| Date: | 03/08/2019 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Regulatory Authority: | Massachusetts General Laws |
| Official Version: | Published by the Massachusetts Register |
830 CMR: DEPARTMENT OF REVENUE
830 CMR 64H.00: SALES AND USE TAX
830 CMR 64H.6.11 is repealed and replaced with the following:
830 CMR 64H.6.11: Qualifying Small Business Energy Exemption
(a) Statement of Purpose. The purpose of 830 CMR 64H.6.11 is to explain the process for claiming an exemption from the sales tax for purchases of gas, steam, electricity, or heating fuel taxable under M.G.L. chs. 64H and 64I by and for the use of qualifying small businesses under M.G.L. c. 64H, § 6(qq). 830 CMR 64H.6.11 introduces an online Small Business Exemption (“SBE”) registration and certificate process, accessible through MassTaxConnect, designed to improve processing time and efficiency. 830 CMR 64H.6.11 promulgated on June 2, 2006, is repealed and replaced as set forth in 830 CMR 64H.6.11(1)(b).
(b) Effective Date. 830 CMR 64H.6.11 applies to purchases of gas, steam, electricity, or heating fuel on or after January 1, 2019. The prior version will continue to apply to purchases made on or before December 31, 2018.
(c) Outline of Topics. 830 CMR 64H.6.11 is organized as follows:
1. Statement of Purpose; Effective Date; Outline of Topics.
2. Definitions.
3. General Rule.
4. Gross Income Requirement.
5. Qualifying Employees.
6. Registration Process for and Use of SBE Certificates by Small Businesses.
7. Vendor Obligations and Credits.
8. Misuse of Certificates.
For the purpose of 830 CMR 64H.6.11 the following terms have the following meanings:
Affiliated businesses. Two or more businesses are affiliated when the same owner or the same group of common owners holds in the aggregate, directly or indirectly, fifty percent or more of the total value of the ownership interest or fifty percent or more of the combined voting power in each business. The Commissioner will apply the constructive ownership provisions of Code section 318 for purposes of determining ownership under 830 CMR 64H.6.11, regardless of whether the ownership is represented by stock shares, partnership interests, or other indicia of ownership, provided that the constructive ownership provisions shall apply to siblings in addition to the relationships enumerated in Code section 318. Affiliated businesses include all members of an affiliated group as defined by Code section 1504.
Business. Any activity engaged in by any person or caused to be engaged in by him with the object of gain, benefit, or advantage, whether direct or indirect, that would constitute a trade or business for federal income tax purposes.
Code. The Internal Revenue Code in effect for the applicable period.
Commissioner. The Commissioner of Revenue or the Commissioner's duly authorized representative.
Department. The Massachusetts Department of Revenue.
Gross income. The amount properly reportable as the total amount of income of a business, less any amount attributable to cost of goods sold.
Qualifying employee. Any person performing services for a business for consideration, if the relationship between the person performing services and the person for whom the person performs such services is the relationship of employer and employee, as described in I.R.C. § 3401(c), (d), and Treas. Regs. §§ 31.3401(c)‑1, 31.3401(d)‑1, whether or not the individual is treated as such by the business, and who meets both of the following criteria:
a) the person normally works for the business for thirty hours per week or more; and
b) the person is hired for a period of five months or more, or for an indefinite period of time.
The term qualifying employee also includes any partner, owner, or officer of a business who normally works for the business for thirty hours per week or more.
Qualifying small business. A small business that meets all of the prerequisites of M.G.L. c. 64H, § 6(qq) and 830 CMR 64H.6.11 for the applicable period, including compliance with the registration and certificate presentation requirements of 830 CMR 64H.6.11(6).
Seasonal business. A seasonal business is a business that operates for periods of less than 12 consecutive months during the calendar year in the regular course of its business.
Small business. A business that has five or fewer qualifying 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. All members of an affiliated business are deemed to be a single business for purposes of the small business exemption.
Small business exemption (“SBE”). The exemption from tax available under M.G.L. c. 64H, § 6(qq) for a qualifying small business.
SBE Certificate. The certificate the Department issues after a small business registers for the SBE.
Tax. The excise imposed under M.G.L. c. 64H or c. 64I.
