The Marcum 2016 Year-End Tax Guide continues our tradition of providing timely tax guidance for the upcoming year.
Brownfields Credit for Rehabilitation of Contaminated Property
Taxpayers are allowed a state credit against their tax liability for costs incurred to rehabilitate contaminated property owned or leased for business purposes and located within an economically distressed area. The credit can be calculated on Schedule BC - Brownfields Credit. Taxpayers are also allowed a 100% federal deduction against federal income for cleanup costs taken in the year they are incurred.
Eligible property where all THREE conditions must be met:
- The property is owned or leased by the taxpayer for business purposes.
- The property has been reported to the Massachusetts Department of Environmental Protection (DEP).
- The property is located in an economically distressed area. A list of economically distressed areas can be obtained from the Massachusetts Office of Business Development.
The amount of the credit depends on the condition of the contaminated property; the credit is either 25% or 50% of certain environmental response and removal costs incurred between August 5, 2018, and January 1, 2019, provided that the taxpayer diligently takes action before August 5, 2018. The credit is available to nonprofit organizations and may be transferred, sold, or assigned to another taxpayer with a liability.
An unused credit may be carried over for up to five succeeding tax years. However, the taxpayer cannot apply the credit in any taxable year in which it no longer maintains the remedy operation status or the permanent solution for which the credit was granted.
Certified Housing Development Credit
This tax credit is available to individuals or entities for certain qualified rehabilitation expenditures with respect to a certified housing development project. The credit is administered by the Massachusetts Department of Housing and Community Development (DHCD). The DHCD may award a taxpayer a credit of up to 10 percent of the costs of qualified substantial rehabilitation expenditures of the market rate units within the certified housing development projects.
The credit is allowed for the taxable year in which the certified housing development project is completed and the DHCD writes to notify the Commissioner of Department of Revenue (DOR). Qualified substantial rehabilitation expenditures applicable to the credit are deemed made on the date that DHCD gives the Commissioner such written notification.
Effective for tax years beginning on or after January 1, 2015, the annual cap on the amount of credit that may be awarded has been increased from $5 million to $10 million.The annual cap for the certified housing development tax credit is part of an overall cap imposed on the Economic Development Incentive Program credit. However, the annual cap is reduced from $10 million back to $5 million for tax years after January 1, 2019.
Taxpayers eligible for the credit may transfer any credits, and the transferee will be entitled to apply the credits against its tax liability in the same year.
If a partnership or a limited liability company treated as a partnership for Massachusetts income tax purposes generates the credit, it is responsible for transferring it. Credits passed through to individual partners or members may not be transferred by the partners or members.
If the credit available for use for any taxable year exceeds the taxpayer's or a transferee's tax liability for that taxable year, the taxpayer or transferee may carry it forward for up to five years after the taxable year in which DHCD gave the Commissioner written notification of completion of the certified housing development project to which the credit pertains.
Conservation Land Tax Credit
A tax credit is allowed for qualified donations of certified land to a public or private conservation agency. The credit is equal to 50% of the fair market value of the qualified donation. The amount of the credit that may be claimed for each qualified donation of certified land to a public or private conservation agency made after August 13, 2014, may not exceed $75,000 (increased from $50,000).
To qualify for the credit, ALL of the following requirements must be met:
- The taxpayer must obtain a qualified appraisal that validates the fair market value of the qualified donation;
- A summary of the qualified appraisal or, if requested by the Secretary of EEA, the appraisal itself, is to be filed with the Secretary as part of the certification process and may be transferred by the Secretary to the Commissioner upon request; and
- The Secretary of EEA must certify that the taxpayer made a qualified donation, in perpetuity, of certified land to a public or private conservation agency and issue a certificate to the taxpayer that establishes that the prerequisites to claiming the credit have been met.
Economic Development Incentive Program Credit (EDIPC)
This program allows taxpayers a credit against their tax liabilities up to a specified percentage of the cost of qualifying property. The credit is available to corporations, partnerships, S Corporations, sole proprietorships, and trusts. For projects certified on or after January 1, 2010, the EDIPC is available only to the extent awarded by the Economic Assistance Coordination Council (EACC.)
A certified project means any of the following:
- An "expansion project" located in an "economic opportunity area";
- An "enhanced expansion project" located anywhere in Massachusetts; or
- A "manufacturing retention project" located in a "gateway municipality."
- Property that would qualify for ITC Credit if it was purchased by a manufacturing corporation or a business corporation engaged primarily in research and development; and
- Property used exclusively in a certified project.
