| Date: | 11/14/2024 |
|---|---|
| Referenced Sources: | Massachusetts General Laws |
- This page, TIR 24-14: Tax Provisions in the Fiscal Year 2025 Budget, is offered by
- Massachusetts Department of Revenue
Technical Information Release
Technical Information Release TIR 24-14: Tax Provisions in the Fiscal Year 2025 Budget
Table of Contents
I. Introduction
This Technical Information Release (“TIR”) explains provisions in the Fiscal Year 2025 Budget (“FY25 Budget” or “the Act”) relating to the personal income tax, G.L. c. 62, administrative provisions relative to state taxation, G.L. c. 62C, and the sales tax, G.L. c. 64H.[1]
The following provisions are discussed in this TIR:
- Conformity of the personal income tax to the Internal Revenue Code (“Code”) as amended on January 1, 2024 and in effect for the taxable year (“Code Update”)
- Repeal of the deduction of interest and dividends from Massachusetts banks
- Clarification on the availability of the Title 5 credit for mandated septic system repairs, replacements, upgrades and sewer connections
- Exemption from the joint filing requirement for certain married couples
- Repeal of the sales tax exemption for certain publications of tax-exempt organizations
- Tax Amnesty Program for FY2025
II. Discussion
A. Code Update
In general, the Massachusetts personal income tax determines a taxpayer’s Massachusetts gross income based on the taxpayer’s federal gross income as defined under the Code as amended as of a specific date and in effect for the taxable year.[2] Pursuant to the FY25 Budget, the Massachusetts personal income tax generally conforms to the Code as amended on January 1, 2024 and in effect for the taxable year, effective for taxable years beginning on or after January 1, 2024.[3] The Massachusetts personal income tax previously followed the Code as amended on January 1, 2022. As of the issuance of this TIR, the Department has identified the following new or amended Code provisions to which the Massachusetts personal income tax now conforms.[4]
1. Limitation on Noncorporate Excess Business Losses
Code § 461(l) prevents noncorporate taxpayers from deducting excess business losses. Excess business losses are defined to generally include losses in excess of gross business income plus $250,000 (adjusted for inflation).[5] The Inflation Reduction Act of 2022[6] extended the limitation on excess business losses from the end of the 2026 taxable year through the 2028 taxable year. Prior to this Code Update, Massachusetts conformed to the limitation under Code § 461(l) but did not conform to the extension of the limitation because it was enacted after January 1, 2022. Due to this Code Update, the limitation is extended and noncorporate taxpayers will not be allowed to deduct excess business losses from their Massachusetts gross income through the 2028 taxable year.
2. Changes to Eligibility Requirements for Federal Charitable Contribution Deductions
General Laws c. 62, § 3(B)(a)(13) generally allows a personal income tax deduction for charitable contributions based on the federal charitable contribution deduction allowed or allowable under Code § 170 as amended and in effect as specified in G.L. c. 62, § 1(c). Due to this Code Update, Massachusetts conforms to any federal changes[7] to the charitable contribution deduction in Code § 170 made before January 1, 2024.
The federal Consolidated Appropriations Act of 2023 (“CAA”) made changes to the eligibility requirements for qualified conservation contributions made by pass-through entities.[8] In general, a charitable contribution of any interest in property that consists of less than the donor’s entire interest in the property is not eligible for the federal deduction unless contributed to a qualified organization exclusively for conservation purposes that are protected in perpetuity (a “qualified conservation contribution”). Pursuant to the CAA, such contributions made by partnerships or other pass-through entities after December 29, 2022 will not be treated as qualified conservation contributions for purposes of the charitable deduction if the amount of the contribution exceeds two-and-a-half times the sum of each partner’s “relevant basis”[9] in the partnership, unless an exemption applies. Due to this Code Update, such contributions will also not be treated as qualified conservation contributions for the purposes of the Massachusetts charitable deduction under G.L. c. 62, § 3(B)(a)(13).
B. Repeal of Deduction of Interest and Dividends from Massachusetts Banks
Generally, in determining Massachusetts Part B taxable income, Massachusetts Part B adjusted gross income is reduced by the deductions and exemptions listed in G.L. c. 62, § 3.B(a). The Act strikes subparagraph (6) of G.L. c. 62 § 3.B(a), which allowed a deduction for interest and dividends in the amount of $100 for a single person, head of household or a married person filing a separate return, or $200 for a husband and wife filing a joint return, from savings deposits, savings accounts, shares or share savings accounts that are in a Massachusetts bank.[10] [11] Thus, for taxable years beginning on or after January 1, 2024, due to the repeal of G.L. c. 62 § 3.B(a)(6), such amounts of interest and dividends are no longer excluded from Massachusetts Part B taxable income.
