Technical Information Release

Technical Information Release TIR 22-5: Tax Provisions in Recent Massachusetts Legislation

Date: 03/18/2022
Referenced Sources: Massachusetts General Laws

This Technical Information Release (“TIR”) explains certain provisions included in “An Act Enabling Partnerships for Growth” (the “Economic Development Act”),[1] “An Act Making Appropriations for the Fiscal Year 2022 for the Maintenance of the Departments, Boards, Commissions, Institutions and Certain Activities of the Commonwealth, for Interest, Sinking Fund and Serial Bond Requirements and for Certain Permanent Improvements” (the “FY22 Budget”),[2] and “An Act Relative To Immediate COVID-19 Recovery Needs” (the “Recovery Act”)[3]. The provisions relate to the personal income tax, G.L. c. 62, the corporate excise, G.L. c. 63, the new pass-through entity tax, G.L. c. 63D, and administrative procedures for the sales and use tax and the room occupancy excise.

The following provisions are discussed in this TIR:

Provisions Affecting Business Taxpayers:

  • New Optional Pass-Through Entity Excise
  • Changes to Advance Payment Requirement
  • Tax Treatment of COVID-Related Small Business Relief Received from a Program Administered by the Massachusetts Growth Capital Corporation
  • New Cranberry Bog Renovation Credit
  • New Disability Hire Credit
  • Changes to the Film Incentive Credits
  • Changes to the Low-Income Housing Credit
  • Extension of the Massachusetts Historic Rehabilitation Credit
  • Repeal of Certain Deductions and Credits

Provisions Affecting Individual Taxpayers:

  • Deductions for Dependent Care Expenses and Certain Dependents Converted into Credits
  • Tax Treatment of Federal COVID-Related Relief Programs
  • Delay in Reinstatement of the Massachusetts Charitable Contribution Deduction
  • Deduction for Contributions to a Massachusetts 529 College Savings Plan or Prepaid Tuition Program Made Permanent.

Table of Contents

I. Provisions Affecting Business Taxpayers

A. New Optional Pass-Through Entity Excise

The FY22 Budget creates G.L. c. 63D, which allows pass-through entities, including S-corporations, partnerships, and certain trusts, to pay an optional five per cent excise on the income that flows through to shareholders, partners, or beneficiaries subject to the personal income tax.[4]  The qualified member may claim a nontransferable, refundable credit equal to 90 per cent of his or her allocable share of the entity’s excise due.  The excise applies to electing pass-through entities for taxable years beginning on or after January 1, 2021.[5]

The FY22 Budget directs the Commissioner of Revenue (“Commissioner”) to issue regulations or other guidance to carry out the purposes of G.L. c. 63D.  The Department of Revenue (“Department”) has issued further guidance with respect to the administration of G.L. c. 63D.  See TIR 22-XX Pass-through Entity Excise.

B. Changes to Advance Payment Requirement

The Recovery Act amends G.L. c. 62C, § 16B, which requires 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 the local option meals excise pursuant to G.L. c. 64L.[6]

Under the law in effect for tax periods ending after April 1, 2021, certain vendors, including marketplace facilitators, 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. Where such a taxpayer fails to pay the amount required to be remitted on or before the 25th of the month, the taxpayer 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.

In TIR 21-4, the Department announced a transition rule to address comments from taxpayers concerned about having the necessary sales data by the 25th day of the monthly tax period. For advance payments due from April 2021 through and including December 2021, the Department would presume that reasonable cause existed for the waiver of an otherwise applicable underpayment penalty where the taxpayer made an advance payment on or before the 25th that was 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.

The Recovery Act amends G.L. c. 62C, § 16B to allow taxpayers to satisfy their advance payment requirements by using this alternative payment amount. Under the statute as amended, taxpayers must remit on or before the 25th day of the filing period either (1) the tax collected on or before the 21st day of the filing period; or (ii) 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.

The Department intends to revise Proposed 830 CMR 62C.16B.1: Advance Payment of Sales and Use Tax and Room Occupancy Excise with respect to the administration of G.L. c. 62C, § 16B to reflect the amendment.

