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Technical Information Release

Technical Information Release TIR 21-4: Tax Provisions in the Fiscal Year 2021 Budget

Date: 03/31/2021
Referenced Sources: Massachusetts General Laws

This Technical Information Release (“TIR”) explains certain provisions included in the Fiscal Year 2021 Budget (the “FY21 Budget”)[1] relating to the sales and use tax, the room occupancy excise, partnerships that are the subject of a federal audit, new administrative penalties associated with systems that manipulate sales transaction records, and a delay in the reinstatement of the personal income tax deduction for charitable contributions.

The following statutory amendments are discussed in this TIR:

  • Advance payment of sales and use tax, and room occupancy excise.
  • Change in the due date for sales and use tax and room occupancy excise returns.
  • New provisions setting forth the Massachusetts treatment of partnerships that are the subject of a federal audit.
  • New penalties associated with systems that manipulate sales transaction records.
  • Delay in reinstatement of the personal income tax deduction for charitable contributions. 

Table of Contents

I. Advance payment of sales and use tax, and room occupancy excise

The FY21 Budget adds section 16B to G.L. c. 62C, requiring certain vendors and operators to remit an advance payment of room occupancy excise pursuant to G.L. c. 64G; sales tax including sales tax on meals pursuant to G.L. c. 64H; use tax pursuant to G.L. c. 64I; and local sales tax on meals pursuant to G.L. c. 64L.[2]

Effective for tax periods ending after April 1, 2021, certain vendors, including marketplace facilitators and marijuana retailers, and operators, including intermediaries, must remit on or before the 25th day of the filing period any tax collected on or before the 21st day of the filing period.[3] For purposes of the sales and use tax, “tax collected” is equal to gross receipts from taxable sales, including from sales of meals, or gross taxable sales of services, from the first day of the filing period through and including the 21st day of the filing period multiplied by the applicable tax rate (e.g., 6.25%; plus any local tax on meals or additional excise or tax reported on the return, if applicable).[4] “Tax collected” does not include use tax on purchases. For purposes of the room occupancy excise “tax collected” is equal to the total gross receipts from taxable rents from the first day of the filing period through and including the 21st day of the filing period multiplied by the applicable excise rate (e.g., 5.7%; plus any local room option or additional fees, if applicable). A taxpayer whose method of accounting treats tax liabilities as due at the time customers are billed, and applies that method for purposes of its monthly return, should apply that method in determining the tax collected on or before the 21st day of the filing period. The remaining tax or excise due for the filing period must be remitted at the time the return for that filing period is required to be filed.[5]

The advance payment requirement does not apply to vendors whose cumulative Massachusetts sales and use tax liability in the immediately preceding calendar year is equal to or less than $150,000 or to operators whose cumulative Massachusetts room occupancy excise liability in the immediately preceding calendar year is equal to or less than $150,000.[6] The advance payment requirement also does not apply to a materialman who files a return pursuant to G.L. c. 62C, § 16(h). Such taxpayers must continue to remit all tax collected for the filing period when the tax return for such period is required to be filed pursuant to G.L. c. 62C, § 32 and G.L. c. 62C, § 16(g) and (h).

Where a vendor or operator fails to pay the amount required to be remitted on or before the 25th of the month, the vendor or operator will be subject to a 5% penalty on the amount of such underpayment, unless the underpayment is due to a reasonable cause. The penalty will not be imposed if the amount remitted on or before the 25th of the month is equal to 70% or more of the total tax or excise due for the month.

The Department of Revenue (“Department”) has received comments from taxpayers concerned about having the necessary sales data in time to comply with the advance payment requirement by the 25th day of the monthly tax period. To address those comments, for advance payments due from April 2021 through and including December 2021, the Department will presume that reasonable cause exists for the waiver of an otherwise applicable underpayment penalty where the taxpayer makes an advance payment on or before the 25th that is equal to 80% or more of the taxpayer’s total tax or excise due for the immediately preceding month, provided that there was such a liability in the prior month. Taxpayers subject to the 5% underpayment penalty who did not make an advance payment greater than or equal to 80% of the prior month’s liability may also demonstrate reasonable cause for a penalty waiver based on other applicable facts.

Example 1. Super Toys Inc., a retail vendor, has a monthly sales tax filing requirement and had $240,000 in cumulative Massachusetts sales tax liability in calendar year 2020. Super Toys Inc. has $255,992 in gross receipts from taxable sales from April 1, 2021 through and including April 21, 2021. Super Toys Inc. remits $16,000 on April 25, 2021 ($255,992 x 0.0625). As Super Toys, Inc. has remitted the amount required to be remitted on or before the 25th of the month, there is no underpayment. Super Toys Inc. must file its return for the tax period beginning April 1, 2021 and ending April 30, 2021, on or before May 30, 2021. Super Toys Inc. has $325,000 in total gross receipts from taxable sales for the filing period. Based on its total taxable sales, Super Toys Inc.’s total sales tax due for the filing period is $20,313 ($325,000 x 0.0625). Super Toys Inc. must remit the remaining tax due of $4,313, the difference between what was remitted on April 25 and the total tax due for the filing period, with the return it files on or before May 30, 2021.[7]  

