| Date: | 07/30/2004 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Tax Administration
| The Massachusetts Legislature recently enacted a new administrative provision, chapter 62C, § 67D, that authorizes the Commissioner to make a jobs incentive payment to qualifying biotechnology and medical device manufacturing companies. See St. 2003, c. 141, §§ 23, 78; St. 2004, c. 65, §§ 10, 55. Qualifying companies must in one calendar year increase their level of Massachusetts employment by at least 10 full-time equivalent biotechnology jobs over the previous calendar year in order to qualify for a jobs incentive payment. The jobs incentive payment equals 50% of the salary attributable to the increase of biotechnology jobs multiplied by the Massachusetts personal income tax rate. The payment is made in equal installments to qualifying companies over a three year period. |
| The purpose of this Technical Information Release is to announce the enactment of the jobs incentive payment statute and to provide an interim description of the provision's requirements and effective dates prior to the promulgation of the Commissioner's forthcoming Jobs Incentive Payment regulation. |
| 1. Definitions of Terms |
| Increase Year , the calendar year during which a company's employment must increase by at least 10 full-time jobs (both averall jobs and biotechnology jobs) over its employment for the base year. |
| Base Year , the calendar year immediately prior to the increase year. |
| Job Qualifier Fraction , a decimal amount that reflects the extent to which an employee works in Massachusetts during a calendar year. The job qualifier fraction for each job is the product of the following three percentages: |
| 1. Full-Time Percentage. Number of hours worked each week divided by 35, not to exceed 100%. |
| 2. Massachusetts Percentage. Time worked in Massachusetts divided by total time worked in job. |
| 3. Calendar Year Percentage. Time worked during the year divided by the number of payroll periods. A company on a weekly payroll system would divide the number of weeks worked during the calendar year by the number of payroll weeks during that year, e.g., 51, 52 or 53. |
| Example: |
| The job qualifier fraction for employee A working 40 hours a week, in Massachusetts, for the entire calendar year would be 1.0 (1.0 x 1.0 x 1.0). Employee B works 40 hours per week, in Massachusetts, and is hired halfway through the year, resulting in a job qualifier fraction of .5 (1.0 x 1.0 x .5). Employee C works 35 hours per week, spends 90% of his or her time working inside of Massachusetts, and also works half of the calendar year, with a job qualifier fraction of .45 (1.0 x .9 x .5). |
| Weighted Average Employment , the formula that measures a company's total level of employment during a calendar year. A company's weighted average employment figure equals the total of its job qualifier fractions. In the example above, the company's weighted average employment for that calendar year would be 1.95 (1.0 + .5 + .45). |
| Full-Time , at least 35 hours per week. Multiple part-time jobs can be combined to equal a full-time job. If one employee works more than 35 hours in a week, it is still considered only one full-time job and the extra hours cannot be combined with part-time jobs to increase the level of full-time jobs. |
| Biotechnology Job , a job in which an employee of a biotechnology or medical device manufacturing company performs qualified services, as defined in Section 5. The increase of at least 10 full-time equivalent jobs must be attributable to jobs in which an employee performs the qualified services. |
| 2. Eligible Periods |
| A company may request a jobs incentive payment beginning in calendar year 2005 and through calendar year 2009 for an increase in employment in calendar years 2004 through 2008, respectively. The earliest allowed request may be submitted on January 1, 2005 for a jobs incentive payment based on an increase of at least 10 full-time biotechnology jobs in calendar year 2004 over the company's weighted average employment in calendar year 2003. The latest allowed request may be submitted on December 31, 2009 for a jobs incentive payment based on an increase of at least 10 full-time biotechnology jobs in calendar year 2008 over the company's weighted average employment in calendar year 2007. |
| A qualifying company may submit a request for a jobs incentive payment, for a maximum of three request years, in any of the five, 2005 through 2009, calendar years. Each request must meet any and all the requirements for the jobs incentive payment. |
| 3. Deadline for Payment Request |
