Technical Information Release  TIR 17-10: Tax Changes in the Fiscal Year 2018 Budget

Date:	10/26/2017
Organization:	Massachusetts Department of Revenue
Referenced Sources:	Massachusetts General Laws

Personal Income Tax/Corporate/Tax Administration

This Technical Information Release (TIR) explains provisions in the Fiscal Year 2018 budget (the Act)[1] relating to the personal income tax, G.L. c. 62; the corporate excise, G.L. c. 63; and tax administration, G.L. c. 62C.

The tax changes discussed in this TIR include:

• Changes to the Earned Income Tax Credit
• New Veteran’s Hire Tax Credit
• New Sales Tax Remittance Provisions
• Changes to Reporting Requirements for Entities Doing Business in the Commonwealth

I. Changes to the Massachusetts Earned Income Tax Credit

This Technical Information Release (TIR) explains provisions in the Fiscal Year 2018 budget (the Act)¹ relating to the personal income tax, G.L. c. 62; the corporate excise, G.L. c. 63; and tax administration, G.L. c. 62C.

The tax changes discussed in this TIR include:

• Changes to the Earned Income Tax Credit
• New Veteran’s Hire Tax Credit
• New Sales Tax Remittance Provisions
• Changes to Reporting Requirements for Entities Doing Business in the Commonwealth

A refundable earned income tax credit is available to certain low-income individuals in Massachusetts who have earned income and meet certain federal requirements for the federal earned income tax credit.  G.L. c. 62, § 6(h).  In general, taxpayers must qualify for and claim the federal earned income tax credit allowed under Internal Revenue Code (I.R.C.) § 32 to be eligible for the Massachusetts credit.  Taxpayers may claim the Massachusetts earned income tax credit even if they do not have a filing requirement.  However, to receive the credit, taxpayers must file tax returns and claim the credit.

The Act provides that with respect to a person who is a non-resident for part of the taxable year, the credit shall be limited to 23 percent of the federal credit multiplied by a fraction, the numerator of which is the number of days in the taxable year the person resided in the commonwealth and the denominator of which is the number of days in the taxable year.  Note that the Act does not change the percentage of the federal credit allowed in Massachusetts, as it remains 23 percent of the federal credit.  A person who is a non-resident for the entire year is no longer eligible for the credit.

Additionally, under the Act certain individuals not eligible for the federal earned income tax credit are now eligible for the Massachusetts earned income tax credit. Under I.R.C. § 32(d), an individual who is married can qualify for the federal earned income tax credit only if the individual files a joint return. The Act amends G.L. c. 62, § 6(h) to treat a married taxpayer  as having satisfied the federal joint filing requirement if the taxpayer files a Massachusetts personal income tax return using a filing status of married filing separately and the taxpayer: (i) is living apart from the taxpayer’s spouse at the time the taxpayer files the tax return; (ii) is unable to file a joint return because the taxpayer is a victim of domestic abuse; and (iii) indicates on the taxpayer’s income tax return that the taxpayer meets the criteria of clauses (i) and (ii).  A taxpayer that is eligible for this filing exception should keep records that demonstrate they meet this criteria.  Taxpayers should refer to Massachusetts personal income tax form instructions for further guidance.

The changes to the earned income tax credit are effective for tax years beginning on or after January 1, 2017.²

II. New Veteran’s Hire Tax Credit for Chapter 62 Taxpayers

The Act adds new subsection (u) to G.L. c. 62, § 6, allowing certain entities that hire veterans and meet certain requirements a personal income tax credit equal to $2,000 for each qualified veteran hired.³ The credit is available to any entity engaged in business in Massachusetts that: (i) is not a business corporation subject to tax under chapter 63; (ii) employs fewer than 100 employees; (iii) is certified by the Commissioner of Veteran’s Services pursuant to G.L. c. 115, § 2C; and (v) qualifies for and claims the Work Opportunity Credit allowed under I.R.C. § 51, as amended and in effect for the taxable year.

In order to claim the credit under § 6(u), the primary place of employment and the primary residence of the qualified veteran must be in Massachusetts. A business must obtain certification that the veteran is a qualified veteran from the Department of Career Services (or any successor agency), no later than the employee’s first day of work. The term “qualified veteran” is defined in I.R.C. § 51(d)(3).

A business that is eligible for and claims the credit allowed under this subsection in a taxable year, with respect to a qualified veteran employee, will be eligible for a second credit equal to $2,000 in the subsequent taxable year, subject to certification of the veteran employee’s continued employment during the subsequent taxable year.  The credit will be attributed on a pro rata basis to the owners, partners or members of the legal entity entitled to the credit.

