| Date: | 08/06/2010 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Tax Administration/Personal Income Tax/Corporate/Miscellaneous/Sales and Use
I. Introduction
This Technical Information Release (TIR) explains changes relating to tax administration, G.L. c. 62C, personal income tax, G.L. c. 62, corporate excise, G.L. c. 63, tobacco taxes, G.L. c. 64C, and sales tax, G.L. c. 64H, contained in chapter 131 of the Acts of 2010 ("the Act"). Except as noted otherwise below, these provisions were effective July 1, 2010.
II. Partnerships and Other Pass-through Entities and Members
A. Summary
Section 40 of the Act gives the Department of Revenue the authority to audit pass-through entity return items at the level of the partnership, S corporation, or other pass-through entity, rather than at the level of the partner or member. The legislation sets forth the rights of individual partners or members in a unified pass-through entity audit and allows a partner or member to opt out of the unified audit process.
In addition, Section 36 of the Act clarifies how a partner's distributive share of income and other tax items are determined if the partnership agreement does not have substantial economic effect or does not provide for the determination of distributive share.
B. Statutory Changes
Pass-through entity audit provisions. The pass-through entity audit provisions are contained in new section 24A of chapter 62C:
Section 24A. (a) Members or indirect owners of a pass-through entity shall report items of income, expense or credit derived from the pass-through entity in a manner consistent with the reporting of the pass-through entity, except to the extent that a taxpayer member or indirect owner makes a declaration of inconsistency with its original return.
(b) The commissioner shall establish by regulation unified audit procedures. The commissioner may audit, in a unified proceeding, a pass-through entity 1 or more of whose members or indirect owners are subject to tax under chapters 62 or 63; provided, however, that nothing in this section shall limit the ability of the commissioner to audit or assess individual members or indirect owners with respect to items derived from a pass-through entity. The commissioner's regulations shall establish the types of pass-through entities subject to unified audit proceedings which may include, but shall not be limited to, partnerships and S corporations. The regulations shall also provide for the designation by the pass-through entity of a tax matters partner who shall have the authority to represent all the members or indirect owners in the unified proceeding, except to the extent that a member or indirect owner opts out of the unified proceeding as provided in subsection (d). The authority of the tax matters partner in a unified proceeding generally shall include, but not be limited to, the following: (i) receiving tax notices on behalf of participating members or indirect owners with respect to pass-through entity items; (ii) entering into settlement agreements with the commissioner under section 37C on behalf of the participating members or indirect owners with regard to pass-through entity items; (iii) filing applications for abatement under section 37 on behalf of the participating members or indirect owners with respect to pass-through entity items; and (iv) filing appeals with the appellate tax board under section 39 on behalf of participating members or indirect owners in the case of a denial of an abatement by the commissioner, if the underlying abatement application relates to pass-through entity items. So far as practicable, the commissioner's regulations shall be modeled on federal rules.
(c) The statute of limitations for the assessment of tax of a member or indirect owner with respect to a pass-through entity item for an entity's taxable year shall not expire before the latest of: (i) 3 years after the later of the date on which the entity's return for the taxable year was filed or the last day for filing the entity's return for that year, without extensions, or (ii) an assessment period otherwise applicable to the taxpayer member or indirect owner. Subsections (d) and (h) of section 26 shall apply to returns filed by a pass-through entity. In the case of a unified proceeding, the tax matters partner or other person authorized by a pass-through entity may enter into a written agreement with the commissioner under section 27 to extend the statute of limitations for assessment with respect to items of the pass-through entity, in which case such agreement shall operate to extend the statute of limitation for assessment with respect to all members or indirect owners with respect to such items, including any members or indirect owners who may have opted out of the unified proceeding pursuant to subsection (d).
