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The Department of Revenue has just published a Technical Information Release explaining changes in tax law created by enactment on August 5, 2010, of "An Act Relative to Economic Development Reorganization."

The TIR references measures that provide tax relief for businesses and investors as well as the introduction of new disclosure requirements for businesses that receive tax credits.

The new regs include a lower Capital Gains tax rate for stock sales in some Massachusetts start-up companies; extension of Net Operating Losses from 5 years to 20 years; changes in Combined Reporting due to federal tax treaties; and new reporting requirements for refundable and transferable tax credit programs.

Capital Gains. The change in the personal income tax for "qualified small business stock "sales takes effect January, 1, 2011, from which time gains derived from the sale of investments which meet certain requirements will be taxed at a 3 percent rate rather than current rate of 5.3 percent. To qualify for the lower rate, the investments must have been made within five years of the corporation's date of incorporation and must be in stock that generally satisfies the definition of "qualified small business stock" under IRS guidelines. The stock must be held for three years or more, the investments must be in a Massachusetts-based corporation incorporated on or after January 1, 2011, and the corporation must have less than $50 million in assets at the time of investment. The stock must be acquired at its original issue.

Extension of NOL Losses from 5 years to 20 years. Prior to the act, the general Net Operating Loss (NOL) carry forward deduction was five succeeding tax years, after which the loss was incurred and could not be carried back. However, for tax losses sustained on or after January 1, 2010, such an NOL may be carried forward for not more than 20 years. A corporation that incurs a loss prior to becoming subject to tax liability is not allowed to carry forward such a loss.

Combined Reporting and Water's Edge. Effective for tax years beginning on or after Jan. 1, 2009, the combined reporting statute for corporations is amended to clarify that where a combined group determines its taxable income or loss on a water's edge basis, an item of income of a corporation organized outside of the United States is not included in the combined group's taxable income to the the extent that the item is exempt from federal income tax due to a federal income tax treaty.

Tax Credit Transparency. Agencies administering refundable and transferable tax credit programs must now submit an annual report, by May 15 of each year, to DOR for credits awarded or claimed for the previous calendar year. The effective date is for credits awarded or claimed on or after January 1, 2011, which means the first reports will be due by May 15, 2012. This requirement will include the Brownfields tax credit, dairy farmer tax credit, U.S.F.D.A. user fees credit, film tax credit, historic rehabilitation tax credit, life sciences investment tax credit, low-income housing tax credit, medical device tax credit, refundable research credit, economic development incentive program, and the certified housing development tax credit.

Here is the entire text of the Act Relative to Economic Development Reorganization.

By the way, the corporate tax rate itself is scheduled to drop from 8.75 percent to 8.25 percent effective January 1, 2011, the result of corporate tax reductions enacted in 2008.

 

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