September 29, 2000

This Technical Information Release (TIR) explains several provisions contained in Chapter 159 of the Acts of 2000, "An Act Making Appropriations for the Fiscal Year 2001." (The "Act").

I. Budgetary Provisions that affect the Personal Income Tax

New Deduction for Charitable Contributions in 2001
Effective for tax years beginning on or after January 1, 2001, the Massachusetts legislature enacted a personal income tax deduction for certain charitable contributions. The Act creates a new deduction from Part B adjusted gross income for:

a]n amount equal to the amount of the charitable contribution deduction allowed or allowable to the taxpayer for the taxable year under section 170 of the Code. All requirements, conditions and limitations imposed upon charitable contributions under the Code shall apply for purposes of determining the amount of the deduction hereunder except that a taxpayer shall not be required to itemize his or her deductions in his or her federal income tax return.

t. 2000, c. 159, §§ 119, 488, to be added at G.L. c. 62, § 3B(a)(13).

The amount of the Massachusetts charitable deduction is determined under the Internal Revenue Code as amended and in effect for the taxable year. (1) Thus, Massachusetts will automatically adopt any changes to the federal charitable deduction for purposes of the charitable contributions deduction at G.L. c. 62, § 3B(a)(13).

For federal income tax purposes, an individual taxpayer must elect to itemize deductions in order to claim the charitable deduction. I.R.C. § 63(d), (e). However, under the Act, a taxpayer is not required to itemize deductions on his or her federal income tax return in order to claim the Massachusetts charitable deduction.

The Department will issue a regulation providing details on the Massachusetts charitable deduction. St. 2000, c. 159, § 352.

Changes to the Brownfields Credit
Under existing law at G.L. c. 62, § 6(j), certain taxpayers are allowed a personal income tax credit for incurring eligible costs to remediate a hazardous waste site on property used for business purposes and located within an economically distressed area. The Act extends the time for incurring eligible costs that qualify for the credit and changes the limitations rules where the taxpayer has received state financial assistance. (See section II.(A) below for the applicability of the Brownfields Credit to corporations.)

Before the Act, net response and removal costs that the taxpayer incurred between August 1, 1998, and January 1, 2005, were eligible for the credit provided that the taxpayer commenced and diligently pursued an environmental response action before August 5, 2001. Under the Act, net response and removal costs that the taxpayer incurs between August 1, 1998, through January 1, 2007, are eligible for the credit provided that the taxpayer commences and diligently pursues an environmental response action before August 5, 2003. St. 2000, c. 159, § 120, amending G.L. c. 62, § 6(j)(1).

Before the Act, the credit was not allowed to taxpayers who received financial assistance from the Brownfields Redevelopment Fund established pursuant to St. 1975, c. 212, § 8G, or from the Redevelopment Access to Capital (RAC) Program established pursuant to G.L. c. 23A, § 60. Under the Act, receipt of state financial assistance does not result in failure to qualify for the Brownfields credit. However, the amount of state funds received from RAC or from the Brownfields Redevelopment Fund is deducted from the expense base for which the credit is available. Finally, with reference to RAC, the amount of state financial assistance is calculated as the amount of state funds paid on behalf of the borrower for participation in the program. Where the taxpayer has borrowed funds subject to a state guarantee in order to finance the expenses of remediation, the amount of the loan is permitted to be included in the expense base for which the credit is available. However, if the borrower defaults on the loan and the guarantee is invoked, any credit taken for the amount of the loan will be recaptured as taxes due in the year the loan is paid. St. 2000, c. 159, § 121, amending G.L. c. 62, § 6(j)(4).

The effective date of these provisions is July 1, 2000. These provisions modify TIR 99-13, The Tax Credit Provisions of the Brownfields Act.