(d) Members or indirect owners of a pass-through entity may choose not to participate in a unified audit procedure by providing notice to the commissioner in such manner as the commissioner may require. Non-participating members or indirect owners shall retain all rights provided under this chapter with respect to determining and disputing tax related to pass-through entity items; provided, however, that the statute of limitations for assessment of tax to non-participating members or indirect owners with respect to items derived from a pass-through entity that is subject to a unified proceeding shall not expire before the end of the time period provided in subsection (c).
Determination of partner's distributive share clarified. Section 17 of said chapter 62 has been amended by striking out subsection (d) and inserting in place thereof the following subsection:-
(d) A partner's distributive share of an item of income, loss, deduction or credit shall be determined by the partnership agreement, but the distributive share shall be determined in accordance with the partner's interest in the partnership, determined by taking into account all facts and circumstances, if: (i) the allocation to a partner under the agreement of income, gain, loss, deduction or credit, or any item thereof, has no substantial economic effect; or (ii) the partnership agreement does not provide as to the partner's distributive share of income, gain, loss, deduction or credit, or item thereof. The partner shall include the distributive share of income, loss, deduction or credit in the partner's return for the taxable year during which or with which the taxable year of the partnership ends. Except as the context otherwise requires and subject to rules or regulations that the commissioner may adopt, the determination of a partner's distributive share shall take into account rules and principles developed under the Code and any regulations promulgated thereunder, and adjusted as required or appropriate to properly reflect income and other tax items for Massachusetts tax purposes.
C. Effective Date
While these provisions are generally effective July 1, 2010, unified audits of pass-through entities will not be conducted under the authority provided in G.L. c. 62C, § 24A until regulations have been issued.
III. Penalty for Failure to Report a Federal or State Change
A. Summary
Sections 41 and 42 of the Act change the penalty for failure to report a federal change or other state change from the lesser of $100 or 10% of the tax due to 10% of the tax due. In cases where the tax due is greater than $1,000, this change will increase the amount of the applicable penalty.
B. Statutory Change
Section 30 of said chapter 62C has been amended by striking out the fourth paragraph and inserting in place thereof the following paragraph:-
Any person or estate failing to comply with the first paragraph shall be assessed a penalty of 10 per cent of the additional tax found due and such penalty shall become part of the additional tax found due. For reasonable cause shown, the commissioner may, in the commissioner's discretion, abate the penalty in whole or in part.
Section 30A of said chapter 62C has been amended by striking out subsection (c) and inserting in place thereof the following subsection:-
(c) Any person failing to comply with subsection (a) shall be assessed a penalty of 10 per cent of the additional tax found due and such penalty shall become part of the additional tax found due. For reasonable cause shown, the commissioner may, in the commissioner's discretion, abate the penalty in whole or in part.
C. Effective Date
The new penalty calculation will be applied to penalty assessments from the Department of Revenue dated on or after July 1, 2010.
IV. Application of Responsible Persons Provisions to Tobacco Tax
A. Summary
Sections 43 and 49 of the Act extend the application of the responsible person provisions to the cigarette excise in chapter 64C. As a result, an officer or employee of a corporation or a member or employee of a partnership or limited liability company who is under a duty to pay over taxes imposed by chapter 64C may be personally liable for those taxes.
B. Statutory Change
Section 31A of said chapter 62C has been amended by inserting after the figure "62B", in line 4, as so appearing, the following words:- , section 7D of chapter 64C.
Chapter 64C of the General Laws has been amended by inserting after section 7C the following section:-
Section 7D. A person who fails to pay to the commissioner any sum required to be paid under this chapter shall be personally and individually liable therefor to the commonwealth. For the purposes of this section, "person" shall include, but not be limited to, an officer or employee of a corporation or a member or employee of a partnership or limited liability company who, as such officer, employee or member, is under a duty to pay over the taxes imposed by this chapter.
C. Effective Date
This change will be applied to responsible person determinations on or after July 1, 2010 relating to Chapter 64C assessments, and only for underlying liabilities for such tax incurred on or after that date. See, generally, 830 CMR 62C.31A.1(3).