Taxable energy. Gas, steam, electricity, or heating fuel which is subject to tax imposed under M.G.L. c. 64H or c. 64I.
Vendor. For purposes of 830 CMR 64H.6.11, a retailer or other person selling taxable energy.
(a) Exemption Requirements. Gas, steam, electricity and heating fuel are generally taxable when sold to businesses. However, such taxable energy may be exempt under M.G.L. c. 64H, § 6(qq) when sold to a small business, provided that all of the following requirements are met.
(b) Effect of Certificates. The effect of a business registering with the Department for the small business energy exemption and of the Department’s associated issuance of an SBE certificate and number is as follows:
1. Vendors. A vendor will be relieved of the burden of proving that purchases made by a qualifying small business are exempt and will be presumed to have acted in good faith if it takes a copy of the small business’s current SBE Certificate or by verifying the small business’s current SBE registration with the Department, in accordance with procedures established by the Commissioner.
2. Small Business Purchasers. A small business that registers with the Department and receives an SBE Certificate is certifying to the Department that it meets the requirements in 830 CMR 64H.6.11(3)(a)(1) – (3) to use an SBE Certificate when making purchases of energy. Receipt of an SBE Certificate is not a determination by the Department that the business is in fact eligible for the exemption. A small business must maintain adequate employee time and wage records as well as income records to substantiate its eligibility for the small business exemption. A small business purchaser that receives an SBE Certificate that does not in fact satisfy the qualifications for the small business exemption, as described in 830 CMR 64H.6.11(3)(1) – (3), is liable for use tax on its purchases of energy, notwithstanding its registration or its receipt of an SBE Certificate.
(a) Determining gross income. In determining whether the business had gross income of less than $1,000,000 for the preceding calendar year or whether it expects to have gross income of less than $1,000,000 for the current calendar year (i.e., the year that it is registering for), the business must examine the particular facts and circumstances at the time that the business registers with the Department. A business that has already registered and received an SBE certificate and that later determines that its actual income for the preceding calendar year was $1,000,000 or more, or that its actual income for the current calendar year will likely be $1,000,000 or more, must revoke its registration as detailed in 830 CMR 64H.6.11(6)(d). The business must also file use tax returns and pay any tax due for any transactions where no sales tax was collected and the business did not qualify as a small business.
(b) No retroactivity where gross income for current year is less than expected. A small business that does not reasonably expect to have gross income of less than $1,000,000, but actually has gross income of less than $1,000,000 for the current year, cannot retroactively register for the SBE certificate and seek a credit or refund of sales tax previously paid. Once it reasonably expects to have gross income of less than $1,000,000, and otherwise qualifies for the SBE certificate, a small business may register for the SBE certificate, as provided in 830 CMR 64H.6.11(6).
(c) Examples. The provisions of 830 CMR 64H.6.11(4) are illustrated by the following examples.
Example 1: ABC Jewelry Boutique is a business that purchases electricity for its own use. It has five or fewer qualifying employees during calendar year 2019. During calendar year 2018, it had gross income of $980,000. It expects to have gross income of $990,000 during 2019. ABC would be a small business for purposes of the SBE for calendar year 2019.
Example 2: Same facts as Example 1, except that ABC reasonably expects to have $1,500,000 in income for calendar year 2019. ABC is ineligible to register for an exemption certificate for calendar year 2019 because it reasonably expects to have gross income in excess of $1,000,000. If, in August of 2019, it reasonably expects its gross income for 2019 to be less than $1,000,000, ABC would be a small business for purposes of the SBE as of August 2019, but may not claim the exemption retroactively.
Example 3: Same facts as Example 1, except that in August of 2019 ABC knows that its gross income will exceed $1,000,000 for calendar year 2019. ABC no longer qualifies as a small business for calendar year 2019. If ABC registered and received an SBE Certificate for 2019, it must revoke its registration in August of 2019 and notify its vendors.
Example 4: Same facts as Example 1, except that after registering and qualifying for the SBE Certificate in calendar year 2019, in December of 2019 ABC reasonably expects to have $2,000,000 in gross income for the next calendar year 2020. Although it was a qualifying small business when it registered in 2019, ABC no longer qualifies as a small business for calendar year 2020. If ABC registered and received an SBE Certificate for 2020, it must revoke its registration for 2020 and notify its vendors.