Example 2. Super Toys Inc. is subject to the advance payment requirement because it had more than $150,000 in cumulative sales tax liability in 2020. Super Toys Inc. has $255,992 in gross receipts from taxable sales from April 1, 2021 through and including April 21, 2021, and remits $16,000 on April 25, 2021. Therefore, Super Toys Inc. has remitted the amount required to be remitted on or before the 25th of the month ($255,992 x 0.0625) and there is no underpayment.  Due to a big sale at the end of April, Super Toys Inc. has $500,000 in total gross receipts from taxable sales for the filing period. Based on its total taxable sales for the filing period, Super Toys Inc.’s total sales tax due for the filing period is $31,250 ($500,000 x 0.0625). Super Toys Inc. must remit the remaining tax due of $15,250, the difference between what was remitted on April 25 and the total tax due for the filing period, with the return it files on or before May 30, 2021. Super Toys Inc. remitted less than 70% of the total tax due for the month on April 25 ($31,250 x 0.7 = $21,857) but because it remitted the amount required to be remitted on April 25, there is no underpayment that is subject to the 5% underpayment penalty.

Example 3. Super Toys Inc. is subject to the advance payment requirement because it had more than $150,000 in cumulative sales tax liability in 2020. Super Toys Inc. has $255,992 in gross receipts from taxable sales from April 1, 2021 through and including April 21, 2021. However, Super Toys Inc. pays only $14,500 on April 25, 2021. As Super Toys, Inc. has remitted less than the amount required to be remitted on or before the 25th of the month ($255,992 x 0.0625=$15,999.50), there is an underpayment of $1,499.50. Super Toys Inc. must file its return for the tax period beginning April 1, 2021 and ending April 30, 2021, on or before May 30, 2021. Super Toys Inc. has $325,000 in total gross receipts from taxable sales for the filing period. Based on its total taxable sales, Super Toys Inc.’s total sales tax due for the filing period is $20,313 ($325,000 x 0.0625). Super Toys Inc. must remit the remaining tax due of $5,813, the difference between what was remitted on April 25 and the total tax due for the filing period, with the return it files on or before May 30, 2021. Super Toys Inc. remitted less than the amount required to be remitted on April 25 ($15,999.50 - $14,500 = $1,499.50) but because it remitted at least 70% of the total tax due for the month on April 25 ($20,313 x 0.7 = $14,219.10), there is no 5% penalty.

Example 4. Super Toys Inc. is subject to the advance payment requirement because it had more than $150,000 in cumulative sales tax liability in 2020. In March 2021 Super Toys Inc.’s total tax due was $20,313. Based on that knowledge, Super Toys Inc. makes a payment of $16,250 on April 25, 2021 ($20,313 x 0.8 = $16,250). Super Toys Inc. must file its return for the April 2021 filing period on or before May 30, 2021. Super Toys Inc. determines that it has $500,000 in total gross receipts from taxable sales for the April filing period, of which $325,000 were from taxable sales made from April 1st through April 21st. Super Toys Inc. paid only $16,250 on April 25, 2021, so it remitted less than the amount required to be remitted ($325,000 x 0.0625=$20,313), resulting in an underpayment of $4,063. Based on its total taxable sales for the April filing period, Super Toys Inc.’s total sales tax due is $31,250 ($500,000 x 0.0625). Super Toys Inc. must remit the remaining tax due of $15,000, the difference between what was remitted on April 25th and the total tax due for the filing period, with the return it files on or before May 30, 2021. Super Toys Inc. remitted less than 70% of the total tax due for the month on April 25 ($31,250 x 0.7 = $21,857) but because on that date it remitted at least 80% of the total tax due for the prior month ($20,313 x 0.8 = $16,250), there is a reasonable cause waiver of the 5% penalty for the April 2021 filing period.

The Department intends to issue further guidance with respect to the administration of G.L. c. 62C, § 16B.

II. Change in the due date for sales and use tax, and room occupancy excise returns

The FY21 Budget amends G.L. c. 62C, § 16(g) and (h), changing the due date for sales and use tax and room occupancy excise returns.  Effective for tax periods ending after April 1, 2021, a return required to be filed under G.L. c. 62C, § 16(g) or (h) will be due within 30 days after the close of the tax period covered thereby.[8] Currently, these returns are due within 20 days after the close of the tax period covered thereby. Returns due under these sections include room occupancy excise returns filed by operators and intermediaries pursuant to G.L. c. 64G; sales and use tax returns, including returns reporting sales tax on meals, filed by vendors, including marketplace facilitators and marijuana retailers, pursuant to G.L. c. 64H and 64I; and local sales tax on meals returns filed by vendors pursuant to G.L. c. 64L.[9]   For the April 2021 monthly tax period, returns for these tax types will be due on or before May 30, 2021. [10]

 

III. Massachusetts treatment of partnerships that are the subject of a federal audit

The Internal Revenue Service is in the process of implementing Code provisions enacted in 2015 that establish a new system for auditing partnerships.  The new rules make significant changes to prior law.  Among the changes is a rule that in many cases treats the partnership itself as a taxpayer, and requires the partnership to pay any assessment resulting from a federal audit.

