| Date: | 03/07/2007 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Tax Administration/Corporate/Personal Income Tax
I. Introduction
This Technical Information Release (TIR) explains several tax law provisions of St. 2006, c. 123, An Act Relative to Economic Investments in the Commonwealth to Promote Job Creation, Economic Stability, and Competitiveness in the Massachusetts Economy. The Act includes provisions that expand the jobs incentive payment program, change the sales and use tax filing requirements for certain vendors that are materialmen, extend the Brownfields tax credit to nonprofit organizations, allow the transfer of Brownfields tax credits, extend the time period and the amount of the historic rehabilitation tax credit, and clarify that single-sales-factor apportionment applies for certain manufacturers of value-added agricultural products. [1] This TIR also explains, in Section III, the tax credit provisions contained in St. 2006, c. 173, An Act Making Appropriations for the Fiscal Year 2006 to Provide Funding to Promote the Redevelopment of Fort Devens.
II. St. 2006, c. 123, An Act Relative to Economic Investments in the Commonwealth to Promote Job Creation, Economic Stability, and Competitiveness in the Massachusetts Economy (the "Act")
A. Jobs Incentive Payment
Under existing law, c. 62C, § 67D authorizes the Commissioner to make a jobs incentive payment to a qualifying biotechnology or medical device manufacturing company. 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. See TIR 04-19. The payment is made in equal installments to qualifying companies over a three-year period.
Effective for tax years beginning on or after January 1, 2006, the Act expands the job incentive payment program to include marine science technology companies. The Act inserts the following definition into c. 62C, § 67D:
"Marine science technology company," a business engaged in research, exploration, operations, monitoring, or defense in marine settings. This term shall include contract manufacturers engaged in the production of these products for a marine science technology company.
Under existing law, a "biotechnology job" is defined as one in which an employee of a biotechnology or medical device manufacturing company performs "qualified services" as defined at c. 62C, § 67D. As amended by the Act, "qualified services" for purposes of § 67D now includes "direct manufacturing or professional services performed by an employee of a marine science technology company during a calendar year that consists of research, exploration, operations, monitoring, or defense in a marine setting." St. 2006, c. 123, §§ 56, 57 and 58, amending G.L. c. 62C, § 67D.
B. Election To File and Pay Sales and Use Tax as a Materialman
Effective July 1, 2007, the Act amends c. 62C, § 16(h) to provide new filing requirements for a materialman who makes sales taxable under the sales or use tax. Under the new law, a taxpayer that has requested materialman status and has received approval from the Department of Revenue must file a return on a monthly basis within 50 days after the expiration of the month covered by the return. Thus, a taxpayer that qualifies as a materialman must file a sales and use tax return and pay the tax due for each monthly period on or before the twentieth day of the second month following the tax period. St. 2006, c. 123, §§ 53, 54, and 55.
The Act amends c. 62C, § 1 to insert the following definitions:
"Materialman," a person primarily engaged in the retail sale of building material, tools and equipment to building contractors for the improvement of real property and authorized by law to file a mechanics lien upon real property for improvements related to the property. For the purposes of this definition, 'primarily engaged' shall mean sales of 50 per cent or more of total sales to building contractors.
"Building contractor," any general contractor, subcontractor or repairman who is engaged in the business of constructing or improving real property.
A person authorized by law to file a mechanics lien upon real property for improvements related to the property is a person who meets the requirements of the mechanics lien statute at G.L. c. 254, § 4.
On-line Application. A taxpayer seeking Department of Revenue approval to file and remit sales and use tax as a materialman must file an on-line application through Webfile for Business and certify that, in any two of the last four calendar quarters, (1) such person was engaged in the retail sale of building material, tools and equipment to building contractors for the improvement of real property, (2) such person's retail sales of building material, tools and equipment to building contractors for the improvement of real property constituted 50 percent or more of its total sales, and (3) such person is authorized under G.L. c. 254, § 4 to file a mechanic's lien upon real property for improvements related to the property. The Department anticipates that the on-line application for materialman filing status will be available by June 15, 2007.
Materialman filing status will remain in effect until the taxpayer notifies the Department that it no longer qualifies to file as a materialman or the Audit Division determines that the taxpayer no longer qualifies for that status.
