Important Massachusetts Tax Updates from 2023

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Several new tax were laws passed in the latter part of 2023 that stand to have a significant impact on Massachusetts businesses. In this post, we’ll do a quick round-up of the new rules and explain how they will affect companies based in or doing business in Massachusetts.

Single Sales Tax Apportionment Goes into Effect in 2025

The sweeping Tax Relief Bill was signed into law last October by Massachusetts governor, Maura Healy, with the goal of making the state more attractive to business. The law impacts a number of state taxes, including estate taxes, but one of its most important provisions is the adoption of single sales tax apportionment, which will impact multi-state companies with a presence in Massachusetts.

“Apportionment,” put simply, is the assignment of a portion of a multi-state corporation’s earnings to a particular state to determine what it owes that state in taxes. Currently, the majority of corporations with taxable income from business activity in Massachusetts are taxed based on payroll, property, and a double-weighted sales factor. Exceptions are financial institutions, which are taxed on payroll, property, and sales equally, and manufacturing companies, qualifying defense contractors, and qualifying mutual fund service corporations, which are taxed solely on their sales within the state.

Beginning on January 1, 2025, however, all businesses will be subject to single sales tax apportionment. This will help reduce tax burdens for those businesses that have a majority of their property and payroll but only a small part of their sales in Massachusetts. Corporations will no longer have to prove they’re conducting substantial manufacturing activities in order to qualify for single sales apportionment. Manufacturers will

The new rules don’t go into effect for another year, so there is time for companies to adjust to the new rules and look for strategies to take advantage of them. For more details, check out our blog post on single sales tax apportionment.

Software Company Classification Standardized

Speaking of manufacturing, the Massachusetts Department of Revenue’s Technical Information Release 23-8, issued in July, made some clarifications about the type of companies that are considered manufacturers and therefore subject to single sales tax apportionment.

In the past, some software companies doing business in Massachusetts argued that their software products should be considered non-taxable professional services, rather than taxable pre-written software, a tangible (i.e., manufactured) product. In the 2021 Akamai Technologies case, the Appellate Tax Board clarified that the development and sale of standardized, remotely accessed software should be classified as manufacturing activity, and therefore subject to single sales apportionment.

Release 23-8 reaffirms the Tax Board’s stance that whether a corporation’s sales are of services or standardized software depends on the specifics of each case. Companies that “develop and sell access to software that allows customers to input their own information, manipulate the software, and run reports without interaction with the corporation or its employees” are considered manufacturers.

Tax Exemption for Capital Gains in Some Urban Redevelopment Projects

Another significant development follows the State’s Supreme Judicial Court’s decision in the case of Reagan v. Commissioner of Revenue. This decision, and its subsequent interpretation in Technical Information Release 23-9, has implications for the taxation of capital gains from urban redevelopment projects.

The court’s ruling establishes that the capital gain from the sale of an urban redevelopment project is tax-exempt under Chapter 121A if it is intrinsically linked to the project itself. This exemption applies specifically during a forty-year statutory period. The rationale behind this tax concession is to encourage private investment in urban redevelopment initiatives, particularly in areas that are in need of revitalization. The goal is to provide an incentive to private entities to invest in the construction, operation, and maintenance of projects in deteriorated urban areas, thereby contributing to their renewal and growth.

Tax Abatement Remedy Appeal Dismissed

Finally, a reminder from the Appellate Tax Board not to miss deadlines: In September, the Board dismissed an appeal from a taxpayer, Bernard Kamiri, who failed to act within the prescribed time limits following the denial of his application for tax abatement. An abatement is a reduction of a tax or penalty assessed by the Department of Revenue (DOR).

In this case, Massachusetts General Law Chapter 62C, Section 39 stipulates that any person dissatisfied with the commissioner’s refusal to abate a tax has 60 days from the notice of the commissioner’s decision to file a petition with the Appellate Tax Board. Kamiri, however, waited over 500 days after receiving notice of the denial of his abatement application to file his appeal. This delay far exceeded the statutory limit, which led to the automatic dismissal of his appeal.

Missing a deadline, as this case demonstrates, can result in the forfeiture of the right to appeal, leaving the taxpayer with no recourse against the tax assessment or penalty.

Tonneson Can Help

Whether it’s filing your appeals on time, confirming that your company is correctly classified, or making sure you take advantage of all the tax breaks available to you, Tonneson’s CPAs can help. Contact us today and let’s get started.

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