Tax Expenditure Appendix A - Recent Law Changes Affecting Tax Expenditures
The following tax expenditures have been revised or created due to recent law changes:
The Personal Income Tax:
Angel Investor Credit
St. 2016, c. 219 amends G.L. c. 62, § 6 by adding new subsection (t), which provides a credit against personal income tax equal to 20% of the amount of qualifying investments made by a taxpayer investor in a qualifying business generally, and 30% of the amount of qualifying investments made by a taxpayer investor in a qualifying business located in a “Gateway municipality,” as defined in G.L. c. 23A, § 3A. For purposes of the credit, a taxpayer investor may invest up to $125,000 per qualifying business per year up to a maximum of $250,000. A taxpayer investor’s total credits may not exceed $50,000 in a single calendar year. The credit may be taken in either the tax year of the initial investment or it can be carried forward to any of the three subsequent taxable years, as long as the qualifying business maintains its principal place of business in Massachusetts. If the qualifying business does not maintain its principal place of business in Massachusetts for this three year period, the taxpayer investor must repay the total amount of credits claimed. The credit is administered and awarded by the Life Sciences Center, and is included in the annual cap of $25 million applicable to other life sciences credits (so tax expenditure estimation for this credit is included in item 2.617). The credit may be allowed for tax years beginning on or after January 1, 2017. See TIR 16-15 for more information.
Tuition Deduction (TE item 1.414)
Effective for tax years beginning on or after January 1, 2017, non-residents and part year residents are no longer eligible for the tuition deduction. See TIR 16-15 for more information.
Prepaid Tuition or College Savings Plan Deduction (TE item 1.427)
A new deduction against Part B income is allowed in an amount equal to 1) purchases of or 2) contributions made in a taxable year to an account in a pre-paid tuition program or a college savings program established by the Commonwealth or an instrumentality or authority of the Commonwealth. The deduction is capped at $1,000 for a single person or head of household and $2,000 for a married couple filing a joint return. The deduction applies to tax years beginning on or after January 1, 2017 through the tax year beginning on January 1, 2021.
Circuit Breaker Tax Credit Increased (TE item 1.609)
A credit is allowed to an owner or renter of residential property located in Massachusetts equal to the amount by which the real estate tax payment or 25% of the rent constituting real estate tax payment exceeds 10% of the taxpayer’s total income, not to exceed $1,070 (for tax year 2016). The amount of the credit is subject to limitations based on the taxpayer’s total income and the assessed value of the real estate, which must not exceed $720,000. For tax year 2016, an eligible taxpayer’s total income cannot exceed $57,000 in the case of a single filer who is not a head of household filer, $71,000 for a head of household filer, and $86,000 for joint filers. In order to qualify for the credit, a taxpayer must be age 65 or older and must occupy the property as his or her principal residence. See TIR 16-8 for more information.
Farming and Fisheries Personal Income Tax Credit (TE item 1.618)
A new credit applies to personal income taxpayers who are primarily engaged in agriculture, farming or commercial fishing. G.L. c. 62, § 6(s). The credit is 3% of the cost or other basis for federal income tax purposes of qualifying property acquired, constructed or erected during the tax year. Qualifying property is defined as tangible personal property and other tangible property including buildings and structural components that are located in Massachusetts, used solely for farming, agriculture or fishing, and are depreciable with a useful life of at least four years. The credit applies to lessees calculated as follows: 3% of a lessor’s adjusted basis in qualifying property for federal income tax purposes at the beginning of the lease term, multiplied by a fraction, the numerator of which is the number of days of the tax year during which the lessee leases the qualifying property and the denominator of which is the number of days in the useful life of the property. Where the lessee is eligible for the credit, the lessor is generally not eligible, with the exception of “equine-based businesses where care and boarding of horses is a function of the agricultural activity.”