V. Collection following Appellate Tax Board Decision
A. Summary
Section 45 of the Act accelerates the due date for payments from taxpayers in cases where DOR assessments are sustained at the Appellate Tax Board, moving the required payment date such that it is the 30 th day following the date when the ATB issues its initial decision (without deferring to such later time as the ATB may issue written findings and a report with respect to its decision.)
B. Statutory Change
The first paragraph of paragraph (3) of subsection (e) of said section 32 of said chapter 62C has been amended by adding the following sentence:- For purposes of this paragraph, the date of a decision by the appellate tax board shall be determined without reference to any later issuance of finding of facts and report by the board or to any request for a finding of facts and report.
C. Effective Date
This change will be applied to collection of taxes due as the result of Appellate Tax Board decisions issued on or after July 1, 2010.
VI. Modification of G.L. c. 62C, § 32 to Permit Collection Action 60 Days After Assessment
A. Summary
Section 44 of the Act allows the Department to begin collection action within 60 days after an assessment unless the taxpayer has filed for an abatement. The time period was previously 90 days. The penalty provided by G.L. c. 62C, § 33(c) will be assessed commencing on the 60 th day following the assessment.
B. Statutory Change
Section 32 of said chapter 62C has been amended by striking out, in line 62, the word "ninetieth" and inserting in place thereof the following word:- sixtieth. This change amends G.L. c. 62C, § 32(e)(3), which describes various circumstances in which no tax shall be required to be paid or involuntarily collected.
C. Effective Date
This change will be applied to assessments dated on or after July 1, 2010.
VII. Large Installment Sales
A. Summary
Section 46 of the Act provides for an increase in tax, consistent with federal law, on certain taxpayers who defer payment of income tax through use of the installment sale method.
B. Statutory Change
Chapter 62C has been amended by inserting after section 32 the following section:-
Section 32A. (a) If an obligation from an installment transaction to which subsections (a) to (c), inclusive, of section 453A of the Code applies is outstanding as of the close of a taxable year, the tax imposed by chapter 62 or 63 for that taxable year shall be increased by the amount of interest equal to the product of the applicable percentage of the deferred tax liability determined under section 453A(c) of the Code, adjusted to reflect differences in, or otherwise to take into account, the tax laws of the commonwealth, including use of the applicable tax rate under said chapter 62 or 63, multiplied by the underpayment rate in effect under subsection (a) of section 32.
(b) In the case of an installment obligation to which section 453(l)(2)(B) of the Code applies, the tax imposed by chapter 62 or 63 for a tax year in which payment on that obligation is received shall be increased by an amount of interest determined as follows: the amount of tax for that taxable year attributable to the payments on installment obligations to which this subsection applies shall be multiplied by the underpayment rate determined under subsection (a) of section 32 in effect at the time of sale, which rate shall be applied for the period beginning on the date of sale and ending on the date that payment is received.
(c) The commissioner may issue rules or regulations analogous to those under sections 453 and 453A of the Code, adjusted to reflect differences in, or otherwise to take into account, the tax laws of the commonwealth.
C. Effective Date
This change is effective for tax years beginning on or after January 1, 2010, with respect to installment obligations as of the close of the tax year.
VIII. Tax Credit Transparency
A. Summary
Sections 37, 38, 39, and 47 of the Act require administering agency heads of refundable and transferable tax credit programs to submit an annual report, by May 15 of each year, to DOR for credits awarded or claimed for the previous calendar year. This report, which will be available to the public, shall contain 1) the identity of the awarded taxpayer and the credit program from which the award was made, 2) the amount of the credit(s) by taxpayer and project, and 3) the date of the award by taxpayer and project. The new provisions treat DOR as the administering agency head for purposes of the film tax credit, the medical device credit and the brownfields credit. DOR anticipates that the information will be made available through the DOR website at www.mass.gov/dor.