C. Tax Treatment of COVID-Related Small Business Relief Received from a Program Administered by the Massachusetts Growth Capital Corporation

The Recovery Act allows personal income and corporate excise taxpayers to deduct any amount received from a small business relief program administered through the Massachusetts Growth Capital Corporation for purposes of providing emergency COVID-19 relief, including grants and the portion of any loan subsequently forgiven, in determining their Massachusetts gross income, for any taxable year beginning on or after January 1, 2021.[7]   Such amounts may be taxable for federal income tax purposes.

D.  New Cranberry Bog Renovation Credit

The Economic Development Act and the FY22 Budget adopt new credits for expenses incurred in renovating cranberry bogs.  Specifically, the Economic Development Act adds G.L. c. 62, § 6(w)[8] and the FY22 Budget adds G.L. c. 63, § 38II.[9] These provisions allow taxpayers primarily engaged in cranberry production to claim a nontransferable, refundable credit equal to 25% of expenses incurred in the renovation, repair, replacement, regrading or restoration of a cranberry bog for the cultivation, harvesting or production of cranberries.  The Secretary for Energy and Environmental Affairs determines eligible costs and the amount of the credit.  The amount of credit that can be claimed by a taxpayer for a taxable year cannot exceed $100,000.

To receive the credit, a taxpayer must file a summary of renovation expenditures with the Secretary, who will notify the Commissioner of the amount of credit awarded.  The Commissioner will allow the amount of the credit determined by the Secretary on the taxpayer’s return for the tax year in which the qualified renovation expense was incurred.  The Commissioner and the Secretary intend to issue further guidance on the credit.

The credit is available for taxpayers subject to G.L. c. 62 (“c. 62 taxpayers”)[10] and taxpayers subject to the corporate excise (“c. 63 taxpayers”)[11] for taxable years beginning on or after January 1, 2020.

E. New Disability Hire Credit

The FY22 Budget adds a new credit for employers that hire disabled employees.  Specifically, the FY22 Budget adds G.L. c. 62, § 6(z) and new G.L. c. 63, § 38JJ.  These provisions allow employers subject to tax under G.L. c. 62 or G.L. c. 63 to claim a nontransferable, refundable credit equal to (i) the lesser of $5,000 or 30% of the wages paid to a disabled employee in the employee’s first year of employment, and (ii) the lesser of $2,000 or 30% of the wages paid to a disabled employee in each subsequent year of the employee’s employment.[12]  The credit is available to employers subject to tax under G.L. c. 62 or G.L. c. 63  provided that:

(1) the employee is certified by the Massachusetts Rehabilitation Commission as having a disability as defined under the Americans with Disabilities Act, 42 U.S.C. § 12102;

(2) the employee is capable of working independently;

(3) the employee has a mental or physical disability that constitutes or results in a substantial impediment to employment;

(4) the employee is hired after July 1, 2021;

(5) the employee’s primary place of employment and primary place of residence is in Massachusetts;

(6) the employer must obtain certification from the Massachusetts Rehabilitation Commission that the employee is qualified no later than the employee’s first day of work; and

(7) the employer employs the employee for at least 12 consecutive months prior to and in the taxable year in which the credit is claimed. 

For employers subject to tax under G.L. c. 62, the credit will be attributed on a pro rata basis to the owners, partners, or members of the legal entity that hires eligible employees.[13]  For employers subject to an excise under G.L. c. 63, the credit cannot reduce the excise due below the minimum excise.[14]

The FY22 Budget requires that the Secretary of Health and Human Services, in consultation with the Commissioner, promulgate regulations establishing an application process for the credit.[15]  The Commissioner and the Secretary intend to issue further guidance on the credit.

The credit is available for tax years beginning on or after January 1, 2023.[16]

F. Changes to the Film Incentive Credits

Motion picture companies subject to tax under G.L. c. 62 or G.L. c. 63 may claim credits with respect to certain payroll expenses and certain production expenses.[17]  The credits were due to expire on January 1, 2023.[18]  However, the FY22 Budget amends “An Act Providing Incentives to the Motion Picture Industry,”[19] which created the film incentive credits, to make them permanent.[20] 

The FY22 Budget also amends credit eligibility with respect to production expenses.  For taxable years beginning on or after January 1, 2022, a taxpayer must incur at least 75% of its production expenses in Massachusetts for a film project to qualify for the credit. [21]  A 50% threshold applies to prior taxable years.[22]

G. Changes to the Low-Income Housing Credit

Under G.L. c. 62, § 6I and G.L. c. 63, § 31H, a low-income housing credit is available to eligible c. 62 or c. 63 taxpayers that invest in affordable rental housing (“Qualified Massachusetts Projects”) to the extent authorized by the Department of Housing and Community Development (“DHCD”).  The 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. 

