Technical Information Release  TIR 16-15: Tax Provisions Included in An Act Relative to Job Creation and Workforce Development

Date:	01/03/2017
Referenced Sources:	Massachusetts General Laws

This Technical Information Release (“TIR”) explains provisions included in An Act Relative to Job Creation and Workforce Development (“the Act”),[1] as enacted August 10, 2016, relating to the personal income tax, G.L. c. 62, and the corporate excise, G.L. c. 63.

The following tax provisions are discussed in this TIR:
 

• Changes to the Economic Development Incentive Program
• Changes to the Community Investment Tax Credit          
• Changes to the Low Income Housing Credit
• Changes to the Historic Rehabilitation Credit
• Changes to the Certified Housing Development Credit
• New Angel Investor Credit
• New Prepaid Tuition or College Savings Plan Deduction
• Changes to the Tuition Payment Deduction

I. Changes to the Economic Development Incentive Program Provisions

General Laws chapter 62, section 6(g) and chapter 63, section 38N authorize a credit against the tax imposed by those chapters to taxpayers that participate in a certified project as defined in G.L. c. 23A, §§ 3A and 3F.  The credit, referred to as the economic development incentive program credit (“EDIPC”), is a key component of the Economic Development Incentive Program (“EDIP”) under G.L. c. 23A and is available to a taxpayer only to the extent awarded by the Economic Assistance Coordinating Council (“EACC”) as defined in G.L. c. 23A.  EDIP credits authorized by the EACC are subject to an annual cap of $30,000,000.[2] The Act made significant changes to the EDIPC provisions in G.L. c. 62. § 6(g) and G.L. c. 63, § 38N.[3]  The changes are effective for projects certified in tax years beginning on or after January 1, 2017.[4] 

Under the previous version of the EDIPC, the credit awarded was based on a percentage of the cost of any property that qualified for the credit allowed by G.L. c. 63, § 31A.  Pursuant to the Act, the credit is no longer tied to the cost of property that would qualify for the investment tax credit allowed under G.L. c. 63, § 31A.  Instead, the amount of credit allowed in each case is determined by the EACC based on numerous factors set forth in G.L. c. 23A § 3D.  The previous version of the EDIPC imposed limitations on the maximum amount of credit that the EACC could award to particular types of certified projects, e.g., a certified manufacturing retention project could have received a credit up to 40% of the cost of property that qualified for the ITC. The Act eliminates those limitations from the EDIPC.

Under the Act, the EACC may designate the EDIPC as refundable for any certified project, subject to a limitation that the EACC may not award more than $5 million in refundable credits per year.   In addition, the EACC is now authorized to specify the timing of the refund.  Under the previous EDIPC, the EACC could award a refundable credit only to a manufacturing retention project or a certified job creation project.

The Act also amends the rules with respect to recapture of the credit. Under the Act, recapture is required only if the EACC revokes the certification of a project.  The amount of credit subject to recapture will be proportionate to the corporation’s compliance with the job creation requirements applicable to a certified project.  The corporation’s proportion of compliance will be determined by the EACC as part of the revocation process and shall be reported to the corporation and the Department of Revenue (“DOR”) at the time of revocation.  The credit is no longer subject to the recapture provision of G.L. c. 63, § 31A(e) which, under the previous version of the EDIPC, would be triggered if property that qualified for the credit was disposed of or ceased to be in qualified use within the meaning of G.L. c. 63, § 31A, or if such property ceased to be used exclusively in a certified project before the end of its useful life.

Under the Act, if a certified project is sold or otherwise disposed of, the EDIPC allowed may be transferred to the purchaser of the certified project, provided that the EDIP contract is assigned to and assumed by the purchaser and approved by the EACC.  Under the previous version of the EDIPC, the sale or other disposition of a certified project may have triggered the recapture provisions of G.L. c. 63,

§ 31A(e).

Section 128 of the Act provides that any taxpayer participating in a certified project that intends to claim economic opportunity area credit or EDIPC on returns for tax years beginning on or after January 1, 2016 must enter into an EDIP contract with the EACC.  There was no such requirement under the previous version of the EDIPC.  Any taxpayer participating in a certified project that fails to enter into an EDIP contract in form and substance acceptable to the Massachusetts Office of Business Development on or before December 31, 2016 shall forfeit such credits.

