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Take Two: Massachusetts Department of Revenue Releases Revised Market-Based Sourcing Regulation

Late last week, the Massachusetts Department of Revenue (the Department) released a revised draft regulation on Massachusetts’s new market-based sourcing law.  The changes made by the Department to purportedly address practitioner and taxpayer concerns were relatively modest.  The rules remain lengthy, complex and cumbersome.  There are still various assignment rules that apply to each of the following types of transactions: (1) in-person services, (2) professional services, and (3) services delivered to the customer, or through or on behalf of the customer (described in the new regulation as services delivered to the customer, on behalf of the customer, or delivered electronically through the customer, hereinafter “sales delivered to, by, or through a customer”).  For a more detailed discussion of these rules see our State Tax Notes article on market-based sourcing.  The most noteworthy changes from the initial draft relate to the taxpayer’s ability to use a...

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New “Job Creation Project” EDIP Credits to Boost Tech Jobs in Massachusetts

In the battle for tech jobs, Massachusetts has added a significant new element to its arsenal of incentives in the form of “job creation project” Economic Development Incentive Program (EDIP) credits.  EDIP is a tax incentive program designed to foster job creation and foster business growth in Massachusetts.  The new initiative has been enacted as part of H. 4377, an economic development bill that is now Chapter 287 of the Acts of 2014. Job creation project EDIP credits address a gap in the existing EDIP credit program.  Previously the State required a significant capital investment to qualify for credits — a requirement that some technology companies found hard to satisfy. Although the amount of the credits – either $1,000 or $5,000 per new job (offset against the Massachusetts corporate excise tax) – is not as generous as some states’ tax credits for new jobs, this is a promising move to attract up-and-coming technology companies to the state. EDIP credits...

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Massachusetts Early Mediation Program Changing the Tax Appeals Landscape

The Massachusetts Department of Revenue’s new Early Mediation Program (EMP) is off to a very promising start.  The EMP expedites the normal appeals process and offers hope to taxpayers that desire to resolve tax disputes without prolonged litigation.  The Department indicated at a recent Boston Bar Association meeting that eight of the first 11 cases have resulted in settlements.  Commissioner Amy Pittner announced publicly earlier this year that the Department’s goal is that one-third of all eligible disputes will be mediated. Only controversies with $250,000 or more of tax at stake are currently allowed into the program (this is down from the original $1 million threshold).  Either the taxpayer or the Audit Division may suggest participation in the EMP.  Early mediation can be initiated any time a controversy has been fully developed in the course of the audit, but in no event later than 30 days after the issuance of a Notice of Intent to Assess.  A...

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Allied Domecq: Nexus-Combined Reporting

In Allied Domecq Spirits & Wines USA, Inc. v. Commissioner of Revenue, the Massachusetts Court of Appeals held that the parent company of a Massachusetts taxpayer could not be included in the taxpayer’s Massachusetts nexus-combined returns because the parent’s nexus with Massachusetts was a sham.  Regardless of the validity of the parent’s presence in the state, an argument exists that the nexus limitation on filing combined returns as it existed during the tax years discriminated against interstate commerce in violation of the Commerce Clause. The parent company, ADNAC, was incorporated in Delaware and headquartered in Canada.  ADNAC carried substantial losses.  Beginning in August 1996, ADNAC engaged in activities to create a Massachusetts presence, such as reimbursing an affiliate with Massachusetts nexus for the salaries of insurance and tax employees and renting Massachusetts office space from the affiliate to house the employees.  Further, ADNAC’s...

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Does the Massachusetts Department of Revenue Still Believe SaaS is Subject to Sales Tax?

As noted in an earlier blog post, “[a] trend is developing in response to aggressive Department of Revenue/Treasury policy-making regarding cloud computing.”  This trend has not been friendly to aggressive Departments, and it appears that the Massachusetts Department of Revenue (Massachusetts Department) may be subtly moving away from its own aggressive position regarding one type of cloud computing transaction, software as a service (SaaS). Following in the footsteps of the New York Department of Taxation and Finance, the Massachusetts Department has been one of the more aggressive departments in the current debate over the taxability of SaaS (see, e.g., Mass. Regs. Code 64H.1.3(3)(a); Mass. Letter Ruling 13-5 (June 4, 2013); Mass. Letter Ruling 12-13 (Nov. 09, 2012); Mass. Letter Ruling 12-10 (Sept. 25, 2012); Mass. Letter Ruling 12-6 (May 21, 2012)).  In its various letter rulings on the subject, the Massachusetts Department has routinely stated its...

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