Massachusetts OKs accelerated sales tax payments

On Dec. 11, 2020, Massachusetts Gov. Charlie Baker approved a $46 billion budget for the 2021 fiscal year.¹ Among other items, the budget contains a provision for the accelerated payment of monthly sales, room occupancy and/or meals tax collected by certain businesses, with a new remittance timeline taking effect on April 1, 2021.

Background

Under current law, for monthly Massachusetts filers, sales and use tax returns and payments are generally due the 20th day of the following month after the period in which the sale is made.² However, accelerated sales tax remittance has been a long-sought legislative priority of Gov. Baker’s administration. Previously, the governor’s administration supported measures that would have required the remittance of sales tax on a real-time or daily basis.

Accelerated sales tax remittance rules

Effective April 1, 2021, monthly return filers whose sales and use tax, room occupancy tax or meals tax liabilities exceeded $150,000 in the prior calendar year must remit such taxes collected through the first three weeks of the month by the 25th day of that month.³ Tax collected during the remainder of the month will be due with the subsequent return, which will now be due by the 30th day of the month following the reporting period (rather than the 20th day).⁴

As an example, sales tax collected in April for the first 21 days of the month will be due April 25. Sales tax collected in April for the last nine days of the month will be due by May 30. Generally, the legislation includes a 5% underpayment penalty, unless such penalty was due to reasonable cause.⁵ However, the penalty will not apply if the accelerated payment for the first three weeks is at least 70% of the aggregate tax collected during the reporting period.⁶

Commentary

The enacted budget legislation represents the culmination of Baker’s efforts to modernize sales tax collection and remittance in Massachusetts. According to the governor’s office, the new remittance timeline is expected to apply to approximately 5% of businesses operating in Massachusetts.⁷ While the governor’s administration initially proposed real-time or daily sales tax remittance in previous versions of the budget, business groups were highly critical of such proposals, noting the cost and complexity associated with the daily remittance of sales tax.⁸ In response, business groups advocated for legislative amendments proposing sales tax prepayment programs as an alternative to accelerated sales tax collection.⁹ However, such amendments did not make it into the final version of the budget, with the Massachusetts legislature ultimately coming to an agreement on the accelerated payment provision.

Massachusetts sales tax filers that are subject to the new accelerated remittance requirement will now be required to track two separate filing and payment deadlines. One deadline concerns the first three weeks of sales tax collected (due on the 25th of the current month), and the second concerns sales tax collected in the remainder of the month (due the 30th of the following month). Affected filers will need to ensure their sales tax collection processes and procedures are updated to account for the accelerated remittance requirement. This may require significant modifications to and investment in a company’s current sales and use tax compliance process. For example, any sales tax compliance software utilized by Massachusetts sales tax filers will need to be updated to ensure the new requirement and associated due dates are appropriately reflected.

We anticipate that the Massachusetts Department of Revenue will soon be issuing regulations and guidance addressing the newly enacted sales tax acceleration requirement with further illustrative examples. From a return filing perspective, it is expected that the regulations will address whether taxpayers may file one return to report sales tax collected from the first three weeks of the current month and the remaining sales tax collected from the previous month, or whether separate returns and payments will be required. Additionally, the regulations may elaborate on how the Department defines “collections.” For example, “point of sale” transactions would likely be subject to the accelerated remittance requirements, because tax is collected instantaneously on such transactions. However, there are a number of transactions whereby sales tax is not collected from the customer in real time depending on the billing terms between the vendor and customer. Further guidance will be needed to address sales tax received from customers that are not instantaneous (i.e. in arrears), and whether these types of transactions will also be required to be remitted on an accelerated basis.

With Massachusetts joining a small number of states adopting an accelerated sales tax payment provision,¹⁰ it will be interesting to see whether other states will implement similar expedited sales tax remittance procedures, or even go as far as mandating real time or daily tax collection and remittance.

1 H.B. 5164, Laws 2020.
2 MASS. GEN. LAWS ch. 62C, § 16.
3 H.B. 5164, § 30, adding MASS. GEN. LAWS ch. 62C, § 16B.
4 H.B. 5164, § 29, amending MASS. GEN. LAWS ch. 62C, § 16.
5 H.B. 5164, § 30, adding MASS. GEN. LAWS ch. 62C, § 16B.
6 Id.
7 Press Release, Office of Governor Charlie Baker, Dec. 11, 2020.
8 See Prepayment is Preferable to Daily Sales Tax Remittance, Massachusetts Taxpayers Foundation, Nov. 2020.
9 For example, the Retailers Association of Massachusetts supported an amendment giving businesses the option to pay 75% of their full month’s tax liability for the preceding calendar year for purposes of simplifying the tax calculation. Press Release, Retailers Association of Massachusetts, Nov. 17, 2020.
10 For example, Pennsylvania requires certain businesses to make sales tax prepayments based on their sales tax liability during the third quarter of the previous calendar year. Taxpayers that remitted between $25,000 and $100,000 in sales tax in the prior third calendar quarter may remit either 50% of the actual tax liability for the same month of the previous year, or at least 50% of the actual tax liability for the current period. 72 PA. STAT. § 7217(a)(3). Taxpayers that remitted at least $100,000 in the prior third calendar quarter must remit 50% of the actual tax liability for the same month of the previous year. 72 PA. STAT. § 7217(a)(4).

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