Mandatory Electronic Filing and Payment. A taxpayer that has been approved for materialman filing status is subject to the Department's Electronic Filing Requirements. A materialman must electronically file a Materialman Sales and Use Tax Return on a monthly basis using the "ACH Debit" payment method to remit sales and use tax due. See TIR 05-22 and TIR 04-30.
Example. For the period July 1, 2007, through July 31, 2007, a qualifying materialman must file a sales and use tax return and pay the tax due on or before September 20, 2007. For the subsequent month of August 2007, the materialman must file sales and use tax return and pay the tax due on or before October 20, 2007.
C. Brownfields Tax Credit
Prior to the Act, certain taxpayers subject to tax under General Laws chapters 62 and 63 were allowed a Brownfields credit for incurring eligible costs to remediate a hazardous waste site on property used for business purposes and located within an economically distressed area. G.L. c. 62, § 6(j) and G.L. c. 63, § 38Q. See TIR 04-7.
The Act amends c. 62, § 6(j) and c. 63, § 38Q to extend the availability of the Brownfields credit to a nonprofit organization. In addition, the time frame for eligibility for the credit has been lengthened. Prior to the Act, net response and removal costs that the taxpayer incurred between August 1, 1998 and August 5, 2005 were eligible for the credit provided that the taxpayer commenced and diligently pursued an environmental response action before August 5, 2005. The Act changes the environmental response action commencement cut-off date from August 5, 2005 to August 5, 2011, and extends the time for incurring eligible costs that qualify for the credit to January 1, 2012. St. 2006, c. 123, §§ 49 and 63.
In addition, the Act amends c. 62, § 6(j) and c. 63, § 38Q to insert new provisions that provide for the transfer, sale or assignment of a Brownfields credit to another taxpayer with a liability under chapter 62 or chapter 63 or to a nonprofit organization.
A taxpayer or nonprofit organization intending to make a transfer, sale or assignment must submit to the Department a statement which describes the amount of the Brownfields credit for which the transfer, sale or assignment of Brownfields credit is eligible. The taxpayer or nonprofit organization must provide to the Department appropriate information so that the Brownfields credit can be properly allocated. The Department will issue a certificate to the party receiving the Brownfields credit reflecting the amount of the Brownfields credit received. The party receiving the Brownfields credit must attach the certificate to each tax return in which the Brownfield credits are used. St. 2006, c. 123, §§ 50 and 64.
Compliance. The credit can only be claimed after a taxpayer achieves and maintains a permanent solution or remedy operation status. Prior to claiming the credit the taxpayer must file a response action outcome statement or remedy operation status submittal with the Department of Environment Protection. The Department will not recognize the transfer, sale or assignment of a Brownfields credit prior to the date of compliance with all the requirements of c. 62, § 6(j), c. 63, § 38Q, and c. 21E and the Massachusetts Contingency Plan provided in 310 CMR 40.00.
Recapture. If a transferor of any Brownfields credit ceases to maintain the remedy operation status or permanent solution in violation of the Massachusetts Contingency Plan prior to the sale of the property or the termination of the lease, the transferor will be subject to recapture and any Brownfields credit sold will be recaptured as taxes due in the year the transferor fails to maintain the remedy operation status or permanent solution. See TIR 99-13.
Effective Date. The effective date of these provisions is June 24, 2006. A taxpayer generating a Brownsfield credit in taxable years beginning on or after June 24, 2006, may transfer the credit, in whole or in part, to another taxpayer with a liability under chapter 62 or chapter 63 or to a nonprofit organization.
These provisions modify TIR 00-9, Tax Changes in the Fiscal Year 2001 Budget, TIR 99-13, The Tax Credit Provisions of the Brownfields Act, and TIR 04-7, Changes to the Brownfields Credit and Investment Tax Credit Contained in the Chapter 141 of the Acts of 2003.
D. Section 38 Manufacturing Corporations; Value-added Agricultural Products
A corporation classified as a manufacturing corporation may use certain tax benefits outlined in 830 CMR 58.2.1(4). In addition, a corporation engaged in manufacturing but not having been so classified may qualify for certain tax benefits described in 830 CMR 58.2.1(5). A corporation engaged in manufacturing activity that has income from business activity which is taxable both in Massachusetts and in another state may also be subject to single-sales-factor income apportionment as provided by c. 63, § 38(l).