II. Changes to the Community Investment Tax Credit

Under G.L. c. 62, § 6M and G.L. c. 63, § 38EE, a community investment tax credit is allowed to a taxpayer subject to the personal income tax under G.L. c. 62 or the corporation excise under G.L. c. 63 that makes qualified investments (certain cash contributions) on or after January 1, 2014 to a “community partner” (i.e., a community development corporation or a community support organization) to support the implementation of its community investment plan, or to a community partnership fund. [5]  

The Act changes the definition of an “economic target area” as that phrase is referenced in G.L. c. 62, § 6M(b) and G.L. c. 63, § 38EE(b) for purposes of determining what constitutes a “low and moderate income community”.  Effective for tax years beginning January 1, 2017, an “economic target area,” formerly defined by reference to G.L. c. 23A, § 3A, is now defined by reference to G.L. c. 23A, § 3G as amended and in effect for tax years beginning on or after January 1, 2017.[6]

The Act also changes the standard for determining whether a recipient of a prior credit allocation is eligible for a subsequent community investment tax credit allocation under G.L. c. 62, § 6M(c)(4) and G.L. c. 63, § 38EE(c)(4).  Effective August 10, 2016, a community partner is eligible to receive a subsequent community investment tax credit allocation if the Department of Housing and Community Development determines that the community partner has made satisfactory progress towards utilizing any prior allocation it has received.[7]   Prior to this change, a community partner was required to have utilized at least 95% of its prior allocation to be eligible for a subsequent allocation.
 

III.  Changes to the Low-Income Housing Credit

Under G.L. c. 62, § 6I and G.L. c. 63, § 31H, a low-income housing tax credit authorized by the Department of Housing and Community Development (“DHCD”) is available to an eligible taxpayer subject to the personal income tax under G.L. c. 62 or the corporation excise under G.L. c. 63 that invests in affordable rental housing developments (“Qualified Massachusetts Project”).[8]  This credit may be claimed in the year that the Qualified Massachusetts Project is placed in service and for each of the four subsequent taxable years.  Pursuant to the Act, individuals and corporations now may also be eligible for a low-income housing tax credit if they donate real or personal property to certain non-profit entities for use in purchasing, constructing or rehabilitating a Qualified Massachusetts Project (a “Qualified Donation”).[9]  In the case of a Qualified Donation, the credit is generally limited to 50% of the amount of the donation, but it may be increased to 65% by DHCD if DHCD deems the increase to be necessary to the project’s viability and determines that there is sufficient state low-income housing tax credits available to permit such an increase.  The credit for a Qualified Donation is a one-year credit that must be claimed in the year that the Qualifying Donation is made, and is not refundable.  Any credit amounts attributable to a Qualified Massachusetts Project or a Qualified Donation that exceed the tax due may be carried forward for five years.   Low-income housing tax credits authorized by DHCD are subject to an annual cap of $20,000,000 until January 1, 2020, and $10,000,000 thereafter.[10]  Only one-fifth of any low-income housing tax credits awarded for Qualified Donations will count towards DCHD’s annual cap on low-income housing tax credits. The credit for Qualified Donations is allowed for taxable years beginning on or after January 1, 2017.[11]

IV.  Changes to the Historic Rehabilitation Credit

Under G.L. c. 62, § 6J and G.L. c. 63, § 38R, a historic rehabilitation tax credit (“HRTC”) is available to a taxpayer subject to the personal income tax under G.L. c. 62 or the corporation excise under G.L. c. 63 that incurs qualified rehabilitation expenditures in connection with the certified rehabilitation of a qualified historic structure.[12]

Effective August 10, 2016, the Act amends G.L. c. 63, § 38R to allow the Massachusetts Historical Commission (“MHC”), subject to certain criteria, to transfer HRTC awards to taxpayers subject to the corporation excise imposed by G.L. c. 63 that acquire a qualified historic structure.  Additionally, in the case of a multi-phased project, the Act provides that the MHC may transfer HRTC awards for any phase that meets the criteria.

These amendments to the corporate HRTC statute are identical to amendments made to the personal income HRTC provisions, G.L. c. 62, § 6J, pursuant to St. 2014, c. 287.[13] 

V.  Changes to the Certified Housing Development Credit

Under G.L. c. 62, § 6(q) and G.L. c. 63, § 38BB, a tax credit is available to an eligible taxpayer subject to the personal income tax under G.L. c. 62 or the corporation excise under G.L. c. 63  for certain qualified  housing development project expenditures with respect to a certified housing development.[14]  The Act changes both the potential amount of the credit and the types of costs eligible for the credit.  Pursuant to the Act, the credit is available for 25% of “qualified project expenditures.”[15]  Formerly, the credit was available for 10% of “qualified substantial rehabilitation expenditures.”  Additionally, the Act changes the carry forward period for which the credit can be used from 5 to 10 years.[16]   These changes to the credit are effective for tax years beginning on or after January 1, 2017.[17]

VI.  New Angel Investor Credit

The Act amends G.L. c. 62, § 6 by adding new subsection (t), which provides a credit against personal income tax equal to 20% of the amount of qualifying investments made by a taxpayer investor in a qualifying business generally, and 30% of the amount of qualifying investments made by a taxpayer investor in a qualifying business located in a “Gateway municipality,” as defined in G.L. c. 23A, § 3A.[18]

The Act defines “taxpayer investor” as an accredited investor (as defined by the United States Securities and Exchange Commission under 15 U.S.C. § 77b(15)(ii)) who is not the principal owner of the qualifying business and who is involved in the qualifying business as a full-time professional activity.

