Technical Information Release  TIR 24-6: Tax Changes in Fiscal Year 2023 Closeout Supplemental Budget

Date:	07/02/2024
Referenced Sources:	Massachusetts General Laws

I. Introduction

This Technical Information Release (“TIR”) explains provisions in An Act Making Appropriations for the Fiscal Year 2023 for Supplementing Certain Existing Appropriations and for Certain Other Activities and Projects (the “Act”)[1] relating to the personal income tax, G.L. c. 62, withholding of taxes from payments made to individuals, G.L. c. 62B, and the corporate excise, G.L. c. 63.

The following provisions are discussed in this TIR:

• New personal income tax deduction for sports wagering losses;
• Inclusion of sports wagering winnings in non-resident’s Massachusetts gross income;
• Withholding and reporting requirements for sports wagering winnings;
• Additional time for employers to verify Massachusetts National Guard status for the National Guard Hiring Tax Credit;
• Clarification of the effective date for mandatory single sales factor apportionment and sourcing rules for financial institutions;
• Recodification of the definition of the term “value-added agricultural products”.

II. Discussion

1.  New Personal Income Tax Deduction for Sports Wagering Losses

Prior to the effective date of the Act, G.L. c. 62 § 3(B)(a)(18) allowed taxpayers to deduct wagering losses incurred at a gaming establishment licensed under G.L. c. 23K, a racing meeting licensee, or a simulcasting licensee, not to exceed the amount of winnings from such establishments. Section 11 of the Act expands the availability of the deduction to include losses from sports wagering that are incurred from wagers placed through a sports wagering operator licensed under G.L. c. 23N. Taxpayers may claim this deduction for sports wagering losses incurred in a calendar year only if the taxpayer had wagering winnings from any such sports wagering operator, gaming establishment, racing meeting licensee, or simulcasting licensee in the same calendar year.[2] The deduction allowed for sports wagering losses may not exceed the amount of any wagering winnings included in gross income for the calendar year.[3] The new deduction is effective for taxable years beginning on or after January 1, 2023.

2.  Inclusion of Sports Wagering Winnings in Nonresident’s Massachusetts Gross Income

For Massachusetts personal income tax purposes, nonresidents are subject to tax on items of gross income from sources within Massachusetts. G.L. c. 62 § 5A. Items of gross income from sources within Massachusetts include items of gross income derived from or effectively connected with the participation in any lottery or wagering transaction within Massachusetts, including gaming winnings acquired at or through a gaming establishment licensed under G.L. c. 23K. Id. Section 12 of the Act clarifies that a nonresident’s sports wagering winnings acquired through a sports wagering operator licensed under chapter 23N are items of gross income from sources within Massachusetts that are subject to the personal income tax.

3.  Withholding and Reporting Requirements Relating to Sports Wagering Winnings

Section 14 of the Act requires that a person making a payment of winnings from sports wagering under G.L. c. 23N shall deduct and withhold 5% of the winnings if the winnings are subject to federal withholding requirements under Internal Revenue Code (“IRC”) § 3402. Under the federal withholding rules, proceeds of more than $5,000 from wagering transactions (including sports wagering) are subject to withholding if the amount of such proceeds is at least 300 times the amount wagered. IRC § 3402(q)(3)(A). If the proceeds from the wager are winnings subject to Massachusetts withholding, then the total proceeds from the wager, and not merely the amounts in excess of $5,000, are subject to withholding. G.L. c. 62B § 2 ¶8[4]

4.  Additional Time for Employers to Verify Massachusetts National Guard Status for the National Guard Hire Tax Credit

General laws chapter 62, section 6(aa) and chapter 63, section 38KK provide a non-refundable, non-transferrable tax credit for G.L. c. 62 and G.L. c. 63 taxpayers that are employers in Massachusetts who hire members of the Massachusetts National Guard. The credit is equal to $2,000 for each member of the Massachusetts National Guard hired. G.L. c. 63 § 38KK(a). Prior to the effective date of the Act, to be eligible for the credit, an employer was required to  obtain certification from the Office of the Adjutant General that the employee for whom the credit was claimed was a member of the Massachusetts National Guard no later than the day the employee began work for the employer.[5] Sections 13 and 16 of the Act amend G.L. c. 62, § 6(aa) and G.L. c. 63, § 38KK, respectively, effective for taxable years beginning on or after January 1, 2023, to allow employers 6 months after the employee began work to obtain the requisite certification from the Office of the Adjutant General.

5.  Clarification of the Effective Date for Mandatory Single Sales Factor Apportionment and Sourcing Rules for Financial Institutions

General laws chapter 63, sections 2A and 38 provide apportionment methods for financial institutions and business corporations that have income that is taxable in Massachusetts and one or more other state(s) to determine the portion of their taxable net income that shall be apportioned to Massachusetts. For tax years beginning before January 1, 2025, financial institutions and certain corporations with taxable income from business activity both in and outside Massachusetts apportioned their income to Massachusetts using an apportionment formula consisting of a sales/receipts factor, a property factor, and a payroll factor.

Pursuant to sections 27, 28, 29, and 31 of “An Act to Improve the Commonwealth’s Competitiveness, Affordability, and Equity”[6] (the “Tax Relief Act”), all financial institutions and business corporations doing business in Massachusetts and subject to tax in one or more other states, are required to apportion their income to Massachusetts by using only the receipts or sales factor.[7] Additionally, the Tax Relief Act changed the method by which financial institutions are required to source receipts from investment and trading assets and activities to Massachusetts for apportionment purposes.[8] The Tax Relief Act stated that these new rules would “take effect on January 1, 2025.”[9] Section 194 of the Act clarifies that the new apportionment rules and sourcing rule for financial institutions are effective for tax years beginning on or after January 1, 2025.[10] 

6.  Recodification of the Definition of “Value-Added Agricultural Products”

The Tax Relief Act moved the definition of a “manufacturing corporation” from G.L. c. 63 § 38 to G.L. c. 63 § 42B for tax years beginning on or after January 1, 2023. The definition of a “manufacturing corporation” in G.L. c. 63 § 38 included any operation manufacturing, in substantial part, “value-added agricultural products.”[11] The definition of “value-added agricultural products” that was included in G.L. c. 63 § 38 was omitted in the provisions of the Tax Relief Act that amended G.L. c. 63 § 42B. Section 17 of the Act amends G.L. c. 63, § 42B to recodify the definition of “value-added agricultural products” previously included in G.L. c. 63 § 38.[12]


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

GES:RHF:jjt

July 2, 2024

TIR 24-6

[1] St. 2023, c. 77 (December 4, 2023).

[2] G.L. c. 62 § 3B(b)(18).

[3] Id.

[4] As amended by § 14 of the Act.

[5] St. 2022 c. 154 §§ 7, 8.

[6] St. 2023, c. 50.

[7] Id. §§ 27, 29.

[8] Id. § 28.

[9] Id. § 47.

[10] Amending St. 2023 c. 50 § 47

[11] Id. § 35.

[12] Id. § 31.