DHCD ultimately allocates the amount of credit a taxpayer can claim based on an annual aggregate statewide limit, which, prior to the Economic Development Act, was $20,000,000.  Effective for tax years beginning on or after January 1, 2021 and ending on or before December 31, 2025, the Economic Development Act raises the credit’s annual limit from $20,000,000 to $40,000,000.[23]  For tax years beginning on or after January 1, 2026, the credit’s annual limit will revert to $20,000,000.[24] 

H. Extension of the Massachusetts Historic Rehabilitation Credit

The Massachusetts historic rehabilitation credit, which allows c. 62 and c. 63 taxpayers to claim a credit for certain expenditures made to rehabilitate certain qualified historic structures, was due to expire on December 31, 2022.[25] The FY22 Budget amends G.L. c. 62, § 6J and G.L. c. 63, § 38R to extend the credit to tax years ending on or before December 31, 2027.[26]

I. Repeal of Certain Deductions and Credits

1. Repeal of Deduction for Energy Patents

Under the law in effect for taxable years beginning before January 1, 2022, G.L. c. 62, § 2(a)(2)(G) and G.L. c. 63, § 30.3 allow taxpayers to deduct income from certain patents that are useful for energy conservation or alternative energy development.   The FY22 Budget repeals the deduction effective for taxable years beginning on or after January 1, 2022.[27]  

2. Repeal of Medical Device User Fee Credit

Under the law in effect for taxable years beginning before January 1, 2022, G.L. c. 62, § 6½ and G.L. c. 63, § 31L allow taxpayers that develop or manufacture medical devices in Massachusetts to claim a transferable credit equal to 100% of the user fees they pay when submitting certain medical device applications and supplements to the Food and Drug Administration.  A taxpayer claiming the credit cannot carry forward the credit, but can transfer unused portions of the credit.[28]  The transferee may carry over the credit, but must use it within five years of the credit’s transfer.[29]  

The FY22 Budget repeals the deduction effective for taxable years beginning on or after January 1, 2022.[30]  However, taxpayers will still be able to transfer previously awarded credits, and transferees will be able to apply unused amounts of the credit within five years of the credit’s transfer.  

3.  Repeal of Harbor Maintenance Credit

Under the law in effect for taxable years beginning before January 1, 2022, G.L. c. 63, § 38P allows taxpayers subject to the corporate excise to claim a nonrefundable, nontransferable credit equal to certain harbor maintenance taxes paid to the federal government to the extent the taxes are attributable to the shipment of break-bulk or containerized cargo by sea and ocean-going vessels through one of three designated Massachusetts ports.  Unused portions of the credit may be carried forward for up to five years.[31] The FY22 Budget repeals the credit effective for taxable years beginning on or after January 1, 2022.[32] However, unused portions of the credit claimed in taxable years beginning before January 1, 2022 may continue to be carried forward.

II. Provisions Only Affecting Individual Taxpayers

A.  Deductions for Dependent Care Expenses and Certain Dependents Converted into Credits

1.  Credit for Dependent Care Expenses

The FY22 Budget repeals G.L. c. 62, § 3.B(a)(7), which allowed certain c. 62 taxpayers to claim a deduction for dependent care expenses, and adds G.L. c. 62, § 6(x), which allows c. 62 taxpayers to claim a refundable, nontransferable credit for such expenses.[33]  Where the credit exceeds the taxpayer’s tax liability, the excess will be treated as an overpayment and paid to the taxpayer without interest.[34] 