Gambling Loss Deduction
For tax years beginning on or after January 1, 2015 a deduction is allowed from Part B income for gambling losses incurred at certain licensed gaming establishments or “racing meeting licensee or simulcasting licensee” establishments but only to the extent of winnings from such establishments included in gross income for the calendar year. See TIR 15-14 and Schedule Y, line 17 for more information. The new gambling loss deduction is the only deduction for gambling losses allowed for a Massachusetts taxpayer, unless the gambling activities constitute a trade or business. See DD 03-3. Massachusetts does not adopt the federal deduction under IRC § 165(d) for gambling losses.
Changes to Economic Development Incentive Program (“EDIP”) Tax Credit
For projects certified on or after January 1, 2017, the economic development incentive program tax credit is no longer calculated based on the cost of property that qualifies for the investment tax credit allowed under G.L. c. 63, § 31A and is instead determined by the Economic Assistance Coordinating Council (EACC) based on factors set out in G.L. c. 23A, § 3D. In addition, limitations on the maximum amount of the credit awarded to particular types of certified projects have been eliminated, and the EACC may designate the credit as refundable for any certified project (subject to a limitation that the EACC may not award more than $5 million in refundable credits per year) and may specify the timing of the refund. For further information, see TIR 16-15.
Changes to the Certified Housing Development Tax Credit
Effective January 1, 2017, the certified housing development tax credit is available for 25% of “qualified project expenditures” instead of 10% of “qualified substantial rehabilitation expenditures.” The carry forward period for which the credit can be used is changed from 5 to 10 years. In addition, the annual cap is no longer a part of the overall annual cap imposed on the EDIP. For further information, see TIR 16-15.
Current Code Provisions
As a general rule, Massachusetts does not adopt any federal personal income tax law changes incorporated into the Code after January 1, 2005. However, certain specific Massachusetts personal income tax provisions, as set forth in G.L. c. 62 § 1(c), automatically conform to the current Code. Provisions of the Code Massachusetts adopts on a current Code basis are (i) Roth IRAs, (ii) IRAs, (iii) the exclusion for gain on the sale of a principal residence, (iv) trade or business expenses, (v) travel expenses, (vi) meals and entertainment expenses, (vii) the maximum deferral amount of government employees’ deferred compensation plans, (viii) the deduction for health insurance costs of self-employed taxpayers, (ix) medical and dental expenses, (x) annuities, (xi) health savings accounts, (xii) employer-provided health insurance coverage, and (xiii) amounts received by an employee under a health and accident plan. See TIRs 98-8, 02-11, 07-4, and 09-21 for further details.
Parking, Combined Commuter Highway Vehicle Transportation and T-Pass Fringe Benefit — IRC sec. 132(f) (TE Item 1.030)
Massachusetts follows IRC sec. 132(f) as amended and in effect under the January 1, 2005 Code. For taxable years beginning in 2017, the Massachusetts monthly exclusion amounts are $255 for employer-provided parking and $135 for combined transit pass and commuter highway vehicle transportation benefits. Under Massachusetts law, these numbers reflect an inflation adjustment but do not include the increase in the federal monthly exclusion amount for the combined transit pass and commuter highway vehicle transportation benefits that was signed into law on December 18, 2015. Massachusetts adopts these 2017 tax year monthly exclusion amounts because they are based on the January 1, 2005 Code. For further discussion, see TIR 16-16.
Federal Deduction — Not Allowed Federal “Bonus” Depreciation — IRC sec. 168(k)
Massachusetts specifically disallows the bonus depreciation deduction allowed under IRC § 168(k), as amended and in effect for the current taxable year. Therefore, Massachusetts does not adopt the 5 year extension through tax year 2019 of the federal bonus depreciation deduction pursuant to the Consolidated Appropriations Act of 2016 (P.L. 114-113). See TIRs 02-11 and 03-25 for further details.