Corporate Trust Apportionment
The Act amends § 8(c) of Chapter 62 which exempts from taxation dividends paid to beneficiary/shareholders of corporate trusts on income that has been subjected to tax at the corporate trust level. This amendment makes clear that income earned by a corporate trust doing business both within and outside Massachusetts, which is apportioned outside Massachusetts, will not be considered to have been "subject to tax" and will be considered to be "tax-free earnings and profits" of the corporate trust. In accord with § 8(c), these tax-free earnings and profits will be subject to taxation at the beneficiary level when paid as dividends to beneficiaries who are Massachusetts residents. However, these beneficiaries will be entitled to a credit, as provided under G.L. c. 62, § 6(a), for income taxes paid to other jurisdictions on such earnings and profits, either by the beneficiaries or by the corporate trust. St. 2000, c. 159, §§ 122, 123, amending G.L. c. 62, § 8(c). Nonresident beneficiaries will not be subject to tax on the receipt of dividends considered to be out of "tax-free earnings and profits" of the corporate trust under § 8(c).

For further information, see forthcoming DOR Directive 00-9, Corporate Trust Parents and Qualified S Corporation Subsidiaries.

Budgetary Provisions that affect the Corporate Excise

Changes to the Brownfields Credit
Under existing law at G.L. c. 63, § 38Q, certain taxpayers are allowed a corporate excise credit for incurring eligible costs to remediate a hazardous waste site on property used for business purposes and located within an economically distressed area. The Act extends the time for incurring eligible costs that qualify for the credit and changes the limitations rules where the taxpayer has received state financial assistance. (See section I.(B) above for the applicability of the Brownfields credit to taxpayers subject to the personal income tax.)

Before the Act, net response and removal costs that the taxpayer incurred between August 1, 1998, and January 1, 2005, were eligible for the credit provided that the taxpayer commenced and diligently pursued an environmental response action before August 5, 2001. Under the Act, net response and removal costs that the taxpayer incurs between August 1, 1998, through January 1, 2007, are eligible for the credit provided that the taxpayer commences and diligently pursues an environmental response action before August 5, 2003. St. 2000, c. 159, § 124, amending G.L. c. 63, § 38Q(a).

Before the Act, the credit was not allowed to taxpayers who received financial assistance from the Brownfields Redevelopment Fund established pursuant to St. 1975, c. 212, § 8G, or from the Redevelopment Access to Capital (RAC) Program established pursuant to G.L. c. 23A, § 60. Under the Act, receipt of state financial assistance does not result in failure to qualify for the Brownfields credit. However, the amount of state funds received from RAC or from the Brownfields Redevelopment Fund is deducted from the expense base for which the credit is available. Finally, with reference to RAC, the amount of state financial assistance is calculated as the amount of state funds paid on behalf of the borrower for participation in the program. Where the taxpayer has borrowed funds subject to a state guarantee in order to finance the expenses of remediation, the amount of the loan is permitted to be included in the expense base for which the credit is available. However, if the borrower defaults and the loan guarantee is invoked, any credit taken for the amount of the loan will recaptured as taxes due in the year the loan is paid. St. 2000, c. 159, § 125, amending G.L. c. 63, § 38Q(d).

These provisions are effective July 1, 2000. These changes modify TIR 99-13, The Tax Credit Provisions of the Brownfields Act.

Budgetary Provisions that affect the Sales and Use Tax

Direct Payment Permits in 2001
In general, sales tax on the sale of tangible personal property or certain services is to be collected from the purchaser by the vendor who remits the tax to the Commonwealth. Vendors engaged in business in the Commonwealth are responsible for collecting and paying the use tax, where applicable, as well as the sales tax. Each vendor must add the tax to the sales price charged the purchaser, and remit the tax collected to the Commissioner at the time provided for filing a sales tax return. G.L. c. 64H, §§ 2, 3(a), G.L. c. 64I, § 4.

Under the Act, the Commissioner is authorized to adopt a direct payment procedure whereby any purchaser who operates a business may pay sales or use taxes directly to the Department rather than through a vendor. A purchaser must apply to the Commissioner for issuance of a direct payment permit. If approved, the purchaser will receive a permit providing that no vendor making a sale to the permit holder will be required to collect the sales or use tax on such sale, and that the permit holder will report the liability on a form designated by the Commissioner and pay directly to the Department the sales or use tax due on any tangible personal property or services acquired by the permit holder. St. 2000, c. 159, § 130, to be codified at G.L. c. 64H, § 3(b).