The parameters of the credit are substantially the same as the former deduction.  The credit is equal to “employment-related expenses” allowed for purposes of determining the credit provided under Internal Revenue Code (“IRC”) § 21.  Under IRC § 21, employment-related expenses include certain expenses incurred to enable the taxpayer to be gainfully employed, including household expenses and expenses for the care of a qualified individual.[35]  A qualifying individual is (1) a dependent of the taxpayer who is younger than 13 years old; or (2) a dependent of the taxpayer, including a spouse, who is physically or mentally incapable of taking care of himself or herself and principally lives with the taxpayer.[36] 

The credit cannot exceed $240 if the taxpayer claims expenses for one qualifying individual, or $480 if the taxpayer claims expenses for two or more qualifying individuals.  Married taxpayers must file a joint federal income tax return to claim the credit.  For taxpayers that file a joint federal income tax return and who file as married filing separately in Massachusetts, either spouse may claim the credit for expenses he or she incurred, but the combined credit for both spouses cannot exceed $240 for one qualifying individual or $480 for two or more qualifying individuals.  With respect to a taxpayer who is a non-resident for part of the taxable year, the credit must be multiplied by a fraction, the numerator of which is the number of days in the taxable year the taxpayer resided in the Commonwealth and the denominator of which is the total number of days in the taxable year.[37]  A taxpayer who is a non-resident throughout the entire taxable year cannot claim the credit. A taxpayer claiming the credit may not also claim the dependent credit allowed under G.L. c. 62, § 6(y). 

The deduction is repealed, and the credit may be claimed, for taxable years beginning on or after January 1, 2021.[38]

2. Credit for Eligible Dependents

The FY22 Budget repeals G.L. c. 62, § 3.B(a)(8), which allowed certain c. 62 taxpayers to claim a deduction for eligible dependents, and adds G.L. c. 62, § 6(y), which provides c. 62 taxpayers with a nontransferable, refundable credit for such dependents.[39] Where the credit exceeds the taxpayer’s tax liability, the excess will be treated as an overpayment and paid to the taxpayer without interest.[40] 

The parameters of the credit are substantially the same as the former deduction.  To claim the credit, a taxpayer must furnish over half of the cost of maintaining a household.  The household must include a dependent that qualifies as a dependent under IRC § 152 and who is (1) under the age of 12; (2) age 65 or over; or (3) disabled.  The credit is equal to $180 if the taxpayer claims one dependent, or $360 if the taxpayer claims two or more dependents.  The credit cannot be claimed by married taxpayers that file separate Massachusetts personal income tax returns.  With respect to a taxpayer who is a non-resident for part of the taxable year, the credit must be multiplied by a fraction, the numerator of which is the number of days in the taxable year the taxpayer resided in the Commonwealth and the denominator of which is the total number of days in the taxable year.[41]  A taxpayer who is a non-resident throughout the entire taxable year cannot claim the credit.   A taxpayer claiming this credit may not also claim the credit for dependent care expenses allowed under G.L. c. 62, § 6(x).

The deduction is repealed, and the credit may be claimed, for taxable years beginning on or after January 1, 2021.[42]  

B. Tax Treatment of Federal COVID-Related Relief Programs

The Recovery Act allows[43] personal income taxpayers to deduct from their Massachusetts gross income for any taxable year beginning on or after January 1, 2021 the following income derived from certain federal COVID-related relief programs that is excluded from federal gross income: (i) the amount of any cancellation of debt income related to Paycheck Protection Program loans made under § 1102(a) of the federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),[44] that are forgiven as described in subsection (b) of § 1106 of the CARES Act; (ii) the amount of any advance received as an Economic Injury Disaster Loan pursuant to § 1110(e) of the CARES Act; (iii) the amount of any Small Business Administration payment described in § 1112(c) of the CARES Act; (iv) the amount of any funding received as an Economic Injury Disaster Loan pursuant to § 331 of the federal Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act;[45] (v) the amount of any Shuttered Venue Operator grant made under § 324 of the federal Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act; and (vi) the amount of any Restaurant Revitalization Grant received from the Small Business Administration under § 5003 of the federal American Rescue Plan Act of 2021.[46]

Corporate excise taxpayers determine their Massachusetts gross income based on their federal gross income as determined under the IRC as amended and in effect for the taxable year and as such, may exclude these amounts from their Massachusetts gross income.  See TIR 22-XX.

