Final Massachusetts Fiscal Year 2021 Budget Includes Accelerated Sales Tax Provisions, Postpones Re-Implementation of State Charitable Deduction

By Leanne Scott January 28, 2021

Co-authored by Nicholas Smetana

Recently enacted legislation in Massachusetts requires certain taxpayers to begin remitting sales, meals, and room occupancy tax on an accelerated basis starting in April 2021, and also postponed the resumption of the charitable deduction for personal income tax purposes.

On December 11, 2020, Governor Charlie Baker signed the Fiscal Year 2021 budget into law, containing two notable provisions impacting Massachusetts taxpayers.  With the aim of modernizing the state’s sales tax remittance and collection function, starting in April 2021, businesses with a Massachusetts sales tax, meals tax or room occupancy tax liability greater than $150,000 in the previous calendar year are now required to begin making monthly pre-payments of collected sales tax amounts.

Currently, Massachusetts requires businesses to file returns and remit the associated tax by the 20^th day of the month following the end of the tax reporting period.  This new legislation mandates that businesses subject to these requirements remit tax collected on sales through the 21^st day of each month by the 25^th day of the same month.  Tax collected for the remainder of the month is to be remitted alongside the regular tax return filing, which is now due on the 30^th day of the month following the end of the reporting period.  The law calls for penalties to be assessed on underpayments of accelerated tax that are less than 70% of the total tax reported on the return, unless reasonable cause exists.

The Department of Revenue had indicated that further guidance and regulations will be issued in the coming months.

Takeaways

• In addition to effects on cash flow planning concerns, taxpayers should anticipate impacts to existing internal workflows around sales tax collection and remittance processes. Massachusetts taxpayers are encouraged to examine their 2020 tax records and make any necessary preparations to comply with these new requirements in advance of the April 2021 effective date.
• Although these changes are anticipated to broadly impact Commonwealth businesses in the hotel, restaurant, and retail sectors, taxpayers should note that these requirements impact Massachusetts-based and remote businesses alike. Businesses located outside of Massachusetts with significant sales into the state should monitor whether they may have a compliance obligation.

Separately, note that the recently finalized fiscal year 2021 budget also expressly disallowed a deduction for charitable contributions for Massachusetts taxpayers which had previously been revived for tax years beginning on or after January 1, 2021.  The deduction is now scheduled to resume in 2022, absent further postponements.

BNN will continue to monitor these and other changes as further information becomes available.

If you have any questions, please contact Leanne Scott or your preferred BNN professional at (800) 244-7444.