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Massachusetts State Tax Updates

The latest news and updates on Massachusetts state and local tax.

July 28, 2021

Massachusetts Penalty Waiver Related to Tax on 2020 Unemployment Income

Due to COVID-19, the Massachusetts Department of Revenue is waiving penalties related to self-assessed underpayment of estimated tax penalties on unemployment income.  The penalty waiver is through December 31, 2021, and will begin accruing if the 2020 unemployment tax is not paid in full by December 31, 2021.  This waiver is for penalties only and is not for interest because interest is statutory. Therefore, interest will start to accrue on the due date of the tax payment, May 17, 2021.  Refunds will be issued automatically either by paper check or, if penalties have been paid by the taxpayer already, the waiver will be applied to the taxes owed.

June 25, 2021

Massachusetts COVID-19 Telecommuting Rules to End September 13, 2021

To minimize the disruption for employers and employees during the COVID-19 pandemic, the Massachusetts Department of Revenue had put into place tax rules and guidance for nonresident employees that had been commuting into Massachusetts and working for Massachusetts employers, but that were forced to telecommute and rendering services remotely from their homes. The full scope of those rules can be viewed in the Massachusetts Department of Revenue FAQ. However, these telecommuting tax rules will cease to be in effect as of September 13th, 2021, at which time the Commonwealth revert to its standard taxation of residents and nonresidents.  As such, Massachusetts nonresidents will only be subject to Massachusetts personal income tax on actual Massachusetts work-days after the special rules expire.

May 13, 2021

Massachusetts Finalizes Guidance on COVID-19 Relief Provisions

The Massachusetts Department of Revenue has finalized its previously issued draft guidance explaining various provisions of the COVID-19 relief bill (L. 2021, H90 (c. 9), effective 04/01/2021). Please see Massachusetts Technical Information Release No. 21-6, 04/30/2021 for final guidance on taxation of unemployment compensation received in 2020 and 2021; the waiver of specified penalties related to unpaid taxes on 2020 and 2021 unemployment compensation; the taxation of forgiven Paycheck Protection Program (PPP) loans; the taxation of certain other federal COVID-19-related relief payments; and the due date for 2020 individual income tax returns and payments.

May 5, 2021

Massachusetts Issues Sales and Use Tax Guidance on Internet Access Services

Subsequent to a recent court case (New Cingular Wireless PCS LLC v. Commr. of Revenue), the Massachusetts Department of Revenue has issued its position on the application of the Internet Tax Freedom Act (ITFA) to sales and use taxes on internet access services provided by mobile wireless companies. Massachusetts will preempt the imposition of sales and use taxes on internet transactions provided: (1) that the internet provider follows the ITFA’s accounting requirement of separately stating the internet charges or reasonably identifying such charges in its books and records, and (2) that the internet provider offers customers screening software designed to permit the customer to limit access to material on the internet that is harmful to minors. Both the ITFA’s accounting requirement and screening software requirement must be met by internet access providers for the prohibition on taxation to apply. If both requirements are not met, the Department will continue to enforce the statutory imposition of sales and use taxes. Please see Massachusetts Technical Information Release No. 21-5, 04/26/2021 for specific details of the IFTA’s application to mobile data charges in Massachusetts.

April 7, 2021

Massachusetts Issues Guidance on New Rules for State Treatment of Federally Audited Partnerships 

In Technical Information Release 21-4, the Massachusetts Department of Revenue recently noted how the IRS is in the process of implementing a new partnership audit regime, which includes a rule that in many cases treats the partnership itself as a taxpayer, and requires the partnership to pay any assessment resulting from a federal audit. A new Massachusetts law (G.L. c. 62C, § 30B, included in the State’s 2021 Fiscal Year Budget) enables the Department of Revenue to receive notice of, and address the state tax consequences of, a partnership-level federal audit. The purpose of the statute is to create a mechanism whereby partnerships and their partners must inform the Department of the federal audit, properly report tax changes or obligations that derive from the audit, and account for any resulting state tax liability. As a result of this new Massachusetts law, effective as of 01/01/2021, federally audited partnerships (1) may be required to amend their Massachusetts nonresident composite returns or withholding reports; (2) will be allowed to make an election to pay state tax on behalf of their partners; and (3) may require partners to directly pay state tax in certain instances. For specifics on these new rules, please consult Massachusetts Technical Information Release 21-4.

