For purposes of this TIR and consistent with TIR 02-22, electronic means of filing refers to the use of a computer, internet, touch-tone telephone, or any other electronic submission of data compatible with the Massachusetts Department of Revenue's ("Department") equipment and facilities, to transmit return or document information in a manner prescribed by the Commissioner.
Any taxpayer required to file electronic returns or documents is also required to make any payments under the Electronic Funds Transfer ("EFT") program imposed under G.L. c. 62C, § 85 and 830 CMR 62C.78.1. The EFT regulation provides that "[t]axpayers required, by a public written statement issued by the Department, to file tax returns by electronic means must participate in the EFT program if they are making payments." 830 CMR 62C.78.1(3)(b)(5). The E-file requirements announced in this TIR modify previously announced EFT requirements that taxes above certain thresholds must be paid via electronic funds transfer. Any thresholds established under the EFT regulation that differ from those announced here are hereby modified. The regulation permits expansion of the EFT program by providing that "[a]ny further expansion of the EFT program, either by including other tax types or by reducing mandatory filing thresholds, will be announced in advance by Technical Information Release or other Department of Revenue public written statement." 830 CMR 62C.78.1(3)(b)(6). While electronic filers must make payments under EFT, filers may be required to make payments under the EFT program without being required to file electronically.
I. Third Party Bulk Filers Must File and Pay Withholding Taxes Electronically for All Returns Due on or after July 1, 2003
Third-party bulk filers are individuals or companies that collect withholding taxes from employers for the purpose of filing returns and depositing withheld taxes. TIR 02-22 announced that the Department anticipated imposing an electronic filing requirement on third party bulk filers on or after July 1, 2003. With this TIR, the Department requires all third party bulk filers to E-file all returns due on or after July 1, 2003. All payments by third party bulk filers must be made using an Automated Clearing House.
II. Electronic Filing of Certain Returns with Zero Tax Due as of July 1, 2003
As announced previously in TIR 02-22, as of July 1, 2003, any filing entity that remits wage withholding under chapter 62B, state and local room occupancy excise under chapter 64G, or sales and use taxes under chapters 64H and 64I, including sales taxes imposed on meals and telecommunications services, must submit returns by electronic means if the filing entity files a return or document but owes no tax. This requirement can be met by any acceptable means of electronic filing, including telephone filing. This requirement applies to all filing entities remitting returns for the listed taxes, including third party bulk filers, regardless of the dollar amount of their annual tax liability.
III. Optional Electronic Wage Reporting for Employers Filing Fewer than 250 Wage Reports as of July 1, 2003
Under G.L. c. 62E, § 2, Massachusetts follows the Internal Revenue Code ("Code") magnetic media or other machine-readable filing requirement of Code § 6011(e) for wage reports (Form WR-1). Code § 6011(e) requires filing on magnetic media or other machine-readable form if at least 250 returns are filed. As of July 1, 2003, employers filing fewer than 250 Massachusetts wage reports may, if they choose, file wage reports electronically.
IV. New Businesses Must File Returns and Pay Taxes Electronically as of September 1, 2003
All new businesses, including business operators, professionals, and organizations, that are required to register on Massachusetts Form TA-1 or TA-2 on or after September 1, 2003, must use electronic means to file certain returns and make certain tax payments. New businesses or existing businesses applying for an additional registration that collect any of the following must file and pay electronically: withholding on wages or retirement distributions; sales and/or use tax on goods, telecommunications services, meals and/or beverages; and state and local room occupancy excise. Businesses that register on or after September 1, 2003 must file and pay the listed taxes electronically regardless of the dollar amount of their annual tax liability. The personal income tax return of an individual who also operates a business need not be filed electronically solely because the individual runs a business and would be filing Schedule C with the individual's Form 1.
V. Electronic Purchase of Cigarette Excise Stamps as of September 1, 2003
All cigarette stampers appointed by the Commissioner to purchase and affix cigarette excise stamps, pursuant to c. 64C, § 30, shall pay for these stamps via electronic transfer of funds for any stamps purchased on or after September 1, 2003. An exception to the electronic payment requirement will be made for stampers that pay for cigarette stamps at the time they pick up their stamps from the Department. Stampers shall continue to file returns on paper.