In order to qualify for single-sales-factor-apportionment treatment under § 38(l), a corporation must be "engaged in manufacturing . . . in substantial part, in transforming raw or finished physical materials by hand or machinery, and through human skill and knowledge, into a new product possessing a new name, nature and adapted to a new use." G.L. c. 63, § 38(l)(1). The portion of the Department's apportionment regulation dealing with "Section 38 Manufacturers" defines "substantial manufacturing" and details the requirements that a manufacturing corporation must meet to utilize single-sales-factor apportionment. See 830 CMR 63.38.1(10)
The Act amends the apportionment statute at c. 63, § 38(l)(1) to clarify that the definition of "manufacturing corporation" includes "any operation manufacturing, in substantial part, value-added agricultural products." St. 2006, c. 123, §§ 60 and 61. The Act further amends c. 63, § 38(l)(1) by inserting the following:
"Value-added agricultural products" shall be defined as any products of "farming" or "agriculture", as defined in section 1A of chapter 128, which have increased in market value due to some process other than packaging. Value-added agricultural products shall include, but not be limited to, the following: cheese, butter, buttermilk, yogurt, cream, ice cream, fruit preserves, fruit juices, fruit sauces, fruit syrups, dried fruit, seeded fruits, peeled or chopped fruit and vegetables, processed fruit and vegetables, salads, maple syrup, maple candy, honey and all apicultural products, horticulture nursery and greenhouse products, topiary plants, bacon, sausage, lard, dried or smoked meat, and wool as well as fish, seafood, and other aquatic products.
As a result of the Act, a corporation that manufactures value-added agricultural products, and meets the requirements of "substantial manufacturing" at 830 CMR 63.38.1(10) is a section 38 manufacturer subject to a modified apportionment formula whereby its apportionment is based 100 percent on sales.
The above amendment to c. 63, § 38(l) is a clarification of existing law. Several court opinions have considered how properly to categorize the output of various foodstuffs and other agricultural products. Found to be "manufacturing" are such operations as baking pastry and breads; making jellies, jams, and peanut butter; and producing from livestock sausages, lard, and cured bacon and hams; see Commissioner of Corps. & Taxn. v. Assessors of Boston, 321 Mass. 90 (1947); scouring of raw wool into wool ready to be spun into thread, cloth, or rugs; making bottled soft drinks by adding syrup and carbon dioxide to water; preparing coffee by cleaning, blending, roasting, and grinding the beans; and making fruit syrups, chocolate milk, ice cream, and cheeses, see Assessors of Boston v. Commissioner of Corps. & Taxn., 323 Mass. 730 (1949). More recently, in Noreast Fresh, Inc. v. Commissioner of Revenue, 50 Mass. App. Ct. 352 (2000), the Massachusetts Appeals Court found that a taxpayer that processed vegetables into various salad products, treated them to preserve them, and packaged them was engaged in manufacturing.
The Commissioner will apply the amendment to c. 63, § 38(l) going forward and to all open taxable years within the statute of limitations for assessment or abatement.
E. Historic Rehabilitation Tax Credit
Under the Massachusetts Historic Rehabilitation Tax Credit program, a certified rehabilitation project of a qualified historic structure is eligible to receive up to 20% of qualified rehabilitation expenditures in state tax credits. G.L. c. 62, § 6J; G.L. c. 63, § 38R. Eligibility for the Massachusetts Historic Rehabilitation Tax Credit is explained in the Department's regulation at 830 CMR 63.38R.1. Under prior law, the Massachusetts Historic Rehabilitation Tax Credit was available for the five-year period from January 1, 2005, to December 31, 2009, and the credit was limited to $15,000,000 per year.
The Act amends G.L. c. 63, § 38R(b)(1)(i) and G.L. c. 62, § 6J(b)(1)(i) to extend the availability of the credit for an additional two years, to December 31, 2011. St. 2006, c. 123, §§ 51 and 65. Under the amendments to G.L. c. 63, § 38R together with G.L. c. 62, § 6J, the Commissioner, in consultation with the Massachusetts Historical Commission, is authorized to allocate credits, for the 6-year period beginning January 1, 2006, and ending December 31, 2011, in an amount not to exceed $50,000,000 per year.
III. St. 2006, c. 173, An Act Making Appropriations for the Fiscal Year 2006 to Provide Funding to Promote the Redevelopment of Fort Devens (the "Devens Redevelopment Act").