Federal Deduction — Not Allowed Domestic Production Activity Deduction — IRC sec. 199
For federal income tax purposes, under IRC § 199, a business entity that pays wages to employees and conducts qualified production activities is allowed a deduction for domestic production activities. Generally, in the case of a non-corporate taxpayer, the deduction allows a business with qualified production activities to deduct 9% of its U.S. adjusted gross income. Under G.L. c. 62 § 2(d)(1)(O), Massachusetts specifically disallows the domestic production activity deduction allowed under IRC § 199, as amended and in effect for the current taxable year. Therefore, Massachusetts does not adopt the 2 year extension through tax year 2016 of the deduction allowable for income attributable to domestic production activities in Puerto Rico pursuant to the Consolidated Appropriations Act of 2016 (P.L. 114-113). See TIR 05-5.
The Corporate and Other Business Excise:
Economic Development Incentive Program Tax Credit
For projects certified on or after January 1, 2017, the economic development incentive program tax credit is no longer calculated based on the cost of property that qualifies for the investment tax credit allowed under G.L. c. 63, § 31A and is instead determined by the Economic Assistance Coordinating Council (EACC) based on factors set out in G.L. c. 23A, § 3D. In addition, limitations on the maximum amount of the credit awarded to particular types of certified projects have been eliminated, and the EACC may designate the credit as refundable for any certified project (subject to a limitation that the EACC may not award more than $5 million in refundable credits per year) and may specify the timing of the refund. For further information, see TIR 16-15.
Community Investment Tax Credit
Effective August 10, 2016, the community investment tax credit has been modified. A community partner may now claim a subsequent community investment tax credit if the Department of Housing and Community Development determines that the community partner has made a satisfactory progress towards utilizing any prior allocation it has received. Prior to this change, a community partner was required to have utilized at least 95% of its prior allocation to be eligible for a subsequent allocation. For further information, see TIR 16-15.
Low-Income Housing Tax Credit
Effective January 1, 2017, the low-income housing tax credit has been expanded to also provide a non-refundable tax credit for individuals and corporations who donate real or personal property to certain non-profit entities for use in purchasing, constructing, or rehabilitating a qualified Massachusetts project. This credit is generally limited to 50% but may be increased to 65% of the amount of the donation. The credit must be claimed in the year that the qualifying donation is made and credit amounts that exceed the tax due may be carried forward for up to five years. For further information, see TIR 16-15.
Historic Rehabilitation Tax Credit
Effective August 10, 2016, the historic rehabilitation tax credit has been modified to allow the Massachusetts Historical Commission to, subject to certain criteria, transfer the historic rehabilitation tax credit to corporate excise taxpayers that acquire a qualified historic structure. For multi-phased projects, the Massachusetts Historical Commission may transfer historic rehabilitation tax credit awards for any phase that meets the criteria. For further information, see TIR 16-15.
Certified Housing Development Tax Credit
Effective January 1, 2017, the certified housing development tax credit is available for 25% of “qualified project expenditures” instead of 10% of “qualified substantial rehabilitation expenditures.” The carry forward period for which the credit can be used is changed from 5 to 10 years. In addition, the annual cap is no longer a part of the overall annual cap imposed on the EDIP. For further information, see TIR 16-15.
As the part B personal income tax rate has been reduced, tax rates for S corporations have changed accordingly.
See below.
