributive share will not be taxable in Massachusetts under G.L. c.62,s17(b) comply with the pass through entity withholding programs?

Effective March 5, 2009

Changes to the Form PTE-EX

Pass-through entities subject to pass-through entity withholding are not required to withhold on members who submit certification, on a Form PTE-EX, that the member is exempt from withholding. The Commissioner has modified this form again. Earlier versions of the Form PTE-EX that members have executed remain valid; members for whom the exemption boxes were appropriate need not execute new forms PTE-EX (although those who executed the original one-year form will have to renew it for tax year 2010). The revisions announced here broaden the applicability of the form to entities not included in the previous version of the form. Previously, only corporations with income other than pass-through entity income for which they are filing a return could obtain an exemption from withholding. Now, corporations that certify that they are subject to Massachusetts taxing jurisdiction and are filing their returns including any distributive share from the pass-through entity may file the exemption certificate, even if all of their Massachusetts taxable distributive share is from the pass-through entity. Corporations with no Massachusetts taxable distributive share other than their pass-through entity distributive share must use this revised form to be treated as exempt from withholding. Corporations with Massachusetts taxable income other than pass-through entity income that have executed the previous version of the Form PTE-EX need not execute new forms.

The Commissioner intends to make conforming changes to the Pass-Through Entity Withholding Regulation, 830 CMR 62B.2.2.

Effective February 11, 2009

Pass-through entities subject to pass-through entity withholding are not required to withhold on members who submit certification, on a Form PTE-EX, that the member is exempt from withholding. The Commissioner has modified this form. Earlier versions of the Form PTE-EX that members have executed remain valid; members for whom the exemption boxes were appropriate need not execute new forms PTE-EX (although those who executed the original one-year form will have to renew it for tax year 2010). The revisions announced here broaden the applicability of the form to entities not clearly included in the previous version of the form.

The language of the individual certification, box 3, has been modified to clarify that the nonresident individual agrees to file any required return; an individual not required to file a return because his or her distributive share income is not subject to tax in Massachusetts or is below the filing threshold may check this box. Individuals who have indicated on the prior version that they agree to file tax returns are understood to have agreed to file required tax returns and need not execute a new form.

Box 3of the organization certification has been expanded to refer to trusts, estates, or custodial accounts in addition to pass-through entities. This change will allow more entities to file this certification.

A new organization certification, box 6, has been added to allow insurance companies to check a box to be exempt from withholding on their distributive share from the pass-through entity.


Changes to the Guide for Pass-Through Entities

A new section has been added to the Guide to explain the tax treatment of trusts, estates, and certain retirement accounts. Please see "How should trusts, estates, and trustees of retirement funds comply with withholding or estimated payment obligations?" in the Guide. As the Guide explains, trusts and estates that withhold under another Massachusetts provision should not withhold under the pass-through entity withholding program.

New sections have been added to the Guide to explain that nonresident individuals who have Massachusetts income that is not subject to tax or that may be below the filing threshold in Massachusetts may check the individual certification, box 3, of the Form PTE-EX.

The section on exempt entities and the new section for individuals whose distributive share will not be taxable explain the treatment of limited partners in certain limited partnerships that are engaged exclusively in buying, selling, dealing in or holding securities on their own behalf and not as a broker, as described in G.L. c. 62, § 17(b).