In general, the Massachusetts personal income tax follows the provisions of the Internal Revenue Code ("the Code" or "IRC") as amended through January 1, 1998, and in effect for the taxable year, in determining Massachusetts gross income. In particular, Massachusetts follows IRC § 132(f) as amended and in effect on January 1, 1998, which excludes from an employee's gross income (subject to a monthly maximum) employer-provided parking, transit passes and vanpool benefits (i.e. "qualified transportation benefits"). However, a federal Act subsequent to January 1, 1998, created differences between the Massachusetts and federal exclusion amounts. Technical Information Releases ("TIRs") 98-15 and 99-23 describe these Code changes and how they affect the Massachusetts personal income tax. This TIR explains the Massachusetts exclusion amounts for tax year 2004.

IRS Revenue Procedure 2003-85 provides the 2004 cost-of-living inflation adjustment for the qualified transportation fringe benefit monthly exclusion amounts allowed under IRC § 132(f)(2). The federal exclusion amounts for tax year 2004 are $195 per month for employer-provided parking and $100 per month for employer-provided vanpool and transit pass benefits combined. Revenue Procedure 2003-85, § 3.12. In contrast, Massachusetts follows the inflation adjustment formula allowed under the January 1, 1998 Code. As a result, the Massachusetts exclusion amounts for tax year 2004 are $200 per month for employer-provided parking and $75 per month for employer-provided vanpool and transit pass benefits combined.

Massachusetts does not adopt the federal gross income exclusion for transit pass and employer-provided vanpool benefits if the employer offers the benefit as a reduction in salary and the employee chooses the benefit in lieu of salary. The federal provision allowing the choice of salary or transit pass and employer-provided vanpool benefits was enacted on June 6, 1998, and therefore, is not incorporated into the Code as amended and in effect on January 1, 1998.

As a result, if an employee's salary and federal gross income have been reduced by the value of a transit pass or employer-provided vanpool benefit, the employer must add back the exclusion amount (in the employee's W-2) for Massachusetts tax purposes. TIR 99-23.

/s/Alan LeBovidge

Alan LeBovidge

Commissioner of Revenue

AL:LEM:wem

167636

April 8, 2004

TIR 04-11