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Tax Updates Affecting Massachusetts Businesses and Individuals

August 18, 2014

Kevin D. Fontana, CPA, MSA, MST
Tax Manager

On July 11, 2014, Governor Deval Patrick signed into law the fiscal year 2015 Massachusetts budget bill. Below is a brief summary of the tax legislation that has the broadest impact:

  • Authorizes the Massachusetts Department of Revenue (DOR) to establish a two-month tax amnesty program, which will apply to, but not be limited to, sales and use taxes, meal taxes, personal income tax withholding, pass-through entity withholding and various other excises. Taxpayers who file delinquent returns and pay outstanding liabilities during the amnesty period will avoid penalties, but not interest. The amnesty program will take place during September and October, 2014, and applies only to assessments that were on the books prior to July 1, 2014.
     
  • Extends the historic rehabilitation credit for five years until December 31, 2022. Taxpayers can receive a credit of up to 20% of qualified rehabilitation expenditures made on a qualified historical structure located in Massachusetts.
     
  • Further delays (until 2016) the implementation of the FAS 109 deduction, which is available to certain combined reporting groups that experienced an increase in their net deferred tax liability resulting from the implementation of mandatory combined reporting. The implementation of this deduction has been delayed each year since 2008 when mandatory combined reporting was implemented.
     
  • Clarifies the calculation of the net worth component of the corporate excise tax to indicate that business corporations and real estate investment trusts must include not only the book value of investments in subsidiaries representing 80% or more of voting stock, but also investments in subsidiaries without voting stock representing an 80% or more ownership interest.
     
  • Establishes a special commission to study and report on the “inventory tax”, which refers collectively to the tangible property and net worth measures of the non-income portion of the corporate excise tax levied by the DOR, as well as the personal property tax levied by municipalities in Massachusetts. The scope of the commission will include, but not be limited to, studying the impact the inventory tax has on state and local budgets and businesses located in the commonwealth and throughout the U.S., and the related impact of reforming, phasing out or eliminating the inventory tax.
     
  • Makes more cases eligible for the expedited small claims tax appeal procedure by raising the threshold of disputed tax from $5,000 to $25,000.
     
  • Clarifies the role of the principal reporting corporation (PRC) for purposes of combined reporting. The PRC (which is now statutorily defined as the corporation responsible for the filing of a combined report) may now be treated by the DOR as the agent for all the members of a combined report. (Note, however, that the DOR is not precluded from taking separate actions against any member of the combined group.) Under this legislation, the PRC may now be treated as the agent for purposes of all DOR notices and actions, including:
    • Notices of assessment of tax, which the DOR may now issue in a single notice to the PRC stating the net cumulative liability of all the assessed members of the combined report;
    • Execution of consents to extend the three-year statute of limitations for assessment for any member of the combined report, including improperly included or excluded members;
    • Notice and other requirements, including penalties for failure to file the required notice with respect to a final determination of a federal change to the income included or required to be included in the combined group’s report;
    • Abatement requests, which may now be offset by the unpaid excise tax liability of any member of the combined group;
    • Hearing requests, refunds and collection activity.
       
  • Extends the motor vehicle excise tax exemption for disabled veterans or residents who are in active and full-time military service, and have been deployed or stationed outside the continental U.S. for at least 45 days in the calendar year to include leased vehicles. The exemption previously only applied to vehicles owned by such individuals.

In addition, on August 13, Governor Patrick signed into law a comprehensive economic development bill which includes, among other things, the following tax provisions:

  • Expansion and restructuring of the research and development (R&D) tax credit, which will allow taxpayers to choose the alternative simplified credit over the traditional R&D credit. The simplified credit will gradually increase over a three-year period and provides more flexibility to encourage R&D spending and innovation. The simplified credit gives employers an option to claim a credit equal to 10% of any research expenses that exceed a base amount calculated over a three-year period. (Prior law only allowed a credit for incremental research expenses over a set base period in the 1980s.)
     
  • Establishes a job creation credit of up to $1,000 per job created ($5,000 if the job is located in what is known as the commonwealth’s “gateway” cities).
     
  • Amendment of the state’s historic rehabilitation tax credit provision to provide that a taxpayer who acquires a qualified historic structure can receive tax credits for qualified rehabilitation expenditures previously awarded to the transferor of the structure, provided that certain requirements are met.

Lastly, the Governor also signed into law an environmental bill that increases the amount of the refundable credit for qualified donations of conservation land from $50,000 to $75,000. (The available credit is for 50% of the value of the donation.)

For more information, please contact a member of our tax department.

Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

 

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