March 23, 2021

Massachusetts Update on Extension of Filing Deadline

The Massachusetts Department of Revenue has announced that individual income tax returns and payments for the 2020 tax year otherwise due April 15, 2021 are now due May 17, 2021. Taxpayers that have already filed their 2020 returns without making associated payments have until May 17, 2021 to make such payments. Individual taxpayers will be eligible for an automatic extension of time to file their personal income tax returns if the amount required to be paid for an extension is paid by May 17, 2021. This extended due date does not apply to estimated tax payments. The Department of Revenue intends to issue additional guidance as needed. (Massachusetts Technical Information Release No. 21-2, 03/19/2021.)

The Massachusetts Department of Revenue has issued answers to frequently asked questions (FAQs) on the new May 17, 2021 deadline for individual income tax returns and payments. The deadline has been extended for both filing individual income tax returns and making payments from April 15, 2021 to May 17, 2021. The date change does not affect taxpayers other than individuals filing personal income tax returns and making payments. Form 1, Form 1-NR/PY and Form NRCR for non-resident composite filers are included. The extension date of October 15 for personal income tax filing has not changed. The date for making an extension payment has been changed from April 15, 2021 to May 17, 2021. Estimated payments due April 15, 2021 are not impacted by the date change and remain due on April 15, 2021. Taxpayers who have already filed their personal income tax returns, but have not made the associated payment, will have until May 17, 2021 to make the payment. (FAQs on New May 17, 2021 deadline, Mass. Dept. of Rev., 03/23/2021.)

March 17, 2021

Massachusetts Makes Formality-type Enactment for Remote Employee Wage Sourcing

Massachusetts made permanent its treatment of how employee wages from services rendered should be sourced, effective March 10, 2020 through 90 days after MA declares the  COVID-19 state of emergency (the “Pandemic”) is no longer in effect. Generally, all compensation for services performed by a nonresident of MA who, immediately prior to Pandemic was an employee engaged in performing such services in MA, and who is performing services from a location outside MA due the pandemic, will continue to be treated as MA source income subject to personal income tax.  A nonresident employee who, prior to the Pandemic determined MA-source income by apportioning based on days spent working in MA must continue to do so (please see MA 830 CMR 62.5A.3 for this specific rule). Where other states have adopted comparable sourcing rules to that of MA, a MA resident who previously rendered services in other states but who are now working from MA as a result of the pandemic will get a credit for taxes paid to those other states.

March 3, 2021

Massachusetts Targeting Digital Advertising Services for Taxation

Massachusetts is considering multiple taxes on digital advertising services. Currently pending is a proposal whereby taxpayers with at least (a) $50 million in annual gross revenues and (b) $100,000 in revenues derived from Massachusetts digital advertising services would be subject to a tax on such services (potential rates ranging from five percent to 15 percent). Further, taxpayers with revenue from digital advertising services greater than $25M would be subject to a five percent excise tax. For purposes of both proposals, digital advertising services would be sourced to Massachusetts if they appear on a user’s device with an IP address located in Massachusetts, or the user is known or reasonably presumed to be using the device in the state. Draft legislation for two new/additional taxes on online or digital advertising is also in existence, but details on both have not yet been released.

December 11, 2020

Remote Employee Guidance

In these uncertain times, we have watched the states issue guidance and relief provisions for companies with employees telecommuting. The good news is that the Massachusetts Department of Revenue issued guidance, which is effective until 90 days after the state of emergency is lifted. While the relief rules remain in effect, the presence of one or more employees working remotely in Massachusetts due to either a government order, an employer’s adopted work policy, a worker’s compliance with quarantine orders will not, by itself, lead to a withholding obligation concerning such employees. Additionally, one or more employees telecommuting in Massachusetts due to the pandemic should not create a sales and use tax collection obligation or corporate apportionment adjustment.

We recommend that businesses claiming a nexus exemption maintain written records sufficient to substantiate the pandemic-related circumstances. If your company needs assistance with any of these provisions, including applying for the Massachusetts Paid Family and Medical Leave for an employee working in another state due to the pandemic, please contact a member of our SALT team. (Massachusetts Technical Information Release No. 20-15, 12/08/2020.)