A “qualifying business” is defined as a business (i) with a principal place of business in Massachusetts, (ii) which has at least 50% of its employees located in Massachusetts; (iii) which has a fully developed business plan that includes long-term and short-term forecasts and contingencies of business operations, including research and development, profit, loss and cash flow projections and details of angel investor funding; (iv) employs 20 or fewer full-time employees at the time of the taxpayer investor’s initial qualifying investment; (v) has a federal tax identification number; and  (vi) has gross revenues equal to or less than $500,000 in the fiscal year prior to eligibility for the credit.

A “qualifying investment” is defined as a monetary investment that is at risk and not secured or guaranteed, and does not include venture capital funds, hedge funds and commodity funds with institutional investors or investments in a business involved in retail, real estate, professional services, gaming or financial services.  Qualifying investments may be used for capital improvements, plant and equipment, research and development, and working capital.  They may not be used to pay dividends, fund or repay shareholders’ loans, redeem shares, repay debt or pay wages or other benefits of the taxpayer investor.

For purposes of the credit, a taxpayer investor may invest up to $125,000 per qualifying business per year up to a maximum of $250,000.  A taxpayer investor’s total credits may not exceed $50,000 in a single calendar year.  The credit may be taken in either the tax year of the initial investment or it can be carried forward to any of the three subsequent taxable years, as long as the qualifying business maintains its principal place of business in Massachusetts.  If the qualifying business does not maintain its principal place of business in Massachusetts for this three year period, the taxpayer investor must repay the total amount of credits claimed.

Finally, the Act delegates administration of the credit to the Massachusetts Life Sciences Center, in consultation with the Executive Office of Housing and Economic Development and DOR.  Angel investor credits awarded by the Life Sciences Center are included in the annual cap of $25,000,000 applicable to other life sciences credits.  The credit may be allowed for tax years beginning on or after January 1, 2017.[19] No credit may be claimed prior to an award by the Life Sciences Center.

VII.  New Prepaid Tuition or College Savings Program Deduction

The Act amends G.L. c. 62, § 3.B(a) by inserting new paragraph (19), which provides a new deduction against Part B income in an amount equal to 1) purchases of or 2) contributions made in a taxable year to an account in a pre-paid tuition program or a college savings program established by the Commonwealth or an instrumentality or authority of the Commonwealth.[20] The deduction is capped at $1,000 for a single person or head of household and $2,000 for a married couple filing a joint return.  The deduction is subject to recapture in the taxable year or years in which distributions or refunds are made from the tuition or college savings account for any reason other than (i) to pay qualified higher education expenses, as defined by Internal Revenue Code (IRC) § 529(e)(3); or (ii) the beneficiary’s death, disability or receipt of a scholarship. 

For purposes of this deduction, a purchaser or contributor is the person shown as such on the records of the tuition or college savings program as of December 31 of the taxable year.  If ownership of the tuition or college savings plan is transferred, any   carryover or recapture limitations apply to the transferee.  The deduction applies to tax years beginning on or after January 1, 2017 through the tax year beginning on January 1, 2021.[21]

VIII.  Changes to the Tuition Payment Deduction

The Act changes the deduction allowed under G.L. c. 62, § 3.B(a)(11) for tuition payments made by a taxpayer to a two or four-year college in which the taxpayer or the taxpayer’s dependent is enrolled, subject to the limitations as defined in that section.  The Act provides that non-residents and part year residents are ineligible for the deduction, effective for tax years beginning on or after January 1, 2017.[22]



/s/Michael J. Heffernan
Michael J. Heffernan
Commissioner of Revenue


MJH:RHF

January 3, 2017

TIR 16-15

[1] St. 2016, c. 219.

[2] St. 2016, c. 219, § 67.

[3] St. 2016, c. 219, §§ 67; 85.

[4] St. 2016, c. 219, § 139.

[5] See 830 CMR 62.6M.1 and TIR 13-15.

[6] St. 2016, c. 219, §§ 78, 92.

[7] St. 2016, c. 219, §§ 79, 93.

[8] See TIR 10-15.

[9] St. 2016, c. 219, §§ 73-77; 80-84; 88-91.

[10] St. 2016, c. 219, § 75.

[11] St. 2016, c. 219, § 139.

[12] St. 2016, c. 219, § 87.

[13] See TIR 15-6.

[14] See TIR 10-14.

[15] St. 2016, c. 219, §§ 68-70; 88-90.

[16] St. 2016, c. 219, §§ 71, 91.

[17] St. 2016, c. 219, § 139.

[18] St. 2016, c. 219, § 72.

[19] St. 2016, c. 219, § 139.

[20] St. 2016, c. 219, § 66.

[21] St. 2016, c. 219, § 138.

[22] St. 2016, c. 219, §§ 65, 139.