Archive for category Massachusetts Tax

Misclassification of Employees as Independent Contractors

The IRS is cracking down on businesses who classify workers as independent contractors, but who should be employees. In 2011, the IRS created a new program regarding workers misclassified as independent contractors or nonemployees. Businesses classify workers as independent contractors because they want to save on payroll tax.

The Voluntary Classification Settlement Program (VCSP) lets employers voluntarily reclassify workers as employees for future tax periods without an IRS audit context and outside the need to go through usual correction procedures. To keep businesses out of trouble with the Department of Labor (DOL) or state taxing authorities, the IRS advised people interested in the program that it will not share information about VCSP applications with the DOL or the states. This will incentivize people to reclassify because they will worry less about penalties from the DOL or the states, and in the end, the DOL and states win because as workers get reclassified, there are fewer worker complaints to the DOL, and more state tax revenue.

An employer contacted by the IRS about an SS-8 determination letter is eligible for VCSP, but an audit of a parent, subsidiary or member of the employer’s consolidated group is considered an audit of the applicant and would make the employer not eligible for VCSP.

Signing the VCSP closing agreement is not an admission of any liability or wrongdoing for prior years. Rejection of a VCSP application will not automatically trigger an audit. More details on VCSP are found at the IRS website:,,id=246014,00.html.

Recent studies suggest about 10% to 30% of employers misclassify their workers as independent contractors per the Internal Revenue Code 20-factor test. The DOL, the National Labor Relations Board, the Equal Employment Opportunity Commission, and states all use different tests to evaluate if a worker is an employee or an independent contractor. An employer may be able to justify classifying a worker as an employee in one context and at the same time, classify the worker as an independent contractor in another situation.

Misclassification can have significant financial consequences for businesses when audited. These consequences can put a company out of business and result in back taxes, penalties and interest. The financial consequences are calculated based on what a business should have paid for taxes had a worker been appropriately classified as an employee rather than an independent contractor.

For individuals or businesses with complex tax questions, contact an experienced Massachusetts tax attorney.

Dual US Citizens and Residents Penalties

The federal government is cracking down on taxpayers who are dual citizens or residents of the United States and another country. These people may have knowingly or unintentionally failed to timely file US federal and/or state income tax returns.

For example, individual U.S. citizens or permanent residents often fail to file if they live outside of the United States for an extended period of time and have not formally expatriated for U.S. immigration and tax law purposes. Their failure to file may be motivated by an attempt to save money, but it’s a mistake that exposes them to civil and criminal penalties. Ironically, their U.S. taxes due may not be substantial, since the taxes due are net after application of the foreign tax credit rules, foreign earned income exclusions, other provisions in the Internal Revenue Code allowing for a reduction of U.S. income tax, and applicable income tax treaties or conventions.

Another example, dual residents, despite taking advantage of a tie-breaker provision in an applicable treaty, may not realize that they are accountable to file FBAR and other ownership disclosure forms. These people may think, in good faith, that they were “non-resident”.

Dual residents or citizens also may fail to timely file Reports of Foreign Banks and Financial Accounts (FBARs) under the FINCEN regulations. The FBAR must be filed by any United States individual by June 30 of the year after the calendar year in which the United States individual (U.S. citizen or U.S. resident, corporation, trust, partnership or limited liability company created, organized or formed under U.S. law) has a financial interest in, or signature authority over, foreign financial accounts (FFAs) (including bank, securities and other types of accounts) where the aggregate value of the FFAs is more than $10,000 at any time during the calendar year. According to federal regulations, “signature authority” means the authority, either alone or in conjunction with another, to control the disposition of money, funds or other assets held in a financial account by direct communication to the person with whom the financial account is maintained. If you sign a signature card, you have “signature authority”.

The federal government is aware there are many people who fail to meet their personal obligations under Title 26 on federal income tax and Title 31 on FBAR reports for several years. The IRS released a fact sheet (FS-2011-13) on December 7, 2011, summarizing federal income tax return and FBAR filing requirements. The fact sheet discusses how to file a federal income tax return or FBAR and warns of potential penalties. Taxpayers who owe no U.S. income tax may not be subject to delinquency penalties for failure to file or pay.