| A company must submit its job incentive payment request in the calendar year immediately following the increase year. For example, a company must submit a jobs incentive payment request by December 31, 2005 for a jobs incentive payment based on an increase of at least 10 full-time biotechnology jobs in calendar year 2004 over the company's weighted average employment in calendar year 2003. |
| 4. Qualifying Companies |
| Only a qualifying biotechnology or medical device manufacturing company, as defined below, may submit a request for a jobs incentive payment. |
| A. Biotechnology Company |
| A biotechnology company is: |
| 1) a business primarily engaged in the research, development, production or provision of biotechnology for the purpose of developing or providing products or processes for specific commercial or public purposes including, but not limited to, medical pharmaceutical, nutritional and other health-related purposes, or |
| 2) a person engaged in providing services or products necessary for such research, development, production or provision, or |
| 3) a contract manufacturer engaged in the production of biotechnology products for a biotechnology or medical device manufacturing company. |
| B. Medical Device Manufacturing Company |
| A medical device manufacturing company is: |
| 1) a business primarily engaged in manufacturing medical or surgical instruments, surgical appliances or supplies or electromedical, electrotherapeutic or irradiation apparatus, or |
| 2) a contract manufacturer engaged in the production of such products for a medical device manufacturing or biotechnology company. |
| 5. Biotechnology Jobs - Qualified Services |
| The increase of at least 10 full-time equivalent jobs must be attributable to "biotechnology" jobs. A biotechnology job is defined as one in which an employee of a biotechnology or medical device manufacturing company performs qualified services. Qualified services are direct production manufacturing services that consist primarily of at least one of the following services:* |
| Medicinal and botanical manufacturing (NAICS 325411), |
| pharmaceutical preparation manufacturing (NAICS 325412), |
| in vitro diagnostic substance manufacturing (NAICS 325413), |
| biological product (excluding diagnostic) manufacturing (NAICS 325414), |
| surgical and medical instrument manufacturing (NAICS 339112) |
| electromedical and electrotherapeutic apparatus manufacturing (NAICS 334510), |
| surgical appliance and supplies manufacturing (NAICS 339113), and |
| irradiation apparatus manufacturing (NAICS 334517). |
| *These services are as referenced in the federal North American Industry Classification System ("NAICS") Codes for biotechnology and medical device manufacturing. |
| 6. Calculation of Increase in All Jobs and Biotechnology Jobs; Jobs Incentive Payment |
| A company must in one calendar year increase its level of Massachusetts employment by at least 10 full-time equivalent jobs (in both overall jobs and biotechnology jobs) over the previous calendar year in order to qualify for a jobs incentive payment. In the following example, a company first determines its increase in overall jobs, Step 1, and then recalculates its employment figures, in Step 2, taking into account only biotechnology jobs. In this example, the company satisfies the requirement that an increase of at least 10 jobs has occurred in its overall job and biotechnology job employment. In the final step, Step 3, the company calculates its jobs incentive payment based on the salary attributable to the increase in biotechnology jobs. |
| Step 1: Increase in Overall Jobs |
| The Company starts the base year with 180 full-time employees who work in Massachusetts the entire calendar year. Halfway through the base year the company adds 7 full-time employees who work in Massachusetts and 13 full-time employees who work 30% of the time in Massachusetts. |
| ** Job Qualifier Fraction = Full-Time Percentage x Massachusetts Percentage x Calendar Year Percentage. See Section 1, for a detailed definition of the job qualifier fraction. |
| Base Year Job Qualifier Fractions : 180 (1.0 x 1.0 x 1.0 = 1.0, x 180 employees) |
| 3.5 (1.0 x 1.0 x .5 = .5, x 7 employees) |
| 1.95 (1.0 x .30 x .5 = .15, x 13 employees) |
| Base Year Weighted Average Employment : 185.45 (180 + 3.5 + 1.95) |
| The Company starts the increase year with 187 full-time employees who work in Massachusetts the entire calendar year and 13 full-time employees who work in Massachusetts 30% of the time. During the increase year, after 20% of its payroll periods, the company adds 22 full-time employees who work in Massachusetts. |
| Increase Year Job Qualifier Fractions : 187 (1.0 x 1.0 x 1.0 = 1.0, x 187 employees) |
| 3.9 (1.0 x .3 x 1.0 = .3, x 13 employees) |
| 17.6 (1.0 x 1.0 x .8 = .8, x 22 employees) |
| Increase Year Weighted Average Employment : 208.5 (187 + 3.9 + 17.6) |
