The Massachusetts legislature was very busy during the last few weeks of the session just concluded, passing a fiscal year 2015 state budget of approximately $36.5 billion. Among the provisions passed and enacted were several new and expanded tax credits and incentives that offer taxpayers in the Commonwealth a number of opportunities to reduce their tax burden.
Among the new incentives are:
Job Creation Credit
The Economic Development Incentive Program Credit (EDIPC) has been expanded to provide a corporate excise and personal income tax credit for a project or investment by a business that is located, or will be located, in Massachusetts, if the project or investment:
- Generates substantial sales from outside of the state
- Does not involve a significant investment in the construction or expansion of an existing facility or otherwise result in an increase in the value of the real property where new jobs will be located, and
- Creates at least 100 new full-time jobs within two years before or after project certification and maintains those jobs for at least five years
If the expansion or proposed expansion project involves a facility already located in Massachusetts, the project must create an increase in full-time jobs and not just be a replacement or relocation of the jobs.
The job creation credit is equal to $1,000 for each new hire. This increases to $5,000 for each new hire in a gateway municipality or within a city or town that has a higher than average statewide unemployment rate. A municipality is considered a “gateway municipality” if:
- The population is greater than 35,000 and less than 250,000
- The median household income is below the state’s average, and
- The rate of educational attainment of a bachelor’s degree or above is below the state’s average
The credit, which is refundable, is capped at $1 million per taxpayer. In addition to the new job creation credit, the annual statewide cap for the EDIPC has been increased from $25 million to $30 million until 2019.
Research and Development Credit
Effective for calendar years beginning after 2014, corporate excise taxpayers may elect to compute the base amount of the credit for incremental expenses relating to research and development (R&D) activities in Massachusetts using a three-year, instead of a four-year, lookback period.
The credit amount for R&D expenses in excess of 50% of the taxpayer’s average R&D expenses for the three taxable years preceding the taxable year for which the credit is being determined is equal to:
- 5% of the qualified R&D expenses for calendar years 2015, 2016, and 2017; and
- 5% of the qualified R&D expenses for calendar years 2018, 2019, and 2020
For calendar years beginning after 2020, the credit will be equal to 10% of the qualified R&D expenses, which is the same amount that taxpayers may claim using the current four-year lookback period. If the taxpayer did not have qualified research expenses in any one of the three taxable years preceding the taxable year for which the credit is being determined, the amount of the credit is equal to 5% of the taxpayer’s qualified research expenses for the taxable year. “Qualified research expenses” have the same meaning as expenses that qualify for the federal R&D credit under Internal Revenue Code §41.
Agriculture, Farming, and Fishing Credit
Effective for tax years beginning in 2015, a credit may be claimed against Massachusetts personal income tax liability by taxpayers primarily engaged in commercial agriculture, farming, or fishing (which includes only those taxpayers landing a minimum of 5,000 pounds of fish per year and possessing either a state or federal fishing permit). The credit is equal to 3% of the cost or other basis for federal income tax purposes of depreciable property with a useful life of at least four years that is acquired, constructed, reconstructed, or erected during the taxable year and used solely by the taxpayer in Massachusetts for agriculture, farming, or fishing.
The property must not be taxable under the Massachusetts motor vehicle excise tax. In the case of leased property, other than tangible personal property and other tangible property, the amount of the credit is based on the lessor’s adjusted basis in qualifying property for federal income tax purposes at the beginning of the lease term, multiplied by a factor based on the number of days the qualifying property is leased and the useful life of the property.
The credit is subject to recapture if the property is disposed of or ceases to be in qualified use prior to the end of the taxable year in which the credit is taken. The recapture provision does not apply to property that is disposed of or ceases to be in qualified use after it has been in qualified use for more than 12 consecutive years. Unused credits may be carried forward for up to three taxable years.
Historic Rehabilitation Credit
Thinking of buying and restoring an historic home or building? The Massachusetts historical commission can now allow personal income taxpayers that acquire a qualified historic structure to receive any tax credits for qualified rehabilitation expenditures previously awarded to the transferor of the structure if:
- The rehabilitation was not placed in service by the transferor
- It is verified by the Department of Revenue that no credit has been claimed by anyone other than the acquiring taxpayer
- The taxpayer completes the rehabilitation and obtains certification; and
- The taxpayer conforms with all other historic rehabilitation credit requirements
In the case of a multi-phase project, tax credits may be transferred for any phase that meets these criteria.
Housing Development Credit Increased
For the 2015 through 2018 tax years, the annual cap on the credit that may be awarded to corporate excise and personal income taxpayers for qualified rehabilitation expenditures relating to a certified housing development project will be increased from $5 million to $10 million.
In addition, a new deduction is available to corporate excise taxpayers equal to 10% of the cost of renovating any abandoned building that is part of an EDIPC project.
These and other state tax provisions will be discussed in more detail during our annual Year-End Planning Seminars on October 29 and November 6 in our new Canton offices, and on November 3 at the Hilton Doubletree Hotel in Westborough. Stay tuned for more information about these seminars coming soon.