Remember, U.S. citizens, even if also citizens of a foreign country and no matter where they reside, are required to annually file U.S. federal income tax returns reporting their income from U.S. and foreign sources. In addition, many U.S. states will try to assert tax jurisdiction over former residents who have moved abroad.

Stay up to date on federal and state tax laws by consulting with an experienced Massachusetts tax attorney.

Massachusetts Sales & Use Tax

Since August 1, 2009, the Massachusetts sales tax percentage is 6.25 percent of the sales price or rental charge of tangible personal property or specified telecommunications products and services sold or rented in Massachusetts.

The sales tax generally is paid to the vendor as an addition to the purchase price. The purchaser pays the sales tax to the merchant at the time of purchase; the vendor then remits the tax to the Commonwealth. For automobile and trailer sales, however, the sales tax is paid directly to the Commonwealth by the consumer.

Since August 1, 2009, the Massachusetts use tax is 6.25 percent of the sales price or rental charge on tangible personal property 1 (including mail order goods or products purchased over the Internet) or specific telecommunications services on which no sales tax, or a sales tax rate less than the 6.25 percent MA rate, was paid and which is to be used, stored or consumed in the commonwealth. The use tax, unlike the sales tax, usually is paid specifically to the state by the purchaser.

Case in point: You order household furniture for your MA enterprise or residence from an out-of-state firm and pay no MA or other state sales tax. You are compelled to pay the 6.25 percent Massachusetts use tax. The use tax applies because the items were not exposed to a sales tax in the other state and because it is for use in the commonwealth.

Concrete individual property involves electronically transferred software.Telecommunications services consist of telephone and other transmissions of data (such as beeper services, cellular telephone services and telegram services). Cable television and Internet access are exempt from the sales tax. Usually, the tax on the sale or use of telecommunications services is a tax on the transmission of messages or information by various electronic means, but not on the sale or use of data itself.

Recent Changes to Massachusetts Tax Laws: An Overview

For many state residents, taxes are an afterthought, one that gains a mountain of attention in April and reverts back to a molehill once everyone’s paperwork is in order. Few consumers take time to consider how the sales tax they pay – which is smaller in Massachusetts than in most of the United States – can help or hinder the economy on a larger scale. As many are aware, this coming November could mean many changes in local taxes and for the Massachusetts budget, changes that could impact you on a day-to-day basis. Before heading to the polls on November 2nd, be sure to familiarize yourself with some of the most important issues.

Question 1 – Sales Tax on Alcoholic Beverages

Not so long ago, alcohol purchases were tax-exempt. This changed last year, when the Senate voted to lift the exemption, opting for the statewide average of 6.25%. While the month of September always brings a rise in alcohol sales thanks to the influx of college students, most other months have found liquor store owners struggling. Formerly regular customers are crossing state lines to buy alcohol in New Hampshire, where no sales taxes are applied, and businesses have had to cut down on employees and advertising. Taxes from alcohol sales will go towards federally funded addiction recovery programs, and most supporters argue that because alcohol is not a necessity, it should not be tax exempt. Many donations have been made to campaigns supporting both sides of the issue.

Question 2 – Comprehensive Permits and Regional Planning Initiative

Question 2 revolves around a law that’s been in place for over forty years, allowing organizations building low- or moderate-income to obtain a single zoning permit, as opposed to separate permits from each agency or official with any jurisdiction over any aspect of the housing in question. Voting No on Question 2 would make no change to the standing law, which advocates claim is responsible for having created approximately 58,000 affordable homes for seniors and working- and middle-class families. Voting Yes is a vote to abrogate the current law, an action supporters believe is necessary for housing development reform.

Question 3 – Sales Tax Cut, From 6.25% to 3%

This proposed law would reduce the state sales tax by half, beginning on January 1, 2011. This is important to voters on either side, as its implementation would impact residents on a daily basis in noticeable ways. While it might cut the cost of a family’s groceries for the week, it would halve the state’s budget for public programs, and the jobs of thousands of municipal employees could be put at risk. Arguments from the Yes voters are based on lower taxes inevitably stimulating the economy, and each household keeping approximately eight hundred dollars more per year than they do now.
Almost twice the amount of residents are expected to vote this year than in the last elections.