For certified expansion and enhanced expansion projects, the credit awarded may be up to 10% of the cost of qualifying property. For certified manufacturing retention projects, the credit awarded may be as high as 40% of the cost of such property. Any credit that exceeds the excise for the taxable year will be refunded to the taxpayer.
The credits have certain limitations and may be carried forward 10 years.
Employer Wellness Program Credit
Effective for tax years beginning on or after January 1, 2013, a Massachusetts business that employs 200 or fewer workers may qualify for a tax credit for up to 25% of the cost of implementing a "certified wellness program" for its employees. The credit is set to expire on December 31, 2017.
The purpose of the program is to provide incentives for businesses to recognize the benefits of wellness programs. Wellness programs implemented by businesses have resulted in both savings to their premiums as well as overall savings to the cost of health care. The goal of this tax credit is to provide smaller businesses with a greater opportunity to implement these programs.
A taxpayer seeking to claim the credit must apply to the Department of Public Health (DPH) for certification of its wellness program. DPH will approve a dollar amount of credit for a qualifying taxpayer and issue a certificate to be attached to the tax return. The maximum amount of the credit that may be claimed by a taxpayer is $10,000 in any tax year.
Farming and Fisheries Tax Credit
Effective January 1, 2015, a tax credit is available to individuals who are predominantly engaged in agriculture, farming or commercial fishing. The amount of 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 used solely in farming, agriculture or fishing, and are depreciable with a useful life of at least four years.
The credit is also available to lessees, equal to 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 is the number of days of the tax year during which the lessee leases the qualifying property, and the denominator is the number of days in the useful life of the property. When the lessee is eligible for credit, the lessor is generally not, with the exception of "equine-based businesses where care and boarding of horses is a function of the agricultural activity."
Film Incentive Credit
Motion picture production companies may claim two different tax credits against either their personal income tax or corporate excise liabilities. Each credit has its own qualification requirements, and taxpayers may qualify for and claim both credits. The credits include a Payroll Credit and the Production Expense Credit. The program has been extended to end 2022 and the credits are also refundable within certain limitations.
Payroll Expense Credit:
A taxpayer is allowed a credit equal to 25% of the total qualifying aggregate payroll for the employment of individuals in the industry of filming and producing a motion picture. To determine the qualifying aggregate payroll, only actual payments to employees may be used and must be Massachusetts source income.
Production Expense Credit:
A taxpayer is allowed to claim a credit equal to 25% of its Massachusetts production expenses, not including the qualifying aggregate payroll expenses calculated in the taxpayer's payroll credit. To qualify for the 25% production credit, the taxpayer's Massachusetts production expenses must exceed 50% of its total production expenses incurred in connection with the motion picture, or alternatively, at least 50% of the taxpayer's total principal photography days spent filming the motion picture must take place in the Commonwealth.
Limitations on the Credit:
For domestic and foreign corporations, the credit may not be used to reduce the tax liability below the $456 minimum.
Carryover of Credits:
An unused credit may be carried over for up to five succeeding tax years.
Historic Rehabilitation Credit
Under the Massachusetts Historic Rehabilitation Tax Credit program, a certified rehabilitation project of a qualified historic structure is eligible to receive up to 20% of qualified rehabilitation expenditures in state tax credits. The maximum credit is $50 million per year and has recently been extended to December 31, 2015.
The Credit Program provides that a taxpayer who acquires a qualified historic structure is eligible for tax credits for qualified rehabilitation expenditures already awarded to the previous owner of the qualified historic structure, if certain criteria are met:
- The rehabilitation was not placed in service by the transferor;
- No credit has been claimed by anyone other than the acquiring taxpayer as verified by the Department of Revenue to the Historical Commission;
- The taxpayer completes the rehabilitation and obtains certification from the Historical Commission; and
- The taxpayer complies with all other requirements under the Historic Rehabilitation Tax Credit statute and related regulations and rules.
In the case of a multi-phase project, tax credits may be transferred for any phase that meets the criteria in subsections (A) through (D).
Life Science Credits
For taxable years beginning on or after January 1, 2009, there are credits available for corporate and personal income taxpayers that qualify as certified life sciences companies, authorized in accordance with the Life Sciences Tax Incentive Program.
An Investment Tax Credit (ITC) may be available, equal to 10% of the cost of qualifying property acquired, constructed or created during the taxable year and used exclusively in the Commonwealth. This credit can apply to purchases made on or after January 1, 2009, even if a construction project started before that date.