| Increase in Overall Jobs : 23.05 (208.50 - 185.45) |
| Step 2: Increase in Biotechnology Jobs |
| The Company starts the base year with 102 full-time biotechnology employees who work in Massachusetts the entire calendar year. Halfway through the base year the company adds 1 full-time biotechnology employee who works in Massachusetts and 2 full-time biotechnology employees who work 30% of the time in Massachusetts. |
| Base Year Job Qualifier Fractions : 102 (1.0 x 1.0 x 1.0 = 1.0, x 102 employees) |
| .5 (1.0 x 1.0 x .5 = .5, x 1 employee) |
| .3 (1.0 x .30 x .5 = .15, x 2 employees) |
| Base Year Weighted Average Employment : 102.8 (102 +.5 + .3) |
| The Company starts the increase year with 103 full-time biotechnology employees who work in Massachusetts the entire calendar year and 2 full-time biotechnology employees who work in Massachusetts 30% of the time. During the increase year, after 20% of its payroll periods, the company adds 16 full-time biotechnology employees who work in Massachusetts. |
| Increase Year Job Qualifier Fractions : 103 (1.0 x 1.0 x 1.0 = 1.0, x 103 employees) |
| .6 (1.0 x .3 x 1.0 = .3, x 2 employees) |
| 12.8 (1.0 x 1.0 x .8 = .8, x 16 employees) |
| Increase Year Weighted Average Employment : 116.4 (103 +.6 +12.8) |
| Increase in Biotechnology Jobs : 13.6 (116.4 - 102.8) |
| Step 3: Jobs Incentive Payment |
| The jobs incentive payment is equal to 50% of the salary subject to Massachusetts withholding and attributable to the increase of biotechnology jobs multiplied by the Massachusetts personal income tax rate. The payment is made to the company in equal installments over three calendar years beginning in the request calendar year. |
| The company has an increase of 13.6 full-time biotechnology jobs. The company must determine an average wages paid subject to Massachusetts withholding attributable to the increase of biotechnology jobs. During the increase year, after 20% of its payroll periods, the company hired 16 full-time employees. For the remaining 80% of the increase year, the wages paid attributable to the increase of biotechnology jobs subject to Massachusetts withholding are as follows: |
| Employees 1-4: $248,620 ($62,155 x 4 employees) |
| Employees 5-12: $394,280 ($49,285 x 8 employees) |
| Employees 13-16: $160,400 ($40,100 x 4 employees) |
| Total: $803,300 |
| Average: $ 50,206 ($803,300 divided by 16) |
| Jobs Incentive Payment: $ 18,094 (13.6 x $50,206 x 50% x 5.3%) |
| The jobs incentive payment is paid in three equal installments ($6,031) over the three calendar years following the increase year. |
| 7. March 1st Substantiation |
| A company must substantiate, by March 1 st of the second and third payment calendar years that its qualification for the jobs incentive payment continues throughout the first and second payment years. In essence the company must reapply for the jobs incentive payment in the second and third payment calendar years, documenting that both its biotechnology and non-biotechnology employment has remained steady since the increase year. The same two-level calculation applies, as detailed in Section 6, however, the new base year is the original increase year. |
| To qualify for the second payment, the company must determine that its weighted average employment for the first payment year (for both biotechnology and non-biotechnology jobs) is equal to or higher than the weighted average employment for the original increase year. To qualify for the third payment, the company must determine that its weighted average employment for the second payment year (for both biotechnology and non-biotechnology jobs) is equal to or higher than the weighted average employment for the original increase year. |
| Example: |
| A company qualifies for a jobs incentive payment of $30,000, payable in $10,000 installments in 2006, 2007 and 2008. The company's weighted average employment for 2005, its increase year, is 250 for all job classifications and 190 for biotechnology jobs. On February 10, 2007 the company files the necessary forms and schedules to substantiate its weighted average employment for 2006, its first payment year, which is 225 for all job classifications and 191 for biotechnology jobs. The company will lose its second payment of $10,000, because its weighted average employment for all job classifications in its first payment year has fallen below the weighted average employment for all job classifications in the increase year. |
| 8. Forms |
| The request and substantiation forms for the jobs incentive payment will be available on the Department's website at www.mass.gov/dor in the near future. |
| /s/Alan LeBovidge |
| Alan LeBovidge |
| Commissioner of Revenue |
|
July 30, 2004 |
| TIR 04-19 |