Traditional IRA Conversion to a Roth IRA in 2010 In Massachusetts

In general, Massachusetts follows the provisions of the Code as of January 1, 2005, with certain exceptions.

Massachusetts generally adopts the federal rollover rules in IRC § 408A with certain adjustments. The regulations provide:

In the case of a distribution within the meaning of subsection (d)(3) of section 408A of the Code as amended and in effect for the taxable year, any amount included as income for federal tax purposes under said section 408A by reason of such distribution shall be included in gross income and, to the extent such distribution is included in adjusted gross income under subsection (c), shall be taken into account in determining taxable income under this chapter in the same manner as under subparagraph (A) of said subsection (d)(3) of said section 408A of said Code.

For Roth IRA conversions in 2010, unless a taxpayer elects for federal purposes to include the applicable conversion amount in gross income in 2010, the taxpayer must include the applicable Massachusetts gross income from the conversion ratably in 2011 and 2012. Thus, unless the federal election applies, none of the amount includible in Massachusetts gross income as a result of a conversion occurring in 2010 is included in Massachusetts gross income in 2010, and half of the income resulting from the conversion may be included in Massachusetts gross income in 2011 and half in 2012.

Tax Attorney Richard M. Stone is admitted to the Bar in Massachusetts, Ohio, Pennsylvania, DC, and the U.S. Tax Court. He received his J.D. from the University of Pennsylvania Law School, and his B.S. in Mathematics from Lafayette College.

McLane Law Firm Welcomes Richard M. Stone

April 19, 2010, Manchester, NH and Woburn, Massachusetts – The McLane Law Firm welcomes attorney Richard M. Stone to its TradeCenter 128 office location in Woburn, MA.

About the McLane Law Firm

Founded in 1919, the McLane Law Firm is one of New England’s premier full-service law firms with offices in Manchester, Concord and Portsmouth, New Hampshire, as well as Woburn, Massachusetts. Driven by the firm’s depth of sophisticated legal expertise and an unwavering commitment to client service, McLane has built collaborative and lasting relationships with a broad spectrum of domestic and international clients.

House Lawmakers Scrap Proposal To Increase Massachusetts Property Taxes

A proposal that could have raised property taxes by up to $500 million was scrapped today by Massachusetts House lawmakers.

Proposition 2 1/2 is a state law that limits property tax increases. The measure was approved by voters in 1980 and changed the way local districts raise taxes in order to pay for municipal services. Under the proposition, local government can not raise property taxes by more than 2.5% per year without getting voter approval.

You can read more about the failed plan here.

Leaders In Opposition To Proposed Ballot Cutting Massachusetts Sales Tax

Leaders are concerned that a proposal in place to cut the state sales tax to 3% would mean devastating cuts in state and municipal services. If approved, it would cost the state about $2.34 billion in revenues.

Another ballot proposal will get rid of the 6.25 percent sales tax on the retail sale of beer, wine and alcohol. If passed, this would cut $100 million in revenues each year from state government.

The concern is that the loss in revenue by the tax cut would be crippling to local government services.

You can read more about the tax cut proposals here.

No Gas Tax Hike According To Gov. Patrick

According to the Massachusetts Gov., Deval Patrick, there will be no gas tax hike. The Governor dismissed the idea of raising the gas tax at a breakfast forum today for the 2010 gubernatorial candidates.

At the breakfast, the governor outlined his agenda hoping for a second term in office. He also went on to explain his policy decisions over the past four years. According to the article:

The governor vowed to continue to examine the state’s transportation system, but dismissed any notion of hiking the gas tax, saying the state cannot afford it at this time. The governor had supported a gas tax in the past because, under state law, any revenues from the tax would have to be redirected to transportation projects.

This is a welcome relief for Massachusetts drivers.

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New Taxes On Meals Are Bringing In More Revenue Than Expected

The Massachusetts Legislature enabled local communities to impose a tax on meals. The new tax has been bringing in more money than was originally anticipated.

In total, 73 communities have instituted the new tax. It was projected that Boston would raise an additional $1.4 million in revenue, and it wound up bringing in $1.5 million in October, the first month the tax was put in place. Medford more than doubled the state’s projection.

While it has proven to be a new source of revenue, the tax is being met with resistance from business owners, restaurants, and others in the community tired of more taxes.