A direct payment permit may be revoked by the Commissioner at any time with the provision of 30 days written notice and will be revoked without notice if the Commissioner determines that the collection of any tax due from the permit holder is in jeopardy.

This provision will take effect on January 1, 2001. St. 2000, c. 159, § 489. The Department will promulgate a regulation explaining the eligibility for and use of direct payment permits.

Purchases of Prepress Equipment and Machinery
The Act creates a new sales and use tax exemption for the sales of machinery and equipment, if its operation, function or purpose is an integral or essential part of a continuous production flow or process of manufacturing printed material to be sold and such machinery and equipment is used exclusively for that purpose. In addition, the exemption applies to sales of prepress items which are used exclusively as part of a continuous production flow or process of manufacturing printed material to be sold. St. 2000, c. 159, § 131, to be added at G.L. c. 64H, § 6(ss).

Effective July 1, 2000, this legislation modifies the Department's Printing Regulation, 830 CMR 64H.6.2, which will be amended to reflect the new exemption. St. 2000, c. 159, § 498.

Deadline for Filing Claim for Bad Debt Reimbursement
Under the bad debt reimbursement provisions, vendors may file a claim for reimbursement of sales or use tax they have remitted to the Department of Revenue on accounts which are later determined to be worthless.

Under prior law, the deadline for filing for reimbursement of sales and use tax bad debts for any year was April 15 of the next year. A 1998 amendment to the sales tax changed the deadline for filing a claim for sales tax bad debts to the due date, including extensions, for the taxpayer to file its federal income tax return for the prior fiscal year. St. 1998, c. 485, § 20, amending G.L. c. 64H, § 33. The Act similarly amends the use tax to allow the claim for use tax bad debts to be filed on the due date of the federal income tax return, including extensions, (or annual federal filing in the case of an exempt organization) for the prior fiscal year. St. 2000, c. 159, § 132, amending G.L. c. 64I, § 34.

The Act codifies the current practice of the Department as announced in TIR 00-3, Claiming the Bad Debt Reimbursement. In anticipation of this corresponding change to the use tax, TIR 00-3 allowed claims for use tax bad debts under the new filing requirements for sales tax bad debts, effective January 1, 1999.

Budgetary Provisions that affect the Gasoline and Special Fuels Excises

Gasoline Excise
Massachusetts imposes an excise at the wholesale level on each gallon of gasoline sold in the Commonwealth that is used to operate motor vehicles on the highways of Commonwealth. Before the Act, the tax per gallon was equal to 19.1% of the average wholesale price per gallon of gasoline, exclusive of federal and state motor fuel taxes, with a minimum tax of 21 cents per gallon. Under the Act, the gasoline excise is imposed at the rate of 21 cents per gallon of gasoline, regardless of the average wholesale price. St. 2000, c. 159, § 126, amending G.L. c. 64A, § 1.

The effective date of this provision is July 1, 2000. St. 2000, c. 159, § 498.

Special Fuels Excise
The special fuels excise applies to all sales of fuel used by motor vehicles in operation on the highways of the Commonwealth, with the exception of gasoline. Like the gasoline excise, the special fuels excise is imposed at the wholesale level. In general, the tax rate for special fuels (e.g., diesel fuel) is the same as the tax rate for gasoline used by motor vehicles. Thus, the 21 cents per gallon tax rate will apply to the sale of special fuels, except for the sale of liquefied gas (e.g., propane, CNG and LNG). The Act provides that liquefied gas will continue to be taxed at the per gallon rate of 19.1% of the average wholesale price per gallon of liquefied gas, exclusive of federal and state motor fuel taxes. No minimum tax applies to the sale of liquefied gas. St. 2000, c. 159, § 129, amending G.L. c. 64E, § 4.

The effective date of this provision is July 1, 2000. St. 2000, c. 159, § 498.

Frederick A. Laskey
Commissioner of Revenue

September 29, 2000
TIR 00-9

Footnotes:

1 In general, the Massachusetts personal income tax adopts sections of the Internal Revenue Code as amended and in effect on January 1, 1998. See G.L. c. 62, § 1(c). However, the terms of G.L. c. 62, § 3B(a)(13) indicate that the current Code, including post-1998 changes, applies to the Massachusetts charitable deduction.