Life Science Company - FDA User Fees Credit
A credit may be available for user fees paid after June 16, 2008, to the U. S. Food and Drug Administration (U.S.F.D.A.) upon submission of an application to manufacture a human drug in the Commonwealth. This credit is equal to 100% of the user fees actually paid by the taxpayer and may be claimed in the taxable year in which the application for licensure of an establishment to manufacture the drug is approved by the U.S. F.D.A.
To be eligible for the credit, more than 50% of the research and development costs for the drug must have been incurred in Massachusetts.
Life Sciences - Research Credit
A credit may be available to provide qualifying companies with an incentive to obtain a research credit for certain expenditures not qualifying for the existing research credit.
Under this provision, the credit is generally calculated in the same manner as the research credit. However, the qualified research expenditures which form the building blocks for the calculation can qualify when the activities are performed both inside and outside of the Commonwealth, to the extent they relate to legally mandated clinical trial activities.
The credit can reduce the corporate tax to the $456 minimum and may be carried forward for 15 years.
Life Sciences - Jobs Credit
A taxpayer claiming a life sciences refundable jobs credit must create a minimum of 50 net new permanent full-time positions in Massachusetts. The Massachusetts Life Sciences Center and Department of Revenue will determine the amount of life sciences jobs credit allowed to a taxpayer.
Life Sciences Credits - Refundable Amount
There are different credits which the Massachusetts Life Sciences Center, with the approval of the Secretary of Administration and Finance, may authorize a taxpayer to have refunded instead of carrying forward such credit to a future year.
- If a life sciences ITC exceeds the tax otherwise due under the corporate tax, as applicable, 90% of the balance of such credit may, at the option of the taxpayer and to the extent authorized pursuant to the Life Sciences Tax Incentive Program, be refundable to the taxpayer for the tax year in which the qualified property is placed in service. If the taxpayer chooses this refund, then the carryover provisions for this credit that would otherwise apply shall not be available.
- Taxpayers may use the FDA user fees credit to reduce their taxes to zero. To the extent authorized pursuant to the Life Sciences Tax Incentive Program, 90% of the balance of credit remaining is refundable. The deduction otherwise allowable for user fees qualifying for the credit is disallowed.
- The new life sciences research credit is not refundable.
- If a life sciences jobs credit claimed by a taxpayer exceeds the tax otherwise due under the personal income tax or the corporate excise, as applicable, 90% of the balance of such credit may, to the extent authorized by the Life Sciences Tax Incentive Program, be refundable to the taxpayer. Excess credit cannot be carried forward to subsequent taxable years.
Low Income Housing Credit
Low income housing credits are available to individual taxpayers, partnerships, and corporations that have a qualified low-income housing project located in Massachusetts. The Department of Housing and Community Development will distribute the low income housing credit from a pool of available credits among qualified low income housing projects.
A qualified Massachusetts project is a "qualified low-income housing project" as defined within the Internal Revenue Code. Excess credit may be carried forward for up to five succeeding tax years.
Medical Device Tax Credit
For taxable years beginning on or after January 1, 2006, a medical device company may claim a credit equal to 100% of the user fees actually paid by it to the United States Food and Drug Administration during the taxable year for which the tax is due for pre-market submissions (e.g., applications, supplements, and 510(k) submissions) to market new technologies, developed or manufactured in Massachusetts.
For the purposes of this credit, a medical device is defined as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar or related article, including a component part or accessory, which is recognized in the official National Formulary or the United States Pharmacopeia, or any supplement, intended for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment or prevention of disease in humans or other animals and which does not achieve any of its primary intended purposes through chemical action within or on the body of a human or other animal and which is not dependent upon being metabolized for the achievement of its primary intended purposes.
Any unused credits may be transferred to a purchasing company in exchange for private financial assistance. If the purchasing company provides financial assistance in an amount at least equal to 75% of the medical device tax credit, that amount is eligible for transfer. The private financial assistance is to be used to fund expenses incurred in connection with the operation of the medical device company in Massachusetts, including expenses associated with fixed assets such as construction, acquisition, and development of real estate, as well as expenses for materials, start-up, tenant fit-out, working capital, salaries, and research and development. However, with the exception of this situation, no credits may be transferred.
The DOR will then issue, upon receipt of a notarized statement signed under the pains and penalties of perjury by an authorized representative of the company that the purchasing company has provided the specified financial assistance, a certificate. This certificate will reflect the credit amount transferred and is to be attached to each tax return filed by a purchasing company in which a medical device tax credit is claimed.
For more information, please visit: http://www.mass.gov
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