The credit is non-transferrable and non-refundable. However, any amount of credit that exceeds the tax due in the current taxable year may be carried forward to any of the three subsequent taxable years.  The total cumulative value of the credits authorized pursuant to this G.L. c. 62, § 6(u) and G.L. c. 63, § 38GG (similar provision for corporate taxpayers) must not exceed $1,000,000 annually.⁴ The credit is available for qualified veterans hired after July 1, 2017 for tax years beginning on or after January 1, 2017.⁵

III. New Veteran’s Hire Tax Credit for Chapter 63 Taxpayers

The Act adds new § 38GG to G.L. c. 63, allowing  business corporations that hire veterans and meet certain requirements a tax credit equal to $2,000 for each qualified veteran hired.⁶ The business corporation must (i) employ less than 100 employees; (ii) be certified by the commissioner of veteran’s services pursuant to G.L. c. 115, § 2C; and (iii) qualify for and claim the Work Opportunity Credit allowed under I.R.C. § 51, as amended and in effect for the taxable year.

In order to claim the credit under G.L. c. 63, §38GG, the primary place of employment and the primary residence of the qualified veteran must be in Massachusetts. A business corporation must obtain certification that the veteran is a qualified veteran from the Department of Career Services (or any successor agency), no later than the employee’s first day of work. The term “qualified veteran” is defined in I.R.C. § 51(d)(3).

A business corporation that is eligible for and claims the credit allowed under this subsection in a taxable year, with respect to a qualified veteran employee, will be eligible for a second credit equal to $2,000 in the subsequent taxable year, subject to certification of the veteran employee’s continued employment during the subsequent taxable year.

The credit is non-transferrable and non-refundable. However, any amount of credit that exceeds the tax due in the current taxable year may be carried forward to any of the three subsequent taxable years.  The credit cannot reduce the corporate excise due below the minimum excise. The total cumulative value of the credits authorized pursuant to G.L. c. 63, § 38GG and G.L. chapter 62, § 6(u) (similar provision for individual taxpayers) must not exceed $1,000,000 annually.⁷ The credit is available for qualified veterans hired after July 1, 2017 for tax years beginning on or after January 1, 2017.⁸

IV. New Sales Tax Remittance Provisions

Section 94 of the Act requires the Commissioner to promulgate regulations to implement methods to effectuate accelerated sales tax remittance and identify noncompliant vendors, operators and third party payment processors.⁹ The Act provides guidance as to the issues that must be addressed in the regulations. However, the Act also provides that if the Commissioner determines that methods for accelerated sales tax remittance are not cost-effective to implement before June 1, 2018, the Department shall, instead of implementing section 94 of the Act, record as revenue in fiscal year 2018 sales tax revenue collected by vendors and operators attributable to June 2018 sales but remitted to and received by the Department in July 2018, in the amount that otherwise would have been collected in fiscal year 2018 under the accelerated sales tax remittance proposals.¹⁰ The Department has solicited input from the public to assist with its determination, which the Commissioner is required to submit to the legislature by November 1, 2017.

A “third party payment processor” is defined in the Act as any person or entity engaged in the business of remitting payments to vendors or operators under chapters 64G, 64H, 64I or 64L of the General Laws, in association with credit card, debit card or similar payment arrangements that compensate a vendor or operator in transactions subject to the excise under those chapters.

V. Changes to Reporting Requirements for Entities Doing Business in the Commonwealth

Every individual, corporation, partnership, association, trust, estate, organization, society, club, governmental agency or any other entity doing business in the Commonwealth is required to report to the Commissioner, annually, the names and addresses of all residents of the Commonwealth to which it pays income subject to taxation in the Commonwealth, on the same basis as is required by the federal government under the Code.  See G.L. 62C, § 8.  The Act amends General Laws chapter 62C, § 8 to authorize the Commissioner to require additional reporting requirements that may differ from those required by the federal government under the Code.[11]  The Department plans to issue further guidance on the additional reporting that will be required.

 

/s/Christopher C. Harding
Christopher C. Harding
Commissioner of Revenue


CCH:RHF:wem

October 26, 2017

TIR 17-10

1. St. 2017, c. 47.
2. St. 2017, c. 47, § 32.
3. St. 2017, c. 47, § 33.
4. St. 2017, c. 47, § 33.
5. St. 2017, c. 47, § 143.
6. St. 2017, c. 47, § 35.
7. St. 2017, c. 47, § 35.
8. St. 2017, c. 47, § 143.
9. St. 2017, c. 47, § 94.
10. St. 2017, c. 47, § 95.
11. St. 2017, c. 47, § 34.