Under the Massachusetts income tax statute, G.L. c. 62, interest earned on Massachusetts term and time deposits having principal amounts of one hundred thousand dollars or more is Part A income, taxed at the rate of ten percent. See G.L. c. 62, §§ 2(b)(1)(A),4(a). Interest earned on Massachusetts term and time deposits having principal amounts less than one hundred thousand dollars is Part B income, taxed at the rate of five percent. Id. at §§ 2(b)(1)(A),(2),4(b).

In Lonstein v. Commissioner of Revenue, the Appellate Tax Board ("Board") recently held that by taxing at different rates interest earned on Massachusetts term and time deposits having different principal amounts, the statute violates article 44 of the amendments to the Constitution of Massachusetts. Lonstein v. Commissioner of Revenue, No. 149184, slip op. at 8 (App. Tax Bd. Nov. 16, 1988). The Board also ruled that five percent is the correct rate of tax to be imposed on interest earned on Massachusetts term and time deposits of any amount. Id. at 12.

Reporting Income Pending Appeal

The Commissioner of Revenue has filed an appeal of the Lonstein decision, which is now pending before the Supreme Judicial Court. Lonstein v. Commissioner of Revenue, No. 5012 (Mass. filed Jan. 13, 1989). Until the Supreme Judicial Court issues its decision of the Lonstein appeal, the Commissioner directs taxpayers to continue to report income earned on all Massachusetts term and time deposits in accordance with the provisions of chapter 62.

Taxpayers earning interest on Massachusetts term and time deposits having principal amounts of one hundred thousand dollars or more should report the interest as Part A income, taxed at the rate of ten percent. See G.L. c. 62, §§ 2(b)(1)(A),4(a). Taxpayers earning interest on Massachusetts term and time deposits having principal amounts less than one hundred thousand dollars should report the interest as Part B income, taxed at the rate of five percent. See id. at §§ 2(b)(1)(A), (2), 4(b).

Protective Abatement Claims

A taxpayer who reports as Part A income interest earned on Massachusetts term and time deposits having principal amounts of one hundred thousand dollars or more may file an abatement claim to protest the taxpayer's rights until the Supreme Judicial Court decides the Lonstein appeal. To file a protective abatement claim, a taxpayer should file Form CA-6, Application for Abatement. The taxpayer should label the top of the form as follows: "PROTECTIVE CLAIM FILED UNDER TIR 89-4."

The Commissioner will hold properly filed protective abatement claims until the Supreme Judicial Court has rendered judgment in the Lonstein case. In the event the decision of the Lonstein appeal is adverse to the Commonwealth, the Commissioner will abate the protective abatement claims filed in accordance with this Technical Information Release, if the claims are otherwise appropriate.

/s/Stephen W. Kidder
Stephen W. Kidder
Commissioner of Revenue

March 24 1989

TIR 89-4