(a) Presumption of employee status for partners, owners, and officers. A partner, owner, or officer of any business who regularly works for the business is presumed to be a qualifying employee of the business. This presumption may be rebutted by the business upon evidence establishing that such partner, owner, or officer does not normally work for the business for thirty hours per week or more.
(b) Determining employee status for other workers. In determining whether a person is a qualifying employee for purposes of the SBE, the Commissioner will examine the particular facts and circumstances surrounding the relationship between a business and an individual who works for the business, including, but not limited to, the following:
1. whether the business pays the individual a wage or salary;
2. whether the business is required to withhold income tax from the individual's compensation;
3. whether the business is required to pay under the Federal Insurance Contribution Act on behalf of the individual;
4. whether the business pays worker's compensation insurance premiums on behalf of the individual;
5. whether the business is required to pay under the Federal Unemployment Tax Act on behalf of the individual;
6. whether the business considers the individual to be an employee;
7. whether the business exercises or has a right to exercise control over the means of accomplishing the end result, or over the end result only;
8. the general practices of the business with respect to the employment status of other individuals who work for the business.
A business that has already registered and received an SBE certificate and that later determines that it does not have five or fewer qualifying employees, must revoke its registration as detailed in 830 CMR 64H.6.11(6)(d). The business must also file use tax returns and pay any tax due for any transactions where no sales tax was collected and the business did not qualify as a small business.
(c) Normally working thirty hours per week or more. A person normally works thirty hours per week or more if, in the calendar year, the number of hours the person works divided by the number of weeks the person works is equal to or greater than thirty.
(d) Employment for five months or more. A person is hired by a business for five months or more if the person works for the business for at least twenty weeks in the calendar year or for twenty weeks during the twelve month period immediately preceding the claim of the SBE. A person is hired by a business for fewer than five months only if the person and the business specifically agree, prior to the employment, that the person will work for the business for fewer than five months and the person in fact works for the business for fewer than twenty weeks in the calendar year or fewer than twenty weeks during the twelve months period immediately preceding the claim of the SBE.
(e) Special rules for seasonal businesses. A seasonal business that does not have five or fewer qualifying employees at some point during the calendar year may still be a small business for the purpose of the SBE provided it reasonably expects that it will have a monthly average of five or fewer qualifying employees for the current calendar year. A seasonal business may reasonably expect that it will have a monthly average of five or fewer qualifying employees if, after applying the following fraction, its total number of anticipated qualifying employees in the current calendar year is 5 or fewer: The numerator of the fraction is comprised of the following: (number of qualifying employees during operational months times number of operational months) plus (number of qualifying employees during non-operational months times number of non-operational months). The denominator of the fraction is 12.
A seasonal business that has already registered and received an SBE certificate and that later determines that it does not have five or fewer qualifying employees, must revoke its registration as detailed in 830 CMR 64H.6.11(6)(d). The seasonal business must also file use tax returns and pay any tax due for any transactions where no sales tax was collected and the business did not qualify as a small business.
(f) Examples. The provisions of 830 CMR 64H.6.11(5) are illustrated by the following examples.
Example 1: XYZ Corporation is a small business that employs a number of people to perform weekend security guard services for various companies. It consists of one full‑time owner‑operator who works thirty or more hours per week. The corporation also employs fifteen security guards who normally work eight hours each day on Saturdays and Sundays. Under these facts, for the calendar years in question, XYZ Corporation has only one qualifying employee, since only one individual normally works 30 hours per week or more. The 15 part-time security guards who work only 16 hours per week are not qualifying employees. Thus, the business has five or fewer qualifying employees.
Example 2: Betty’s Office Cleaning Service, Inc. (“Betty’s”) is a business owned and operated by Betty, who works 30 hours per week for the business. Betty employs a number of people who provide day and evening office cleaning services to a large office building. All individuals work according to a fixed regular schedule as follows: Five individuals work on Mondays, Tuesdays, and Wednesdays from 4:00 p.m. until 11:00 p.m (21 hrs/wk). On Thursdays and Fridays, Betty’s uses five different individuals who work the same shift from 4:00 p.m. to 11:00 p.m (14 hrs/wk). Under these facts, Betty is the only qualifying employee working for Betty’s, because each of the other employees works less than 30 hours per week.
