On December 8, 2005, the Massachusetts Legislature amended the sales tax exemption in G.L. c. 64H, § 6 (qq) ("the small business exemption"), which exempts sales of gas, steam, electricity or heating fuel for use by qualifying small businesses. See St. 2005, c. 163, s. 36, effective April 1, 2006. The purpose of this TIR is to explain the statutory changes and to provide revised rules for claiming the exemption. The Commissioner plans to amend 830 CMR 64H.6.11, Qualifying Small Business Exemption, to conform to the new requirements of the statute. In the meantime, for periods commencing on or after April 1, 2006, this TIR supersedes the regulation and any other public written statements of the Department to the extent they are inconsistent with the new law.
II. Summary of New Law:
Under prior law, the small business exemption exempted sales of gas, steam, electricity or heating fuel to a business having 5 or fewer employees. Chapter 64H, § 6(qq), as recently amended, exempts "[s]ales of gas, steam, electricity or heating fuel for use by any business that has 5 or fewer employees and that had gross income of less than $1,000,000 for the preceding calendar year, and that reasonably expects gross income of less than $1,000,000 for the current calendar year."
The revised statute retains the "5 or fewer employees" requirement, but adds two significant restrictions. First, the energy must be purchased for use by a qualifying small business itself. Purchasers, such as management companies, having 5 or fewer employees and meeting the income requirements above may claim exemption for energy purchased solely for their own consumption, but cannot claim the exemption if any portion of the energy purchased is provided to or for the benefit of other entities, such as tenants. Second, the purchaser must meet the gross income limitations above. Businesses that may not have had gross income during the preceding calendar year, e.g., newly-formed businesses, may be eligible for the exemption if they reasonably expect to have gross income of less than $1,000,000 for the current calendar year.
For purposes of determining its gross income for the previous year, a business should refer to the applicable income tax return containing this information. For example, a Massachusetts sole proprietorship should use amounts reported on Massachusetts Schedule C, on the line indicating "Total income." For 2005 returns, this amount is found on line 5. A Massachusetts corporation should use amounts reported on U.S. Form 1120, on the line indicating "Total income". For 2005 returns, this amount is found on line 11. A Massachusetts S Corporation should use amounts reported on U.S. Form 1120S, on the line indicating "Total income (loss)." For 2005 returns, this amount is found on line 6. A partnership should use amounts reported on U.S. Form 1065 on the line indicating "Total income (loss)." For 2005 returns, this amount is found on line 8.
III. Procedures for Claiming Exemption:
A purchaser of energy must present its vendors with a properly completed Form ST-13, Small Business Energy Exemption Certificate, at the time of its first purchase in each calendar year. Effective April 1, 2006, all existing Form ST-13 certificates are void. The Commissioner will issue a revised Form ST-13 to conform to the requirements of G.L. c. 64H, §6 (qq) as amended. All purchasers of energy claiming exemption for purchases on or after April 1, 2006 must present the revised Form ST-13 to their vendors at the time of their first purchase on or after this date. Sales tax should be charged on all purchases thereafter unless the purchaser presents the revised certificate to its vendor before the billing date. A purchaser may only present its vendor with Form ST-13 for energy that is solely for its own use as a qualifying small business.
If a qualifying small business fails to provide its vendor with a properly completed revised Form ST-13 at the time of purchase or before the billing date, it may subsequently present it and request the vendor to refund any overpayment of sales tax. The vendor may apply to the Commissioner for an abatement of sales tax in accordance with the requirements of the Abatements regulation, 830 CMR 62C.37.1.
/s/ Alan LeBovidge
Commissioner of Revenue
February 24, 2006