MASSACHUSETTS DEPARTMENT OF REVENUE REGULATION FACT SHEET

TITLE: 830 CMR 62B.2.2: Pass-Through Entity Withholding

REGULATORY HISTORY:  New Regulation promulgated 08/08/08, repealed and replaced 08/02/13

SUMMARY OF 2008 REGULATION: This Regulation explains the requirement for a pass-through entity to withhold on distributive share allocated to a member unless the entity or the member is exempt from withholding. This Regulation, in particular:
 

  • requires certain pass-through entities to submit an annual schedule showing the Massachusetts-source distributive share and filing method for certain members
  • requires withholding pass-through entities to make quarterly payments of amounts withheld
  • requires withholding pass-through entities to file an annual withholding return with the Commissioner showing the total amount withheld
  • exempts investment partnerships and certain trusts from withholding, and provides special rules for publicly traded partnerships
  • exempts, among others, residents and non-residents who agree to file or participate in a composite return from being withheld upon
  • explains the treatment of tiered pass-through entities
  • explains the application of credit to the member for amounts withheld and paid to the Commissioner by a pass-through entity
  • applies to tax years beginning on or after January 1, 2009

SUMMARY OF 2013 REGULATION:  Repeal and replacement of the pass-through entity withholding regulation under M.G.L. c. 62B, § 2.  The purpose of the existing regulation is to improve tax compliance by non-resident members of pass-through entities.  The existing regulation establishes a requirement that pass-through entities with Massachusetts-source income withhold Massachusetts tax from amounts allocated to their non-resident members who do not participate in a composite return or agree to file on their own behalf. The proposed replacement regulation maintains the withholding program and reflects changes in the way the Department of Revenue administers the withholding program.  In particular, the information originally required on an annual schedule for pass-through entities is now obtained via electronically filed schedules K-1.  Other administrative changes include allowing entities to collect exemption certificates from exempt members only once rather than annually; the certificates remain valid until revoked.  The proposed regulation also allows more time for the exemption certificates to be collected: they are now due at the end of the fourth month of the entity’s taxable year, rather than the end of the first month.  In addition to these administrative changes, definitions and exemptions have been revised in response to issues that have arisen in the administration of this program since its inception in 2009.

Small Business Impact Statement Pursuant to M.G.L. c. 30A, §§ 2-3:
The regulation implements the statutory provisions of M.G.L. c. 62B, § 2 which apply to all manner of businesses that are pass-through entities.  Of the approximately 170,000 S corporations and partnerships in Massachusetts, it is estimated that 160,000 are small businesses.  No new reporting, recordkeeping, or other administrative costs have been identified as required for compliance with the provisions of this proposed regulation; substantially similar requirements have been in place for tax years beginning on or after January 1, 2009.  The proposed regulation does not involve design or performance standards and does not duplicate or conflict with other regulations of the Department of Revenue.  The Department has not identified any regulations of other agencies that conflict with this proposed regulation.  The proposed regulation is likely neither to deter nor encourage the formation of new businesses in Massachusetts.

DATE: September 12, 2013

PREPARED BY:
Massachusetts Department of Revenue
Rulings and Regulations Bureau
100 Cambridge Street, 7 th floor
Boston, Massachusetts 02114
(617) 626-3250
FAX: (617) 626-3290