C. Clarification on the Availability of the Title 5 Credit for Mandated Septic System Repairs, Replacements, Upgrades and Sewer Connections
Taxpayers who repair or replace a failed septic system may be entitled to a credit (“Title 5 credit”) against personal income tax due. G.L. c. 62, § 6(i). In general, a septic system that is repaired or replaced must have been determined to be a "failed system" pursuant to an inspection performed prior to such repair or replacement. TIR 97-12. TIR 99-5 allowed taxpayers who connect to a sewer system pursuant to a federal court order, consent decree, or similar mandate from a federal court of competent jurisdiction to take the Title 5 credit. DOR Directive (“DD”) 01-6 extended the Title 5 credit to taxpayers who connect to a sewer system pursuant to an Administrative Consent Order from the Massachusetts Department of Environmental Protection (“DEP”), a Massachusetts state court order, consent decree, or similar mandate from a state court of competent jurisdiction.
The Act amends G.L. c. 62, § 6(i) to allow the Title 5 credit to taxpayers who repair, replace, or upgrade a cesspool or septic system or who connect to a sanitary sewer collection system, if such repair, replacement, upgrade or sewer connection is required pursuant to the provisions of Title 5 of the State Environmental Code, 310 CMR 15.000, a watershed permit issued by the DEP, or other requirements or conditions for implementation of the watershed permit imposed by the permittee or the DEP.[12]
This amendment clarifies that eligible repairs, replacements, upgrades, or connections shall include, but not be limited to: (1) upgrades to best available nitrogen reducing technology pursuant to 310 CMR 15.215(2)(a) or (2)(d)1, or pursuant to the requirements of a watershed permit issued in accordance with 314 CMR 21.00; and (2) connections to a sewer pursuant to the requirements of a watershed permit. In order to claim the credit for such repairs, replacements, upgrades, or connections, a taxpayer must obtain a verification letter from the city or town which states that repair, replacement, or upgrade of the system or connection to a sewer was required pursuant to 310 CMR 15.215(2)(a) or (2)(d)1, or pursuant to the requirements of a watershed permit issued in accordance with 314 CMR 21.00. If the tax credit is being claimed for costs associated with an upgrade to best available nitrogen reducing technology, the taxpayer must provide the Certificate of Compliance (See 310 CMR 15.021; TIRs 97-12 and 99-5). If the tax credit is being claimed for costs associated with a sewer connection, the verification letter must state the date the sewer connection was completed, and that “abandonment” of the taxpayer’s septic system was undertaken in accordance with 310 CMR 15.354. See DD 01-6.
The credit is generally available to eligible taxpayers beginning in the tax year in which the work required to repair, replace, or upgrade a septic system or connect to a sewer was "completed." See G.L. c. 62, § 6(i); TIR 97-12. For purposes of claiming the credit, such year is the year stated in the verification letter. Taxpayers claiming the Title 5 credit must attach a copy of the verification letter to Schedule SC when filing their Form 1 or Form 1-NR/PY.
D. Exemption from the Joint Filing Requirement for Certain Married Couples
Generally, prior to the Act, for tax years beginning on or after January 1, 2024, a married couple filing a joint federal income tax return for any year was required to also file a joint income tax return in Massachusetts, pursuant to G.L. c. 62C, § 6 (a)(2).[13] The Act amends this rule by stating that a married couple filing a joint federal income tax return is not required to file a joint Massachusetts income tax return if at least one of the spouses would not otherwise be required to file a Massachusetts return because that spouse’s Massachusetts gross income did not exceed $8,000 in the taxable year.[14] This change will take effect for tax years beginning on or after January 1, 2024.[15]
E. Repeal of the Sales Tax Exemption for Certain Publications of Tax-exempt Organizations
The Massachusetts sales tax applies to all sales of tangible personal property unless the transaction is otherwise exempt under G.L. c. 64H, § 6. The Act repeals the exemption found in G.L. c. 64H, § 6(m) for sales of publications of any corporation, foundation, organization or institution that is a Code § 501(c)(3) organization and described in G.L. c. 64H, § 6(e), except in cases where such publications are produced in an accessible format, including, but not limited to, braille, enlarged print, audio or electronic text, for use by individuals unable to read other print due to disability.[16]
The repeal of this exemption is effective on September 27, 2024 (i.e. 60 days after the effective date of this Act, which was signed on July 29, 2024).[17]
F. Tax Amnesty Program for FY2025
The Act allows the Commissioner to establish a 60-day tax amnesty program within fiscal year 2025 during which certain tax penalties will be waived if the taxpayer, during the amnesty period, voluntarily files proper returns and pays the full amount of tax shown as due on the taxpayer’s return(s), or upon the Commissioner’s assessment(s), including any interest due.[18] See TIR 24-12: Amnesty Program for Taxpayers with Certain Tax Liabilities.
/s/Geoffrey E. Snyder
Geoffrey E. Snyder
Commissioner of Revenue
GES:RHF:wem
November 14, 2024
TIR 24-14