Example 3: “The Four G’s Bakery” is a local business that operates a neighborhood bakery. It is owned by four sisters who are equal partners in the business: Greta, Gertrude, Gilda, and Grace. Greta and Gertrude each work forty hours per week at the bakery. Gilda does the bookkeeping for the business at home. Grace, who provided most of the initial capital for the business, occasionally works at the bakery if one of the other workers is unable to go to work. In addition to Greta and Gertrude, the bakery also hired Fanny and Frieda to work 40 hours per week for an indefinite (rather than temporary) period of time, and Paula and Phyllis, who each work 20 hours per week.
For purposes of determining if The Four G’s Bakery has five or fewer qualifying employees, Greta, Gertrude, Fanny and Frieda must be counted as qualifying employees of the business, since a qualifying employee includes any person, including a partner, owner, or officer of the business who normally works for the business for 30 hours per week or more. Paula and Phyllis are not qualifying employees, since neither normally works for the business for 30 hours per week or more. Gilda and Grace normally work for the business, although their hours vary. Since any partner, owner, or officer of the business who normally works for the business is presumed to be a qualifying employee, the business must demonstrate that Gilda and Grace do not work for 30 hours per week or more. If the business cannot demonstrate that Gilda and Grace normally work for the business for less than thirty hours per week, the business is presumed to have 6 qualifying employees and therefore does not have five or fewer qualifying employees.
Example 4: Sally’s Ski Emporium (“Sally’s”) is a seasonal ski shop operating on the premises of a ski resort in Massachusetts. Most calendar years it operates from January through April and from November through December and is closed from May through October. From January through April of a given year, Sally’s has 10 full-time employees and will have the same employees from November through December. It will have no employees from May through October. After applying the formula set forth in 830 CMR 64H.6.11(5)(e), [(10 x 6) + (0 x 6)]/12 = 60/12 = 5, Sally’s has a monthly average of five qualifying employees.
(a) Registration Process. To qualify for the SBE, a small business as defined in 830 CMR 64H.6.11(2) must register with the Department using MassTaxConnect and obtain an SBE Certificate with an SBE Certificate number. The SBE Certificate will be valid for up to two years as of the registration date through the end of the next calendar year, provided that the business continues to be a small business. SBE certificates are valid only as of the date of registration. A small business may not retroactively register or use an SBE certificate. The same SBE Certificate and SBE Certificate number may be used for multiple vendors. As of January 1, 2019, a small business that has not registered and obtained an SBE Certificate will not qualify for the SBE and will be liable for sales or use tax on purchases of taxable energy, except as provided in 830 CMR 64H.6.11(6)(g)1. A small business may register with the Department and obtain an SBE Certificate at any time after January 1, 2019; however, it will qualify for the SBE only on purchases made on or after the date of registration with the Department.
(b) Use of SBE Certificates. A qualifying small business must give each vendor a copy of its SBE Certificate or its SBE Certificate number on or before its first exempt purchase of taxable energy. The Department may also share the small business’s registration information with any vendors participating in this program. The SBE Certificate is valid only for purchases made on or after the registration date shown on the SBE Certificate. If a small business has not registered with the Department and obtained an SBE Certificate, a vendor must collect sales tax from such small business on its taxable energy purchases, except as provided in 830 CMR 64H.6.11(6)(g)1. Once a qualifying small business presents an SBE Certificate or its SBE Certificate number to a vendor in a calendar year, it will continue to qualify for the SBE on subsequent purchases from that vendor until the expiration of the SBE Certificate, unless the SBE is revoked as detailed in 830 CMR 64H.6.11(6)(d) and (e).
(c) Registration Renewals. A small business must renew its registration with the Department and update its SBE Certificate on or before the expiration date to continue to qualify for the SBE. Once a small business renews its registration, it will obtain an SBE Certificate with a new expiration date that will be valid for up to another two year period. If the business does not timely renew its registration and SBE Certificate, it will no longer qualify for the SBE. Any purchases made after the expiration of the prior year SBE Certificate will be subject to tax. A small business may re-register with the Department and obtain a new SBE Certificate at any time; however, such small business will qualify for the SBE only for purchases made on or after the date of its re-registration. Upon renewal of its registration with the Department, a small business must give each vendor a copy of its SBE Certificate or its SBE Certificate number on or before its first exempt purchase of taxable energy after the renewal date, in accordance with the rules in 830 CMR 64H.6.11(6)(b).