| Income Measure Tax | ||||
| Tax Year |
Non-Income
Measure Tax |
Rate on
C Corps' Income and S Corps' Qualified and Passive Income |
S Corp. Rate
(Gross Sales $6M-$9M) |
S Corp. Rate
(Gross Sales > $9M) |
|---|---|---|---|---|
| Corporations: | ||||
| 2012 | 0.26% | 8.00% | 1.83% | 2.75% |
| 2013 | 0.26% | 8.00% | 1.83% | 2.75% |
| 2014 | 0.26% | 8.00% | 1.87% | 2.80% |
| 2015 | 0.26% | 8.00% | 1.90% | 2.85% |
| 2016 | 0.26% | 8.00% | 1.93% | 2.90% |
| 2017 | 0.26% | 8.00% | 1.93% | 2.90% |
| 2018* | 0.26% | 8.00% | 1.97% | 2.95% |
| Financial Institutions: | ||||
| 2012 | No | 9.00% | 2.50% | 3.75% |
| 2013 | 9.00% | 2.50% | 3.75% | |
| 2014 | 9.00% | 2.53% | 3.80% | |
| 2015 | 9.00% | 2.57% | 3.85% | |
| 2016 | 9.00% | 2.60% | 3.90% | |
| 2017 | 9.00% | 2.60% | 3.90% | |
| 2018* | 9.00% | 2.63% | 3.95% | |
| S Corporations: | Rate is equal to: |
|---|---|
| Large S Corp (Gross Sales > $9M): | C Corp rate minus Part B individual income tax rate |
| Medium S Corp ($6M < Gross Sales < $9M): | 2/3 of Large S Corp rate |
| Small S Corp (Gross Sales < $6M): | 0% |
| * The part B personal income tax rate is assumed to decline to 5.05% effective January 1, 2018. The tax rates for S corporations are therefore assumed to change accordingly. | |
The Sales and Use Tax:
- In June 2009 legislation was enacted that amended G.L. c. 64H (sales tax) and G.L. c. 64I (use tax), changing the rate of tax for sales and use of tangible personal property and telecommunications services from 5% to 6.25%. See Stat. 2009, c. 27, §§ 53, 55-57, 59. In addition, the new legislation repealed the exemption for alcoholic beverages, including beer, wine, and liquor, sold at retail by amending G.L. c. 64H, § 6(g) to omit reference to c. 138. These changes were effective on and after August 1, 2009. See TIR 09-11 for further details.
- As the result of a referendum question on the November 2, 2010 ballot, the law extending the Massachusetts sales and use tax to alcoholic beverages sold at package stores and liquor stores for off-premises consumption, which was enacted on August 1, 2009, has been repealed, effective for sales on or after January 1, 2011. See TIR 10-24 for further details.
- Effective July 1, 2011, physician-prescribed, medically necessary breast pumps are exempt from sales and use tax. See St. 2011, c. 68, § 72.
- In July 2012 legislation was enacted stating explicitly that “sales that do not involve tangible personal property shall not result in tax expenditures”. See St 2012, c.165, §112. Pursuant to this legislation, from fiscal year 2014 on, we remove some items from our tax expenditure estimates, which we regularly reported in prior years. But to facilitate comparison to tax expenditure estimates in prior years, these items (3.203, 3.422, 3.501, 3.502, 3.503 and 3.504) have been listed in appendix D.
- On September 27, 2013, the Governor signed a bill that repealed the expansion of the sales tax on computer software and systems design services that had been enacted by the Legislature on July 24, 2013, retroactive to its effective date, July 31, 2013.
Section 66 of St. 2014, c. 287 added subsection (d) to G.L. c. 63, § 42B.
Effective August 13, 2014, solely for the purpose of claiming the sales tax exemption available to research and development corporations under chapters 64H and 64I, §§ 6(r) and 6(s), this change allows a limited partnership that is not a business corporation, but that would otherwise qualify as a research and development corporation under § 42B, to be considered a research and development corporation when all partners are corporations. See also TIR 14-13.
Chapter 369 of the Acts of 2012
This act legalized the sales of marijuana, products containing marijuana such as food, tinctures, aerosols, oils and ointments as well as related supplies or educational materials to qualifying patients or their personal caregivers in the Commonwealth by medical marijuana treatment centers. According to Directive 15-1 issued by the Department of Revenue, the sales tax exemption for medicine on prescription in G.L. c. 64H. § 6(l) applies to sales of marijuana and products containing marijuana to a qualifying patient or the patient’s personal caregiver pursuant to a written certification by a licensed physician. Any other supplies, educational materials or other items sold by the medical marijuana treatment center are subject to tax unless another exemption applies.
The estimates for tax expenditure items for sales and use tax reflect these tax law changes.
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