VI. Electronic Payment of Motor Fuels Excise as of September 1, 2003
Payers of excise on gasoline (subject to tax under G.L. 64A), aircraft (jet) fuel (subject to tax under G.L. c. 64J) and special fuels (subject to tax under G.L. c. 64E) must, as of September 1, 2003, make all payments by electronic means if they made motor fuels excise payments of more than $10,000 in the preceding calendar year. Notwithstanding this electronic payment requirement, filers shall continue to file returns on paper.
VII. Expansion of Mandatory Electronic Filing for Employers, Operators and Vendors as of January 1, 2004
TIR 02-22 announced that an employer remitting wage withholding under chapter 62B, an operator remitting state and local room occupancy excise under chapter 64G, and a vendor remitting sales and use taxes under chapters 64H and 64I, including sales taxes imposed on meals and telecommunications services, must file all returns and documents for these taxes by electronic means as of January 1, 2003 if the filer's combined liability for the three categories of taxes for the preceding calendar year was $100,000 or more. As of January 1, 2004, the rule announced in TIR 02-22 is modified and the electronic filing threshold is reduced to $10,000 for these filers. Filing entities with a combined liability for the preceding calendar year of $10,000 or more for one or more of the three categories of taxes must, as of January 1, 2004, file electronically and pay amounts due via electronic funds transfer. As before, any such filing entity that remits one or more of the three categories of taxes listed in this section may voluntarily file electronically, even if the total annual amount remitted by that filing entity is below the $10,000 threshold.
Once the tax liability of an employer, operator, or vendor reaches the electronic filing threshold in one taxable year, the filing entity must E-file in all subsequent years regardless of the amount due, as long as it has an obligation to file one of the three categories of taxes in Massachusetts. Filing entities using a payroll processing service that E-files wage withholding returns and payments are not, however, required to E-file room occupancy and sales and use tax returns and documents unless their combined liability for the three categories of taxes reaches the $10,000 threshold. Filing entities that E-file voluntarily even though their tax liability does not exceed $10,000 may choose not to E-file in subsequent years, so long as their combined liability for the three categories of taxes is below the threshold.
VIII. New Paper Form Requirements For Tax Preparation Software as of January 1, 2004
As of January 1, 2004, all paper Forms 1 (resident personal income tax returns), Forms 1-NR/PY (nonresident/part-year resident personal income tax returns), and supporting Massachusetts schedules that are produced by tax preparation software programs must contain two-dimensional (2D) bar coding and fixed-position text. The Department will make 2D specifications available to all software developers that produce Massachusetts tax preparation software. All Massachusetts tax preparation software developed for commercial or individual use must be approved by the Department, and must, without the possibility of override, set 2D barcodes to print on forms specified by the Department. Returns submitted to the Department without the required 2D barcodes may be rejected for failure to conform with DOR specifications, thereby subjecting taxpayers to late penalty and interest charges.
IX. Corporate Filing Requirements: Electronic Extension Requests as of January 1, 2004; Electronic Payment as of January 1, 2004; Mandatory Electronic Filing of Returns for Corporations over Threshold as of January 1, 2005
Any corporation that files for an extension of time to file its return must, as of January 1, 2004, request the extension by electronic means and make any accompanying payment electronically. Payment by electronic means is required as of January 1, 2004 from all corporations subject to the corporate excise, including security corporations, with more than $500,000 in gross receipts or sales (from U.S. Form 1120, line 1c, or U.S. Form 1120-A, line 1c). Electronic payment is also required of financial institutions with $500,000 or more in gross income, as defined in G.L. c. 63, § 1; insurance companies with taxable revenue, as described in c. 63, §§ 20 through 23, of $500,000 or more; and utility corporations with gross income from all sources of $500,000 or more. Electronic filing of returns, as distinct from payments, is not required until January 1, 2005. All corporations subject to the corporate excise, including security corporations, financial institutions, insurance companies, and utility corporations, with more than $100,000 in gross receipts, sales, or income from all sources, as described above, must transmit all returns, documents and tax payments using electronic means as of January 1, 2005. The Commissioner encourages corporations below the mandatory E-file threshold, and those filing prior to January 1, 2005, to employ forms with 2D bar coding.
