The Massachusetts Department of Revenue has issued a technical information release (TIR) explaining the changes contained in the Massachusetts Fiscal Year 2015 Budget Act. The TIR discusses the extension of the historic rehabilitation tax credit for five years, deferral of implementation of the corporate excise FAS 109 deduction, clarification of the method for calculating the taxable net worth of an intangible property corporation, a technical change to the calculation of the Massachusetts adjusted basis of property, technical and conforming changes to the tax administration provisions applicable to corporations subject to combined reporting, revision of requirements to qualify as a "direct wine shipper" allowing certain larger wineries to ship directly to customers in Massachusetts, expansion of the exemption from the motor vehicles excise for certain disabled veterans and members of the military, and expansion of the cases eligible for the expedited small claims appeal procedure before the Appellate Tax Board.  For more information, contact the tax attorneys at McLaughlin & Quinn.

Historic rehabilitation tax credit. The Massachusetts Historical Commission was authorized annually, for a 12-year period beginning January 1, 2006 until December 31, 2017, to certify an amount not exceeding $50 million per year for purposes of the Massachusetts historic rehabilitation tax credit. For personal income tax and corporate excise purposes, the Act extends the Massachusetts historic rehabilitation tax credit, including the $50 million annual limit, for an additional five years to December 31, 2022.

FAS 109 deduction. The Act defers for an additional year the implementation of the FAS 109 deduction. The first year of the 7-year period to claim the FAS 109 deduction is the combined group's taxable year that begins in 2016 (was 2015).

Taxable net worth of an intangible property corporation. The corporate excise tax imposed on a business corporation is the greater of the amounts described in Mass. Gen. L. § 39(a) or Mass. Gen. L. § 39(b): (1) an amount equal to the sum of: $2.60 per $1,000 upon the value of: (a) its tangible property as determined to be taxable under Mass. Gen. L. § 30(7) if a tangible property corporation, or (b) its net worth as determined to be taxable under Mass. Gen. L. § 30(8) through Mass. Gen. L. § 30(9) if an intangible property corporation; and 8% of its net income; or (2) $456. The Act amended the net worth calculation in Mass. Gen. L. § 30(8) to broaden the provision that allows the subtraction of the book value of a subsidiary business corporation.

For business corporations, other than qualified Real Estate Investment Trusts (REITs), that are intangible property corporations, the net worth of a business corporation is calculated as follows: (1) the book value of its total assets on the last day of the taxable year reduced by the sum of: (a) its liabilities on said date, (b) the book value of its tangible property situated in Massachusetts on said date and subject to local taxation, less the interest of any mortgagee therein, and (c) effective July 1, 2014, the book value on said date of its investment in subsidiary business corporations which represent 80% or more of the voting stock of said subsidiary business corporations or, in the case of a subsidiary business corporation which does not have voting stock, the book value of its investment in such business corporation which represents 80% or more ownership interest; and (2) the amount determined in (1) is multiplied by such corporation's income apportionment percentage. The amendment under the Act allows an intangible property corporation to subtract the book value of a business corporation that does not have voting stock, where the parent corporation has an 80% or more ownership interest. In effect, this allows for the deduction of an ownership interest in a pass-through entity, such as a limited liability company (LLC) or a partnership, that is treated for tax purposes as a business corporation, where the 80% ownership threshold is met.

The Act amends the net worth calculation in Mass. Gen. L. § 30(9) to broaden the provision that allows the subtraction of the book value of a subsidiary business corporation. For a qualified REIT that is an intangible property corporation, its net worth is such portion of the book value of its total assets less its liabilities on the last day of the taxable year as the book value of its tangible assets situated in Massachusetts on said date and not subject to local taxation plus the amount of its intangible assets on said date allocable to Massachusetts, as hereinafter determined, bears to the book value of its total assets on said date. The intangible assets allocated to Massachusetts is calculated as follows: (1) effective July 1, 2014, the book value of its total intangible assets on the last day of the taxable year reduced by the book value on said date of its investment in and advances to subsidiary business corporations which represent 80% or more of the voting stock of said corporations, or in the case of a subsidiary business corporation which does not have voting stock, the book value of its investment in such business corporation which represents an 80% or more ownership interest; and (2) the amount determined in (1) is multiplied by such corporation's income apportionment percentage, as determined under section 38. The amendment under the Act allows a qualified REIT that is an intangible property corporation to subtract the book value of a business corporation that does not have voting stock, where the parent corporation has an 80% or more ownership interest. In effect, this allows for the deduction of an ownership interest in a pass-through entity, such as an LLC or a partnership, that is treated for tax purposes as a business corporation under Mass. Gen. L. § 30 , where the 80% ownership threshold is met.

Massachusetts basis adjustment. The Act makes a technical correction to Mass. Gen. L. § 31N to reflect the principle set forth in Mass. Regs. Code § 63.31N.1830 CMR that adjustments to Massachusetts basis may be required in the case of items taken into account in determining gross income or net income.

Tax administration provision changes applicable to corporations subject to combined reporting. The Act makes several technical and conforming changes to the general tax administration chapter of the general laws, to codify certain procedural aspects of combined reporting that were in effect by regulation or other administrative action. For example, the amendments make clear that the Department may treat the principal reporting corporation as the agent of the members of a combined group for purposes of both the income measure and the non-income measure of the corporate excise, as well as the minimum excise. The Act clarifies that the Commissioner may treat the principal reporting corporation as the agent for all such corporations with respect to all notices and actions authorized or required, whether relating to the income measure or non-income measure of the corporate excise of any such corporation or to the minimum excise tax liability of any such corporation. However, the Department is not precluded from taking separate procedural actions or directing notices to any individual member or members of the combined group that file or are required to file a combined report. The Act to further clarifies the procedural aspects of combined reporting regarding business corporation and financial institution return filing requirements, assessment of tax, extension of time for assessment, federal income tax changes, notice of assessment, and abatement application.

Motor vehicle excise tax exemption for certain disabled veterans and military members. The Act exempts from the motor vehicle excise tax vehicles owned or leased by certain disabled veterans or residents who are in active and full-time military service as a member of the Armed Forces of the United States or the National Guard, army or air, of any state, and have been deployed or stationed outside the territorial boundaries of the continental United States for a period of at least 45 days in the calendar year for which the exemption is claimed.

Direct shipment of wine. The requirements to qualify as a "direct wine shipper" is changed. The distinction between large wineries with a total annual production of 30,000 gallons or more and small wineries with an annual production below that threshold has been removed, as well as the prior limitation that a large winery could not qualify as a "direct wine shipper" if the winery had contracted with or been represented by a wholesaler for the preceding six months.