(d) Revocation of Registration by Small Business. A business that is registered with the Department as a qualifying small business but that ceases to qualify as a small business as defined in 830 CMR 64H.6.11(2) during either calendar year must revoke its registration with the Department and notify all of its vendors. Upon notification, a vendor of taxable energy must begin to collect tax from any business that has revoked its registration with the Department. The business is liable for use taxes on any purchases of taxable energy for which no sales tax was paid during the period in which it did not qualify. The business must file use tax returns and pay any tax due for any such taxable transactions in a manner as required by the Commissioner.
(e) Revocation by the Commissioner. Notwithstanding the foregoing, the Commissioner may deny or revoke the SBE registration and SBE Certificate if the Commissioner determines that a business does not qualify for the SBE or the small business is using the SBE Certificate to evade any tax due and assess the business any amount of use tax due to the Commonwealth, or any portion thereof, which the Commissioner believes has not been assessed, in accordance with M.G.L c. 62C. The business is liable for use taxes on any purchases of taxable energy for which no sales tax was paid during the period in which it did not qualify for the SBE or an SBE certificate was used to evade remittance of the proper tax due. The Commissioner may also notify any known vendors to begin collecting sales tax from such business.
(f) Notice to Vendors. Any business that has revoked its SBE registration or that has had its SBE registration revoked by the Commissioner, or whose registration has otherwise expired, shall notify all of its taxable energy vendors that its SBE Certificate is no longer valid.
(g) Transition Rules for 2018 and 2019. All small businesses may register with the Department and obtain an SBE Certificate at any time as of January 1, 2019.
1. Existing Exemption Certificates. A small business may use a valid, previously-issued Form ST-13 that has been provided to a vendor to claim the small business exemption for purchases of taxable fuel made through March 31, 2019, or such later date as the Commissioner may subsequently specify. A small business may no longer use Form ST-13 to claim the SBE for purchases of taxable fuel made after March 31, 2019. A small business must register with the Department and obtain a new SBE Certificate on or before March 31, 2019, to continue to qualify for the SBE on purchases of taxable energy made after that date. After March 31, 2019, all previously issued exemption certificates on Form ST-13 will no longer be valid for purposes of claiming the SBE.
2. New SBE Certificates. As of January 1, 2019, a small business that did not use an exemption certificate on Form ST-13 for transactions in 2018 must register with the Department and obtain an SBE Certificate, as detailed in 830 CMR 64H.6.11(6), to qualify for the SBE on purchases of taxable energy. A business may register with the Department and obtain an SBE Certificate at any time after January 1, 2019, as long as it otherwise qualifies as a small business as defined in 830 CMR 64H.6.11(2); however, it will only qualify for the SBE on purchases made on or after the date of the registration with the Department.
3. Deadline for Registration. A small business must register with the Department and obtain a new SBE Certificate on or before March 31, 2019, to continue to qualify for the SBE on purchases of taxable energy made after that date. After March 31, 2019, a small business that has not registered with the Department and has not obtained an SBE Certificate, will not qualify for the SBE until such time as the small business registers with the Department. A small business may register with the Department and obtain an SBE Certificate at any time after March 31, 2019; however, it will qualify for the SBE only for purchases made on or after the date of registration with the Department. A vendor of taxable energy must collect sales tax on any purchases made without a current SBE Certificate.
(a) Verification Requirements. Before allowing an SBE, a vendor must verify that a small business purchaser is registered as a qualifying small business with the Department. Also, upon expiration or revocation of an SBE certificate and SBE registration, a vendor must verify that the small business purchaser has renewed its registration with the Department. A vendor may verify this information either by obtaining a copy of the small business’s current SBE Certificate or by verifying the small business’s current SBE registration with the Department, in accordance with procedures established by the Commissioner. Verification by either of these methods shall create a presumption of good faith on the part of the vendor under M.G.L. c. 64H, § 6(qq) and the vendor will be relieved of the burden of proving that purchases made by the small business are exempt.