Under the Act, these provisions apply to ten refundable or transferable tax credits: 1) brownfields tax credit [1], 2) dairy farmer tax credit [2] 3) U.S.F.D.A. user fees credit [3], 4) film tax credit [4], 5) historic rehabilitation tax credit [5], 6) life sciences investment tax credit [6], 7) low-income housing tax credit [7], 8) medical device tax credit [8], 9) refundable research credit [9], 10) economic development incentive program [10].
In addition, under subsequently passed legislation [11], the Act has been amended to include any transferable or refundable credits under chapter 62 and 63 established after July 1, 2010 [12]. As a result, the credit transparency provisions will also apply to the certified housing development credit [13] contained within this subsequent legislation.
B. Statutory Change
Chapter 62C has been amended by adding the following section:-
Section 89. (a) Annually on or before May 15, the administering agency head of each tax credit program shall submit a report to the commissioner on each tax credit program authorized for the previous calendar year, in this section called the report, which shall be a public record. For purposes of this report, no information shall be used pertaining to credits, exemptions or deductions awarded or claimed prior to January 1, 2011. For the purposes of this section, the taxpayer shall be the initial recipient of an authorized tax credit.
(b) The report shall contain the following information: (i) the identity of each taxpayer receiving an authorized tax credit and from which tax credit program the credit was received; (ii) the amount of the authorized tax credit awarded and issued for each taxpayer and each project, if applicable; and (iii) the date that the authorized tax credit was awarded and issued for each taxpayer and each project.
Additionally, definitions (not restated here) were added to chapter 62C for "Administering agency head", "Authorized tax credit", "Secretary", and "Tax Credit Program".
C. Effective Date
This change applies to credits awarded or claimed on or after January 1, 2011.
IX. Extension of the Massachusetts Historic Rehabilitation Tax Credit
A. Summary
Section 35 of the Act extends the Massachusetts Historic Rehabilitation Tax Credit for an additional six years to December 31, 2017. The credit was previously due to expire after December 31, 2011.
B. Statutory Change
Section 6J of chapter 62 and Section 38R of chapter 63 of the General Laws has been amended by striking out the words "6 year period beginning January 1, 2006, and ending December 31, 2011" and inserting in place thereof the following words:- 12-year period beginning January 1, 2006, and ending December 31, 2017.
X. Vendor Advertising
A. Summary
Section 50 of the Act repeals the provision in chapter 64H that prevented retailers from advertising that they will assume or absorb the sales tax. Chapter 64H, § 23 stated, in part, that it was "unlawful for any vendor to advertise or hold out or state to the public or any consumer, directly or indirectly, that the tax or any part thereof will be assumed or absorbed by the vendor or that it will not be added to the selling price of the property or services sold, or, if added, it or any part thereof will be refunded."
B. Requirements for Vendors
The taxability of any item of tangible personal property or telecommunications service is unchanged by the repeal of G.L. c. 64H, § 23. The requirement for all Massachusetts vendors to separately state and collect the tax from the retail customer is also unchanged. See G.L. c. 64H, §§ 3, 5. However, a vendor may offer a discount equal to the amount of applicable tax, and may now advertise such a discount as a "store sponsored sales tax holiday," or use similar language.
For example, assume a vendor normally sells an item of furniture for $100 plus 6.25% sales tax of $6.25. The total payment from the retail customer to the vendor is $106.25. Under a store sponsored sales tax holiday, the taxable sales price of the item regularly priced at $100 could be discounted to $94.12 with a separately stated sales tax of $5.88, requiring a total payment from the customer of $100. The taxable sales price (after discount) and the tax must be separately stated on any invoice or receipt issued to the customer by the vendor as required by G.L. c. 64H, § 5, which provides:
Upon each sale of tangible personal property taxable under the provisions of this chapter the amount of tax collected by the vendor from the purchaser shall be stated and charged separately from the sales price and shown separately on any record thereof at the time the sale is made, or on any evidence of sale issued or used by the vendor; provided, however, that in the instance of the sale of alcoholic beverages for on premise consumption, the tax collected need not be stated separately.
/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue
NKB:MTF:ecl
August 6, 2010
TIR 10-11