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Technical Information Release TIR 18-13: Tax Provisions in the Fiscal Year 2019 Budget, and An Act Relative to Economic Development in the Commonwealth

Date: 12/05/2018
Referenced Sources: Massachusetts General Laws

This Technical Information Release (“TIR”) explains provisions included in the Fiscal Year 2019 Budget (the “FY19 Budget”)[1] and An Act Relative to Economic Development in the Commonwealth (the “Economic Development Act”),[2] relating to the personal income tax, G.L. c. 62, and the corporate excise, G.L. c. 63.

The following statutory amendments are discussed in this TIR:

  • An increase in the Massachusetts earned income tax credit
  • An increase in the annual amount of dairy farm credits available to chapter 62 and chapter 63 taxpayers
  • New provisions authorizing minimum competency standards for compensated tax preparers
  • New economic development incentive program tax credits for chapter 62 and chapter 63 taxpayers that occupy previously vacant storefronts
  • New apprenticeship tax credit for chapter 62 and chapter 63 taxpayers
  • Modifications to the abandoned building deduction for chapter 62 and chapter 63 taxpayers

Table of Contents

I. The FY19 Budget

A.  Increase in the Massachusetts Earned Income Tax Credit

A refundable earned income tax credit (“EITC”) is available to certain low-income individuals in Massachusetts who (i) have earned income and (ii) meet the requirements for the federal EITC.[3] In general, individuals must qualify for and claim the federal EITC allowed under Internal Revenue Code (“Code”) § 32 to be eligible to claim the Massachusetts EITC. Individuals may claim the Massachusetts EITC even if they are under the dollar threshold that necessitates the filing of a Massachusetts personal income tax return.[4] However, to receive the credit, an individual must file a tax return and affirmatively claim the credit.[5]

The amount of the Massachusetts EITC an individual may claim is a statutorily defined percentage of the federal EITC to which the individual is entitled. The FY19 Budget amends G.L. c. 62, § 6(h) to increase this percentage from 23% of the computed federal credit to 30%.[6] With respect to a person who is a non-resident for part of the taxable year, the EITC will be limited to 30% 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 total number of days in the taxable year.[7] These changes to the Massachusetts EITC are effective for tax years beginning on or after January 1, 2019.[8]

B.  Increase in the Annual Amount of Dairy Farm Credits Available for Chapter 62 and Chapter 63 Taxpayers

G.L. c. 62, § 6(o) and G.L. c. 63, § 38Z provide for a refundable dairy farm credit that may be applied against the personal income tax and corporate excise liabilities of dairy farmers registered under G.L. c. 94 § 16A. The credit is based on the amount of milk the dairy farm produces and sells, and is available to eligible individuals and corporations if the “United States Federal Milk Marketing Order Price”[9] drops below a trigger price at any time during the taxable year.

The FY19 Budget provisions increase the total cumulative amount of dairy farm credits authorized for personal income tax and corporate excise purposes from $4,000,000 annually to $6,000,000 annually.[10]

C.  New Provisions Authorizing Minimum Competency Standards for Compensated Tax Preparers

The FY19 Budget authorizes the Department of Revenue to develop regulations to establish minimum competency standards for “compensated tax preparers.” The term “compensated tax preparer” is not defined in the FY19 Budget, nor is it defined elsewhere in the general laws.[11] The Department plans to solicit input from the public to assist with the development of these regulations.

II. The Economic Development Act

A.  New economic development incentive program credits for chapter 62 and chapter 63 taxpayers that occupy previously vacant storefronts

The Economic Development Incentive Program (“EDIP”) is a tax incentive program designed to foster full-time job creation and stimulate business growth throughout the Commonwealth. Generally, pursuant to the EDIP, business and individual taxpayers may receive state and local tax incentives in exchange for job creation and investment commitments. The EDIP is administered by the Economic Assistance Coordinating Council (the “EACC”), which is authorized to award up to $30,000,000 annually in EDIP tax credits.[12] The Economic Development Act authorizes the EACC to, “by guideline or regulation, establish a program to incentivize businesses to occupy vacant storefronts in downtown areas.”[13] Pursuant to this program, the EACC may award up to $500,000 of available EDIP tax credits annually, on a competitive basis, to businesses that occupy previously vacant storefronts.[14] Unlike other EDIP tax credits, the businesses will not be required to invest in improvements or create new jobs. Rather, the businesses need only commit to occupying the previously vacant storefront for a period of not less than one year.[15] In determining how to allocate the credits, the EACC will consider a variety of factors, including, but not limited to: (i) the number of jobs to be created, (ii) the volume of pedestrian traffic to be generated, (iii) potential synergy with other downtown businesses, (iv) whether there is a matching contribution from the municipality or landlord, (v) commitment to storefront improvements, and (vi) whether the municipality has made local plans or investments to revitalize the downtown.[16] These changes are effective for tax years beginning on or after January 1, 2019.[17]