(b) Recordkeeping Requirements. A vendor shall retain records relating to the verification process in 830 CMR 64H.6.11(7)(a) and make available such records to the Commissioner no later than sixty days from the date of a notice from the Commissioner to produce such records. A vendor’s records must include the name of the qualifying small business purchaser and its SBE Certificate number, along with any other records required by 830 CMR 62C.25.1, Record Retention.
(c) Annual Report: A vendor will provide the Department with an annual report of its exempt sales to qualifying small businesses and any credits claimed under 830 CMR 64H.6.11(7)(d) in a manner prescribed by the Commissioner. In general, the report shall identify the total dollar amount of exempt purchases made by each purchaser claiming the SBE during the calendar year, including detailed information on any credits claimed for prior transactions.
(d) Credits. A vendor that collected sales tax from a small business that purchased taxable energy, which should have been exempt because the small business had a valid SBE registration and SBE Certificate, may claim an offset on the vendor’s next monthly sales tax return in accordance with procedures established by the Commissioner. A vendor must refund the previously collected sales tax to the qualifying small business to claim the credit. Any credit claimed under this provision must be within the statute of limitations provided in M.G.L. c. 62C, §§ 36, 37, and any credit claimed after such time limits will not be allowed. A vendor that uses the offset process in 830 CMR 64H.6.11(7)(d), waives its right to receive any interest on the offset amounts under M.G.L. c. 62C, § 40.
(e) Amended Returns. In lieu of the credit process in 830 CMR 64H.6.11(7)(d), a vendor may submit an amended return as provided by 830 CMR 62C.26.2: Amended Returns, after refunding any previously collected sales tax to the qualifying small business. Any amended return filed under 830 CMR 64H.6.11(7)(e) must be filed within the statute of limitations provided in M.G.L. c. 62C, §§ 26, 36, 37. A vendor may not offset an amount under 830 CMR 64H.6.11(7)(d) and submit an amended return under 830 CMR 64H.6.11(7)(e) for sales tax related to the same transaction.
(f) Transition Rules for 2018 and 2019 For Existing Exemption Certificates. As noted in 830 CMR 64H.6.11(6)(g)(1), a small business may use a valid, previously-issued Form ST-13 to claim a small business exemption for purchases of taxable fuel made prior to March 31, 2019. A vendor may accept a valid Form ST-13, and will not be subject to the verification requirements in 830 CMR 64H.6.11(7)(a) for such purchases. A vendor may claim an offset on its next monthly sales tax return in accordance with the provisions in 830 CMR 64H.6.11(7)(d) for purchases made using Form ST-13 within three years from March 31, 2019. Purchases made using Form ST-13 must be included in the vendor’s annual report required by 830 CMR 64H.6.11(7)(c).
(g) Invalid Registration. A vendor must collect sales tax from a business that does not have a current registration and SBE certificate. A vendor that is notified, either by a taxpayer or by the Department, that a business’s SBE has been revoked must begin collecting sales tax. A vendor may not receive a vendor credit or refund from the Commissioner for any amount that the vendor has refunded to a purchaser on purchases made without a current registration or made after the vendor received notice that the registration was revoked.
Any person who willfully presents any certificate under M.G.L. c. 64H or 64I known by that person to be fraudulent or false as to any material matter and given for the purpose of evading payment of sales or use tax may be subject to fines, imprisonment, or both. Any person who willfully aids or assists in the preparation of presentation of such a fraudulent or false document may be subject to fines, imprisonment, or both. If any purchaser of taxable energy improperly presents a certificate, the purchaser remains fully liable for payment of use tax on its purchase.
REGULATORY AUTHORITY
830 CMR 64H.6.11: M.G.L. c. 14, § 6(1); M.G.L. c. 62C, § 3
REGULATORY HISTORY
Emergency Regulation: 11/30/90
Date of Promulgation: 8/16/91
Emergency Regulation: 3/29/06
New Regulation Promulgated: 6/2/06
Emergency Regulation: 12/20/18
New Regulation Promulgated: 3/8/19
