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Jamie C. Yesnowitz
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On March 31, 2021, the Massachusetts Department of Revenue issued Technical Information Release 21-4 that summarizes and clarifies the new provisions enacted by the FY21 budget legislation requiring the accelerated remittance of sales, room occupancy and meals tax effective for tax periods ending after April 1, 2021.1
This guidance explains the timeline of when the tax is due, what periods are included, and the safe harbor guidelines that can be used to avoid underpayment penalties.
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.2
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).3
Generally, the law includes a 5% underpayment penalty, unless such penalty was due to reasonable cause.4
However, the penalty does not apply if the accelerated payment for the first three weeks of the month is at least 70% of the aggregate tax collected during the reporting period.5
Accelerated sales tax remittance guidance
TIR 21-4 provides some leniency in enforcing the advance payment requirements during 2021. The Department notes that it has received comments from taxpayers concerned about having the necessary sales data in time to comply with the advance payment deadline of the 25th of each month. For advance payments due from April through December 2021, the Department will presume that reasonable cause exists for the waiver of an underpayment penalty if the taxpayer makes an advance payment by the 25th of the month that equals at least 80% of the total tax due for the immediately preceding month. Also, taxpayers subject to the 5% underpayment penalty who did not make an advance payment of at least 80% of the prior month’s liability may demonstrate reasonable cause for a penalty waiver based on other applicable facts.
The guidance includes four examples of how the accelerated sales tax remittance requirements work. These examples should assist taxpayers in calculating the required tax due, and address safe harbor amounts used to avoid underpayment penalties.
Example 1: Taxpayer remits required amount by 25th of month
In the first example, a taxpayer has a monthly sales tax filing requirement and had $240,000 in cumulative Massachusetts sales tax liability in the 2020 calendar year. The taxpayer has approximately $256,000 in gross receipts from April 1 through April 21, 2021. The taxpayer remits sales tax on this amount on April 25, 2021. Because the taxpayer remitted the required amount by the 25th of the month, there is no underpayment. The taxpayer must file the return for the tax period April 1 through April 30, 2021, on or before May 30, 2021. In this example, the taxpayer has $325,000 total gross receipts from taxable sales due for the filing period. The taxpayer must remit the remaining tax due, which is the difference between what was remitted on April 25 and the total tax due for the filing period, with the return it files by May 30, 2021.
Example 2: Large sale at end of month
In the second example, the facts are changed to provide that the taxpayer has a large sale at the end of April producing a total of $500,000 in gross receipts for April. The taxpayer would remit tax due on April 25, and the remaining tax due when it files its return by May 30, 2021. While the taxpayer remitted less than 70% of the total tax due for the month on April 25, it remitted the required amount by the advance payment deadline. Therefore, the 5% underpayment penalty is not triggered.
Example 3: Underpayment on 25th of month
In the third example, the facts are changed to provide that the taxpayer only remits approximately 90% of the tax due on April 25. The taxpayer has a total of $325,000 of gross receipts for the April filing period and must remit the remaining tax due with the return it files by May 30, 2021. The taxpayer remitted less than the amount required to be remitted on April 25, but because it remitted at least 70% of the total tax due for the month on April 25, there is no 5% underpayment penalty.
Example 4: Payment based on preceding month
The final example changes the facts to show that the taxpayer makes a payment on April 25, 2021, based on 80% of its tax due for March 2021. The taxpayer determines that is has $500,000 in total gross receipts from taxable sales for the April filing period, of which $325,000 were from taxable sales made from April 1 through April 21. As a result, the amount paid on April 25 was an underpayment. The taxpayer must remit the remaining tax due with the return it files by May 30, 2021. The taxpayer remitted less than 70% of the total tax due for the month on April 25, but because it remitted at least 80% of the total tax due for the prior month, a reasonable cause waiver of the 5% penalty for the April 2021 filing period applies.
Method of accounting
Further, TIR 21-4 provides that a taxpayer whose method of accounting treats tax liabilities as due at the time customers are billed, and applies that method for purposes of its monthly return, should apply that method in determining the tax collected on or before the 21st day of the filing period.
Change in return due date
The FY21 budget legislation also amended Mass. Gen. Laws ch. 62C, Sec. 16(g) and (h), changing the due date for sales and use tax and room occupancy excise tax returns. Effective for tax periods ending after April 1, 2021, a return required to be filed under these provisions is due 30 days after the close of the tax period. For the April 2021 monthly tax period, returns for these tax types will be due on or before May 30, 2021.
TIR 21-4 provides more detailed examples of the required sales tax payments by the 25th day of each month, as well as the operation of the safe harbor amounts of 70% of the current total tax due of the current month or 80% of the total tax due of the prior month. Because there was confusion for many taxpayers concerning the underpayment penalty when the accelerated sales tax remittance legislation was enacted in mid-December 2020, this release provides valuable technical information that serves as a guide for taxpayers to avoid the 5% underpayment penalty. This will also assist those taxpayers who either have difficulties in capturing all taxable sales by the 21st day of each tax period to calculate the tax due by the 25th day, or may have unusually high amounts of sales at the end of a month, by providing a safe harbor approach to paying the correct tax.
The new sales and use tax due date is now 10 days later than the longstanding due date of the 20th day of the following month. Beginning with tax periods ending after April 1, 2021, the due date for sales and use tax returns will be 30 days after the close of the tax period.
“Tax collected” has also been further explained to provide that tax collected at the time of invoice should be included in the determination of the amounts due for those transactions occurring on or before the 21st day of the filing period, if the taxpayer treats the tax liabilities as due from the time the customer is billed. While this clarifies that “point of sale transactions” are likely subject to the accelerated remittance requirements, the Department has yet to opine on the treatment of transactions where sales tax is not collected instantaneously (i.e. in arrears) and whether those transactions will also be required to be remitted on an accelerated basis. While we expect the Department to address these types of transactions in future guidance, because the Department uses “taxable sales” in the TIR 21-4 examples, it is likely the tax (collected instantaneously or not) will be subject to the accelerated remittance requirements.
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