The FY21 Budget includes a new provision, codified at G.L. c. 62C, § 30B, that will enable the Department to receive notice of, and address the state tax consequences of, a partnership-level federal audit.[11] The purpose of the statute is to create a mechanism whereby partnerships and their partners must inform the Department of the federal audit, properly report tax changes or obligations that derive from the audit, and account for any resulting state tax liability. 

New G.L. c. 62C, § 30B includes provisions that (1) require audited partnerships to amend their Massachusetts nonresident composite returns or withholding reports; (2) allow audited partnerships to make an election to pay state tax on behalf of their partners; and (3) require partners in an audited partnership to directly pay state tax in certain instances. 

The statute is effective as of January 1, 2021. In some cases, a partner may have an adjustment resulting from a partnership-level audit that the partner has reported for federal tax purposes on either an amended income tax return or otherwise prior to the effective date of the Act. In those instances, the partner may have to report and pay tax with respect to the adjustment to the state within 180 days of the effective date.[12]

The Department intends to issue further guidance with respect to the administration of G.L. c. 62C, § 30B. 

IV. Penalties relating to automated sales suppression devices or phantom-ware

The FY21 Budget adds section 35F to G.L. c. 62C, establishing new penalties relating to automated sales suppression devices or phantom-ware.[13]

Pursuant to the new section, a person or entity that sells or offers for sale an automated sales suppression device or phantom-ware will be subject to a civil penalty of not more than $25,000 for the first offense and not more than $50,000 for each subsequent offense.

A person or entity that purchases, installs, transfers, maintains, repairs or possesses an automated sales suppression device or phantom-ware will be subject to a civil penalty of not more than $10,000 for the first offense and not more than $25,000 for each subsequent offense.

These penalties are in addition to any other applicable penalties in G.L. c. 62C and will be assessed and collected by the Department in the same manner as a tax.[14]

G.L. c. 62C, § 35F defines “automated sales suppression device” as “a software program, carried on a memory stick or removable compact disc or accessed through an internet link or through any other means, that falsifies the electronic records of electronic cash registers or other point-of-sale systems including, but not limited to, transaction data and transaction reports.” These devices are also commonly referred to as zappers. “Phantom ware” is defined as “a hidden programming option that is embedded in the operating system of an electronic cash register or hardwired into the electronic cash register and may be used to create a virtual second till or to eliminate or manipulate transaction records to represent the true or manipulated record of transactions in the electronic cash register. [15]

V. Delay in reinstatement of the personal income tax deduction for charitable contributions

The Massachusetts charitable deduction authorized by G.L c. 62, § 3.B(a)(13) has been suspended since the 2002 tax year.[16]  The deduction was scheduled to be reinstated for tax years beginning on or after January 1, 2021. The FY21 Budget delays that reinstatement.  The deduction is now available for tax years beginning on or after January 1, 2022.[17] 

 

/s/Geoffrey E. Snyder
Geoffrey E. Snyder
Commissioner of Revenue

GES:RHF:mte

March 31, 2021

TIR 21-4

[1] St. 2020, c. 227, signed into law on December 11, 2020.

[2] Id. at § 30.

[3] Where a taxpayer subject to G.L. c. 62C, § 16B is filing on a quarterly or annual basis, the advance payment must be remitted on or before the 25th day of the last month of the filing period and shall include any tax collected on or before the 21st day of the last month of the filing period. The Department anticipates that most taxpayers subject to the advance payment requirement will be filing on a monthly basis pursuant to 830 CMR 62C.16.2(4).

[4] A tobacco retailer may exclude from “tax collected” the amount of any prepaid sales tax on tobacco products included in such taxable sales.

[5] The remaining tax or excise due for the filing period is the difference between what was remitted as an advance payment and the total tax or excise due for the entire filing period based on the taxpayer’s gross receipts, gross sales of services, or total rents.

[6] For marketplace facilitators and intermediaries the $150,000 threshold will be applied based on the cumulative Massachusetts sales tax or excise liability of the marketplace facilitator or intermediary for the immediately preceding calendar year.

[7] Where the due date falls on a weekend or holiday, the payment is due on the following business day. TIR 84-3.

[8] St. 2020, c. 227, §§ 29, 114.

[9] The FY21 Budget does not change the due dates for returns required by a materialman.

[10] St. 2020, c. 227, § 29.

[11] Id. at § 31.

[12] Id. at § 77.

[13] Id. at § 32.

[14] See Department Directive 16-1: Recordkeeping Requirements for Sales and Use Tax Vendors Utilizing Point of Sale (POS) Systems.

[15] St. 2020, c. 227, § 32.

[16] St. 2002, c. 186, § 9.

[17] St. 2020, c. 227, § 76.

Referenced Sources:
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