A. Background
Under existing law, c. 63, § 38N authorizes a credit ("EOA credit") against the tax imposed by chapter 63 for certain corporations that participate in a certified project in an economic opportunity area (EOA). The EOA credit is an amount equal to five per cent of the cost of any property that is used exclusively in a certified project within an EOA and that would otherwise qualify for the three per cent investment tax credit at c. 63, 31A. [2] However, the EOA credit is not allowed if the investment tax credit is claimed.
The EOA credit may not exceed 50% of the taxpayer's tax liability for any one taxable year. [3] The EOA credit may not be applied to reduce the minimum excise imposed under any provision of c. 63. [4] Unused, unexpired EOA credits that exceed the corporation's excise may be carried forward by the individual corporation that generated the credit for up to 10 years. [5] No corporation may apply the EOA credit to its excise for any taxable year beginning more than five years after the certified project or the EOA ceases to qualify.
B. Refundable EOA Credits for Certain Projects in the Biotechnology Industry Located at the Former Fort Devens Site
The Legislature recently enacted provisions applicable to the EOA credits permitted under c. 63, § 38N. St. 2006, c. 173, § 3 (the "Devens Redevelopment Act"). In general, the Devens Redevelopment Act allows an eligible taxpayer located at the former Fort Devens military base to claim a refund for certain portions of its EOA credit:
Notwithstanding subsections (b) to (d), inclusive, of section 38N of chapter 63 of the General Laws, in the event that a credit allowed under said section 38N of said chapter 63 exceeds the tax otherwise due under said chapter 63, the balance of that credit shall be refundable to the taxpayer in the taxable year in which qualified property giving rise to that credit is placed in service . . .
Taxpayers eligible for the credit provisions of the Devens Redevelopment Act. Over a period not to exceed 8 years, a taxpayer must commit to the cumulative investment of not less than $650 million in the project, and the creation, cumulatively, of not fewer than 550 new jobs involving permanent full-time employees, both direct and contracted, and these jobs must be located at the Devens site. [6]
The Devens Redevelopment Act applies only to EOA credits generated by projects in the biotechnology industry, certified on or after June 1, 2006 and before June 1, 2008. [7] As used in the Devens Redevelopment Act, the term "project" has the following meaning:
. . . the design, planning, permitting, site preparation, construction, development, and operation of infrastructure and other improvements, including demolition of existing structures and design and construction of necessary replacement structures on adjacent or proximate land, and upgrades to the existing electric and gas utility systems serving the Devens Regional Enterprise Zone, as established by chapter 498 of the acts of 1993, to support the operation of a large scale biologics pharmaceutical manufacturing facility, or reasonably required to facilitate complete development, construction, and operation of such a facility.
St. 2006, c. 173, § 4.
Assessment of Tax to Recover Refunded Credits. If the Commissioner determines within 3 years after the 8-year job commitment period that the taxpayer has not fulfilled the new job commitments specified in the Devens Redevelopment Act, the Commissioner is authorized to assess the taxpayer an amount of tax as follows:
(i) if the taxpayer has not created at least 350 new jobs in the 8-year period in connection with the project, the cumulative credits refunded to the taxpayer under section 38N of chapter 63 of the General Laws in connection with the project; or
(ii) if the taxpayer has created at least 350 new jobs in the 8-year period in connection with the project but fewer than 550 new jobs, the cumulative credits refunded to the taxpayer under said section 38N of said chapter 63 multiplied by a ratio, the numerator of which is the number by which the new jobs created is less than 550 and the denominator of which is 550.
St. 2006, c. 173, § 3(c). An assessment under § 3(c) of the Devens Redevelopment Act is authorized without regard to limitations on the period of assessment otherwise applicable under G.L. c. 62C, § 26.
In the event that the taxpayer is assessed a tax under § 3(c) of the Devens Redevelopment Act, the taxpayer will be allowed to offset the tax using any credits to which the taxpayer would have otherwise been entitled before the Commissioner's determination and will be entitled to carry over any additional credits to which the taxpayer would have otherwise been entitled as provided in G.L. c. 63, § 38N, (b) and (d).
/s/Alan LeBovidge
Alan LeBovidge
Commissioner of Revenue
AL:MTF:adh
March 7, 2007
TIR 06-16