December 11, 2020

Massachusetts Accelerates Sales Tax Remittance

The passing of the FY21 budget requires large businesses to remit sales tax on a much shorter timeframe. While businesses have 50 days to remit taxes to the state after collecting them, businesses that collect and remit more than $150,000 in sales and use tax, local option meal excise, and room occupancy taxes within the first three weeks of each month must remit the tax in the final week of the same month. This modernization of the timeline for sales tax remittance and collection will not impact 95% of the Massachusetts businesses because the provisions are focused on the largest companies, which benefitted from the changes in the economy and new consumer shopping patterns. [H.2, 191st Session, (Mass. 2020).] Link: https://malegislature.gov/Bills/191/H2

December 11, 2020

A Charitable Deduction in Massachusetts is Resurrected

By statute, as enumerated in 2002 state law, if certain inflation-adjusted revenue milestones are met, the income tax rate in the state would be reduced. The charitable deduction has been unavailable to taxpayers since 2002, but is now being restored for tax years on or after January 1, 2021 as part of the income tax rate reduction milestones. Unlike for federal income tax purposes, there is no requirement in Massachusetts for taxpayers to itemize, so all residents or nonresidents may be eligible for the deduction, but such deduction is only available for individuals.

March 21, 2020

Massachusetts DOR Resources

As of March 20, 2020, the MA Department of Revenue (“DOR”) recognizes that taxpayers may need assistance with various tax obligations due to the impact of the coronavirus. The following support tools and measures during this public health emergency:

  • In many instances, taxpayers automatically receive at least six extra months to file their tax returns, as long as they satisfy certain tax payment requirements. See AP 604: Extensions of Time to File Tax Returns.
  • DOR may also waive penalties under certain circumstances if a taxpayer is late in paying their tax obligation and will work with impacted taxpayers to waive such penalties. See AP 633: Guidelines for the Waiver and Abatement of Penalties.
  • In the event mail service is delayed, taxpayers can ensure that returns, payments and refunds are received if submitting them or receiving them by electronic means.

In the event the Internal Revenue Service (IRS) issues tax relief to taxpayers with Federal filing obligations, DOR is prepared to follow the IRS in offering similar relief for taxpayers with Massachusetts tax filing obligations. Learn more here.

March 18, 2020

Massachusetts DOR Resources

Massachusetts DOR recognizes that its taxpayers may need assistance with various tax matters due to the impact of the coronavirus. Taxpayers are provided with these support tools and measures during this public health emergency:

  • Taxpayers automatically receive at least six extra months to file their tax returns, as long as they satisfy certain tax payment requirements. See AP 604: Extensions of Time to File Tax Returns.
  • DOR may also waive penalties under certain circumstances if a taxpayer is late in paying their tax obligation and will work with impacted taxpayers to waive such penalties. See AP 633: Guidelines for the Waiver and Abatement of Penalties.
  • In the event mail service is delayed, taxpayers can ensure that returns, payments and refunds are received if they elect to submit them or receive them by electronic means.

In the event the Internal Revenue Service (IRS) issues tax relief to taxpayers with federal filing obligations, DOR is prepared to follow the IRS in offering similar relief for taxpayers with Massachusetts tax filing obligations and will provide updates accordingly.

More on Taxes and the Coronavirus Pandemic.

Disclaimer: Please note this is the information that is readily available at this time, it is subject to change so please consult your Withum tax advisor.

Massachusetts Finds Subscription Fees to Software Taxable, Which May Have Income Tax Ramifications

Last month, the Massachusetts Supreme Court held that the receipts from sales of subscriptions for online software products were subject to sales tax, pursuant to G. L. c. 64H, §§ 1-2 (statute) and 830 Code Mass. Regs. § 64H.1.3 (2006) (regulation). The regulation provides for a two-part test for when tax does not apply to charges for access or use of software on a remote server: “[W]here there is [(1)] no charge for the use of the software and [(2)] the object of the transaction is acquiring a good or service other than the use of the software, sales or use tax does not apply.” The evidence indicated that the taxpayer’s customers entered into a transaction for access and use of the taxpayer’s online products, which was essentially standardized computer software. As a result, the court rejected the taxpayer’s assertion that the “true object” of what their customers were paying for was their service of providing online access. Rather, the court determined that the taxpayer’s customers were in fact buying software, which should be treated as the sale of tangible personal property, and thus subject to sales tax. Since the underlying transaction was determined to be taxable so was the subscription service. Additionally, the court noted that the legislature broadened what it means to transfer tangible personal by amending the rule and allowing for an apportionment of tax based upon usage in more than one state.
Citrix Systems v. Commissioner of Revenue, Mass. Sup. Ct. No. SJC-12741 (02/05/2020).

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