C. Delay in Reinstatement of the Massachusetts Charitable Contribution Deduction

The Massachusetts personal income tax deduction authorized by G.L c. 62, § 3.B(a)(13) has been suspended since the 2002 tax year.[47]  The deduction was scheduled to be reinstated for tax years beginning on or after January 1, 2021, but the Fiscal Year 2021 Budget delayed that reinstatement until tax years beginning on or after January 1, 2022.[48] The FY22 Budget further delays the reinstatement of the Massachusetts charitable deduction for an additional year.[49]  Therefore,  c. 62 taxpayers will now be able to claim the Massachusetts charitable deduction for taxable years beginning on or after January 1, 2023.

D. Deduction for Contributions to a Massachusetts 529 College Savings Plan or Prepaid Tuition Program Made Permanent

G.L. c. 62, § 3.B(a)(19) allows a deduction for contributions to a Massachusetts 529 college savings plan or a prepaid tuition program, up to $1,000 per individual or $2,000 per married couple filing jointly.  Pursuant to “An Act Relative to Job Creation and Workforce Development,” St. 2016, c. 219, § 138, this deduction was available to c. 62 taxpayers for tax years beginning January 1, 2017 through January 1, 2021The deduction was scheduled to expire for subsequent taxable years. The FY22 Budget amends St. 2016, c. 219, § 138 to eliminate the expiration, making the deduction permanent.[50]
 

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

GES:RHF:dbb

March 18, 2022

TIR 22-5

[1] St. 2020, c. 358, signed into law on January 14, 2021.

[2] St. 2021, c. 24, signed into law on July 16, 2021.

[3] St. 2021, c. 102, signed into law (in part) December 13, 2021.

[4] FY22 Budget, § 39.

[5] FY22 Budget, § 146.

[6] The Recovery Act, § 34.

[7] Recovery Act, § 78.

[8] Economic Development Act, § 57.

[9] FY22 Budget, § 37.

[10] Economic Development Act, § 57.

[11] FY22 Budget, § 143.

[12] FY22 Budget, §§ 29, 37.

[13] Id.

[14] Id.

[15] Id.

[16] FY22 Budget, § 142.

[17] G.L. c. 62, § 6(l); G.L. c. 63, § 38X.

[18] See St. 2005, c. 158, § 9, as amended by St. 2007, c. 63, § 15.

[19] St. 2005, c. 158.

[20] FY22 Budget, § 68.

[21] FY22 Budget, §§ 25, 36, 147.

[22] G.L. c. 62, § 6(l)(3); G.L. c. 63, § 38X(c).

[23] Economic Development Act, §§ 58, 60, 104.

[24] Economic Development Act, §§ 59, 61, 112.

[25] G.L. c. 62, § 6J(i) and G.L. c. 63, § 38R(i).

[26] FY22 Budget, §§ 31, 35.

[27] FY22 Budget, §§ 23, 32, 145.

[28] G.L. c. 62, § 6½; G.L. c. 63, § 31L.

[29] G.L. c. 62, § 6½(c); G.L. c. 63, § 31L(c)

[30] FY22 Budget, §§ 30, 33, 145.

[31] G.L. c. 63, § 38P(d).

[32] FY22 Budget, §§ 34, 145.

[33] FY22 Budget, §§ 24, 29.

[34] Recovery Act, § 31.

[35] IRC § 21(b)(2).

[36] IRC § 21(b)(1).

[37] Recovery Act, § 30.

[38] FY22 Budget, § 141.

[39] FY22 Budget, §§ 24, 29.

[40] Recovery Act, § 33.

[41] Recovery Act, § 32.

[42] FY22 Budget, § 141.

[43] Recovery Act, § 77.

[44] See Public Law No. 116-136, signed into law on March 27, 2020. 

[45] See Title III of Division N of Public Law No. 116-260, signed into law on December 27, 2020. 

[46] See Public Law No. 117-2, signed into law on March 11, 2021.

[47] St. 2002, c. 186, § 9.

[48] St. 2020, c. 227, § 76.

[49] FY22 Budget, § 99.

[50] FY22 Budget, § 70.

Referenced Sources:
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