X. Mandatory Electronic Filing of Partnership Returns as of January 1, 2005
Annual partnership information returns (Form 3) are required under G.L. c. 62C, §§ 6 and 7. Partnerships must also submit Schedule 3K-1, explaining each partner's distributive share, to the Department and to each partner. The Department of Revenue requires that, as of January 1, 2005, partnerships at or over the partnership E-file income threshold or loss threshold, or with 25 or more partners, must submit all Forms 3 and Schedules 3K-1 to the Department by electronic means. The partnership income threshold is reached when the partnership has, in one tax year, (1) $50,000 or more in gross income, including (but not limited to) gross receipts from trade or business, gross income from the sale or rental of real estate, royalties, interest, dividends, and amounts realized from the sale of any property except stock and securities; or (2) $100,000 received from the sale of stock and securities. The partnership loss threshold is reached when the partnership has, in one tax year, (1) $50,000 or more in ordinary loss from trade or business activities; or (2) $100,000 or more in losses from the sale of stock and securities. Filers previously filing on diskette that wish to continue to use diskettes for a brief transition period before employing electronic means of filing may make individual arrangements with the Commissioner.
XI. Fiduciaries over Threshold Must Pay Taxes Electronically as of January 1, 2004, and File Electronically as of January 1, 2005
Fiduciaries filing Form 2 with total Part A, Part B, and Part C (as defined in G.L. c. 62, § 2(b)) net taxable income of $50,000 or more must make all payments by electronic means as of January 1, 2004. Electronic filing of returns, as distinct from payments, is optional until January 1, 2005. As of January 1, 2005, fiduciaries filing Form 2 with total Part A, Part B, and Part C net taxable income of $30,000 or more must make all payments by electronic means and, in addition, must use electronic means to file Form 2.
XII. General Information Regarding Electronic Filing and Electronic Funds Transfer
Failure to File; Penalties
The information contained in TIR 02-22 regarding timely filing, penalties for failure to file, and the procedure to apply for waivers from electronic filing requirements remains pertinent for the new electronic filing requirements announced in this TIR. As before, if "a filing entity required to file by electronic means does not do so for any tax required to be filed electronically, the failure to so file shall be deemed a failure to file, unless the failure to file electronically is due to breakdown of the systems or equipment at the Department of Revenue, or other circumstances under which the Commissioner may exercise discretion to waive penalties. . . . Effective for returns due on or after January 1, 2003, filing entities required to file electronically will no longer be permitted to satisfy their filing requirements by filing paper returns. All administrative rules regarding tax returns and documents, including deadlines and penalties, shall apply to those submitted by electronic means." TIR 02-22.
Amendments and Abatements
An employer remitting wage withholding under chapter 62B, an operator remitting state and local room occupancy excise under chapter 64G, and a vendor remitting sales and use taxes under chapters 64H and 64I, including sales taxes imposed on meals and telecommunications services, with liability over the $10,000 threshold announced in section VII above, must, as of September 1, 2003, file amendments and abatement requests (currently both Form CA-6) for these taxes by electronic means. If, however, the return was a return with zero tax due that was filed by touch-tone telephone, the filer may file a paper Form CA-6.
Supporting Paper Documentation
Taxpayers should retain supporting paper documentation for as long as their contents "are material in the administration of Massachusetts tax laws," according to the guidelines established under the record retention regulation, 830 CMR 62C.25.1(3). Upon request, taxpayers should be prepared to produce these additional documents.
Further information on how to comply with electronic filing and payment requirements may be found at the Department's website.
/s/ Alan LeBovidge
Commissioner of Revenue
July 1, 2003