State of Massachusetts and Local Tax Update: Fall 2021

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Summer has been relatively slow in Massachusetts for state and local tax developments. There have been a few instances of interest and a new regulation providing guidance on the brownfield tax credit. The Massachusetts Department of Revenue ended the Covid-19 telecommuting rules that nearly sparked a border war with New Hampshire and implemented an expedited sales tax reporting system.

Taxation of digital advertising

One problem that has emerged in several states, including Massachusetts, is the taxation of digital advertising. Several bills have been proposed to tax this advertising. The most recent, House Bill 4179, was introduced on September 30, 2021 and would establish a tax for “online advertising”. The tax would be imposed on a person’s annual gross income from digital advertising services provided in Massachusetts. “Digital advertising services” are defined as advertising services on a digital interface, including advertisements in the form of banner advertisements, search engine advertisements, interstitial advertisements and other comparable advertising services.

The tax rate would be 6.25% and would apply to annual gross revenues from digital advertising services provided in the state. The first million dollars in revenue from digital advertising services provided in Massachusetts each year would be exempt from excise duty. Digital advertising services would be considered originating in Massachusetts if an advertisement is received on a user’s device with an IP address located in the state. There are already revolts in several states against similar tax efforts. If any form of the proposed legislation is passed in Massachusetts, it will certainly face legal challenges. These could include arguments that this is an unconstitutional burden on interstate commerce and that it violates the Internet Tax Freedom Act.

Brownfield tax credit

On July 23, 2021, the State Revenue Department promulgated a regulation explaining the provisions of the Brownfield Tax Credit for Environmental Response Actions (Code of Massachusetts Regulations Title 830, Section 63.38Q.1 : Massachusetts brownfields tax credit). A person who remediates certain contaminated properties may be eligible for a credit against that person’s Massachusetts personal income tax or corporation tax equal to a percentage of the net intervention and removal costs incurred for such restoration in accordance with Chapter 21E of the Massachusetts General Laws, the “” Massachusetts Oil and Hazardous Materials Release Prevention Act.

The regulations explain who is eligible for the credit, the costs eligible for the credit, and the amount of credit that can be claimed in a tax year. In addition, it sets out the rules relating to the carry-over of unused appropriations; the procedure for the transfer, sale or allocation of unused credits; the circumstances under which a loan will be recovered; and the appeal process in cases where credit is totally or partially denied. Although the ministry has recently increased its verification activities for brownfield credit applications, this is a generous credit that should be taken into account when cleaning up contaminated properties.

At the same time as the promulgation of this regulation, the ministry published Administrative procedure 636, which further describes the brownfield tax credit application and appeal process. It is effective for credit requests received by the ministry as of July 9, 2021.

Prepayments of sales and use tax and excise on room occupancy

On August 5, 2021, the ministry released a draft regulation (Mass. Code Regs. Title 830, Section 62C.16B.1: Advance Payments of Sales and Use Tax and Room Occupancy Excise) explaining the new procedures for accelerated payment of taxes . Beginning in April 2021, Massachusetts required certain vendors and operators, based on their previous year’s tax or excise amount, to make an advance payment before the corresponding tax return was due. .

The ministry had initially indicated that from 2022, taxpayers subject to the new prepayment rules would be asked to declare additional information in their declarations. This would include any prepayment made and the amount of any penalty calculated. Meal tax filers would be asked to break down cash sales versus credit card sales. The most controversial element was the requirement that sales tax filers split online sales versus in-store sales.

The department received immediate feedback from industry and tax professionals. Reporting online versus in-store sales can be difficult, as suppliers make this distinction differently and information may not be available or accurate at the time of filing. On September 30, 2021, the department announced that “at this time, taxpayers will not be required to break down in-store sales versus online sales on their sales tax returns.”

Manufacturing companies

On September 22, 2021, the Massachusetts Appellate Tax Board ruled that a taxpayer was not entitled to a manufacturing classification for the calendar year because he was not engaged in any manufacturing activity in Massachusetts on January 1. . In Zero Waste Solutions, LLC v. Revenue Commissioner, the taxpayer requested the manufacturing classification but stated in its request that its manufacturing activities were to “be performed” later in the year and after January 1. In Massachusetts, a company engaged in manufacturing on or after January 1 of this year may be classified as a manufacturing company and may be eligible for an investment tax credit and sales tax exemptions and of Use (Mass. Gen. Laws Chapter 58, Section 2).

An official classification from the Revenue Commissioner is required to obtain local property tax exemptions for machinery and equipment used in manufacturing. It was irrelevant that such an activity would take place later in the year. The board said the test is whether the manufacturing activity was conducted on January 1 of the year in question, and the taxpayer admitted that was not the case.

Capital gains on urban redevelopment properties

On August 8, 2021, the Fiscal Appeal Commission noted that the distributive part of the capital gain realized on the sale of urban redevelopment buildings was fully taxable for the limited partners for the purposes of personal income tax. physical. In Reagan v. Revenue Commissioner, the taxpayers held interests in a limited partnership in an urban renewal project. The project was undertaken in accordance with Chapter 121A of the Massachusetts General Laws, rules enacted to stimulate private capital investment in open, decadent, or substandard areas. Because the projects launched under the law serve a public purpose, they are subsidized by tax breaks.

Corporations or partnerships that undertake these projects may be exempt from tax, improvements, excise duties and special assessments for an exemption period of up to 40 years. In return, they pay a separate excise as well as negotiated payments to the town or city in which the projects are located. The question asked was whether the profits from the sale of the limited partnership interests by taxpayers in the urban renewal project continued to be tax exempt.

During the exemption period, the project income earned by the limited partnerships is passed on to the partners and kept their tax-exempt character in their hands. However, when the limited partnerships sold their interests in the project, their agreements with the city of Boston ended and they ceased to be subject to the benefits and charges of Chapter 121A. Thus, the gain realized by partnerships when disposing of assets is passed on to the partners without benefiting from the tax exemption provided for by law.

Salaries and allowances for remote workers due to Covid-19

From March 10, 2020 to September 13, 2021, Massachusetts applied emergency pandemic revenue source rules to salaries or other compensation paid to employees who worked remotely due to the Covid-19 crisis . For the period beginning after September 13, 2021, salaries paid to a non-resident employee will no longer be determined based on where the employee worked prior to the Covid-19 state of emergency. Instead, the salary for that period will usually be earned based on where the employee’s work is performed.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Author Info

Philippe S. Olsen is a tax attorney with the Davis Malm law firm in Boston, where he focuses on national and local tax advice and litigation. He has over 25 years of experience in litigation and the resolution of major tax disputes before courts and boards of directors. He can be contacted at [email protected]

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