B.  New Apprenticeship Tax Credit for Chapter 62 and 63 Taxpayers

The Economic Development Act adds new subsection (v) to Section 6 of G.L. c. 62, and new section 38HH to chapter 63, providing certain non-corporate and corporate employers a nontransferable, refundable credit against the personal income tax and corporate excise equal to the lesser of $4,800 or 50% of the wages paid to each qualified apprentice that the employer hires.[18] The credit is available to any employer provided that: (1) the primary place of employment of the apprentice is in the Commonwealth; (2) the employer is registered with the division of apprentice standards as an apprenticeship program sponsor and has an apprentice agreement, as defined in G.L. c. 23 § 11H, with each apprentice for whom the credit is claimed; and (3) the apprentice is employed as an apprentice by the employer for at least 180 calendar days in the taxable year in which the credit is claimed.[19]

Further, the apprentice must be hired and trained in one of the following occupations, as defined by the Bureau of Labor Statistics:

  1. computer occupations, as defined by Standard Occupational Codes (“SOC”) 15-1200;
  2. health technologists and technicians, as defined by SOC 29-2000;
  3. health practitioner support technologists and technicians, as defined by SOC 29-2050;
  4. healthcare support occupations, as defined by SOC 31-0000; or
  5. production occupations, as defined by SOC 51-0000, if employed in the manufacturing industry, i.e., North American Industry Classification System code 31-33.[20]

Employers that claim the credit in a taxable year are eligible for an additional credit in the subsequent taxable year, provided that the division of apprentice standards certifies that the apprentice for whom the prior year’s credit was claimed remains employed as an apprentice during the subsequent taxable year. [21]

The Economic Development Act provides that when a credit is claimed by an employer that is a non-corporate entity, the credit shall be attributed on a pro rata basis to the owners, partners or members of the employer.[22]

The Economic Development Act requires that the Commissioner of Revenue adopt regulations governing applications for and other administration of the apprenticeship tax credits.[23]

The credit is available for tax years beginning on or after January 1, 2019.[24]

C.  Modifications to the Abandoned Building Deduction for Chapter 62 and 63 Taxpayers

G.L. c. 62 § 3B(a)(10) and G.L. c. 63 § 38O allow individuals and business corporations to deduct from their adjusted gross income ten percent of the costs they incur for the renovation of certain abandoned buildings. Previously, the deduction was available only for improvements to abandoned buildings located in Economic Opportunity Areas (“EOA”), as designated by the EACC. However, in 2016, the legislature enacted An Act Relative To Job Creation And Workforce Development, which eliminated the EOA requirement, and inserted the requirement that the EACC need only “certify” a project.[25] The Economic Development Act amends G.L. c. 62 § 3B(a)(10)[26] and G.L. c. 63 § 38O[27] so that they align with the 2016 legislative changes. These changes are effective for tax years beginning on or after January 1, 2019.[28]

 

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

 

CCH:RHF:jt

December 5, 2018

TIR 18-13

[1] St. 2018, c. 154.

[2] St. 2018, c. 228.

[3] G.L. c. 62, § 6(h).

[4] See TIR 17-10, § I.

[5] Id.

[6] St. 2018, c. 154, § 30.

[7] G.L. c. 62, § 6(h)(1).

[8] St. 2018, c. 154, § 111.

[9] Federal Milk Marketing Orders (FMMOs) establish certain provisions administered by the Secretary of Agriculture pursuant to which dairy processors are entitled to purchase fresh milk from dairy farmers. 7 USC § 608c(5)(M). Under FMMO law and regulations, the U.S. Department of Agriculture sets a minimum milk price for established geographical regions, the “Federal Milk Marketing Order Price,” and those who buy milk from dairy farmers are required to pay those farmers no less than this established price. See https://www.ams.usda.gov/rules-regulations/moa/dairy for additional information (last visited Nov. 28, 2018).

[10] St. 2018, c. 154, §§ 31, 32.

[11] Cf. Code § 7701(a)(36) (defining “tax return preparer” as any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax imposed by th[e Code] or any claim for refund of tax imposed by th[e Code].).”

[12] G.L. c. 23A, § 3D(c).

[13] St. 2018, c. 228, § 5.

[14] Id.

[15] Id.

[16] Id.

[17] St. 2018, c. 228, § 72.

[18] St. 2018, c. 228, §§ 14, 17.

[19] Id.

[20] Id.

[21] Id.

[22] St. 2018, c. 228, § 14.

[23] St. 2018, c. 228, §§ 14, 17.

[24] St. 2018, c. 228, § 72.

[25] See TIR 16-15, § 1.

[26] St. 2018, c. 228, § 12.

[27] St. 2018, c. 228, § 16.

[28] St. 2018, c. 228, § 72.

Referenced Sources:
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