Commonwealth Conversations: Revenue

A closer look at the issues involved in domicile

Generally, a state may tax the worldwide income of a person who is domiciled there. Although defined by statute or administrative rule in some states, domicile is a common-law term meaning a person’s fixed and permanent place of abode in which the person intends to remain indefinitely or to which the person intends to return.

Domicile differs from residency. Although a person may have multiple residences, a person can have only one domicile. A person may be considered a resident of the state in which he or she currently lives but still be considered domiciled in another state to which the person intends to return.

Once domicile is established in a particular state, it can be difficult to lose.

This reprint of an article that first appeared in The Practical Lawyer in May, 2012, begins by reviewing the key factors that courts and administrative agencies consider in determining domicile and whether the taxpayer has changed his or her domicile as well as the evidentiary standards applied.

The second section of the article examines other tests to determine residency (typically referred to as statutory residency but herein referred to as “residency”) and the definition of a permanent place of abode, residency issues that arise in particular situations, and recent residency cases.

The final section examines dual residency, tax credits available to taxpayers subject to income tax in more than one state, and state legislative efforts and multistate agreements to address double taxation.

DOR's views on domicile are found here. 

DLS offers new do-it-yourself Community Comparison spreadsheet that draws on Municipal Data Bank

The Division of Local Services has come up with a brand new tool that makes searching the Municipal Data Bank much quicker and more focused.

The new Community Comparison Report is up and running, drawing on 65 data elements currently found in the Municipal Data Bank.

The beauty of this application is that users can customize their search using a dozen search criteria.

Let's say you are interested in the average property tax paid in communities of between 5,000 and 10,000 people.

The Community Comparison Report almost instantly will deliver the data which you can then export into an Excel Spreadsheet.

The application is an easy-to-use means of extracting comparative municipal finance and demographic data for multiple communities, which eliminates the often frustrating exercise of opening numerous spreadsheets and sorting, cutting and pasting data from each into a single spreadsheet. 

The latest edition of City and Town has more information on the new application and why it will make data searching easier.

Taxpayers from across the 50 states pay MA income tax

DOR has just posted on its website a report on the amount of MA personal income tax paid and the number of taxpayers who paid it from across the 50 states.

Topping the list, not surprisingly, is New Hampshire, where 88,061 Granite State residents who work in Massachusetts paid the Commonwealth $256,366,987 in tax year 2009. The average tax bill was $2,911. The total amount paid accounted for nearly 30 percent of the income tax paid from residents who live outside Massachusetts.

Rhode Island was a close second, with 64,880 residents paying $136,073,542, an average of $2,097 per taxpayer, or nearly 16 percent of the out-of-state total.

Connecticut was third, with 26,973 residents paying $71,359,862, an average of $2,646 and about 8 percent of the total.

New York, another border state, was fourth, with 22,089 residents paying $66,578,882, an average of $3,014 and just under 8 percent of the total.

Five and sixth were two states at the corners of the map, Florida and California. Some 14,345 Florida residents paid $78,856,556, an average of $5,497 or 9 percent of the total.

In California, 12,846 residents paid $42,258,602, an average of $3,290 and nearly 5 percent of the total.

Rounding out the top 10 were Maine, New Jersey and Pennsylvania, each with between 2 percent and 3 percent of the total paid to MA by non-residents.

The revenue collected from 308,449 non-residents in 2009 was a very substantial $869,977,659 for an average of $2,820 per taxpayer. That was nearly 10 percent of the total income tax collection paid by slightly less than 10 percent of all tax filers.

At the bottom of the list, in descending order were Mississippi, Nebraska, Arkansas, Montana, West Virginia, Alaska, Idaho, Wyoming, and North and South Dakota.

It's easy to figure why residents of New Hampshire pay non-resident tax; they commute across the border to work. The same goes for other nearby states. And Florida is easy too, given the number of residents who retire to the Sunshine State and who receive income from Massachusetts.

But why would those 94 residents of South Dakota pay income tax in Massachusetts? Perhaps they are consultants who have worked here. Perhaps they are retirees who receive a pension from a Massachusetts-based company. Perhaps their dividend checks are paid by Massachusetts banks or financial institutions. Perhaps they moved out of Massachusetts that year.

Whatever the reason, the data indicates that Massachusetts is active in an economy that extends well beyond its borders.

DOR working to improve settlement and appeals processes

DOR Commissioner Amy Pitter wrote today that she is committed to improving the settlement and appeals processes currently in place.

Her comments were posted on the DOR 360 section of DOR's web site. "I am committed to resolving tax disputes as efficiently and as early as possible, and to that end the Department is reviewing some of the best practices from the IRS and elsewhere to improve the appeals process.

"In particular, we are considering a 'fast track settlement' process, which is a pre-assessment process where a trained appeals officer acts as a mediator between the tax auditors and the taxpayer."

Pitter noted that DOR is already authorized to resolve tax disputes prior to assessment or litigation, an authority which permits the Commissioner to accept less than the full amount of a contested liability based on the best interests of the Commonwealth and the potential hazards of litigation.

"The Office of Appeals, an independent office with DOR that reports directly to the Commissioner, settles tax disputes and conduct conferences. The settlement and conference processes are functionally combined at the Office of Appeals to afford a taxpayer a single integrated forum to resolve disputes and an outstanding opportunity for settlement in an informal arena without time-consuming and expensive proceedings," Pitter wrote.

The Commissioner requested comments or suggestions be sent to Steve Dukeman, the director of DOR's Office of Advocacy, Training and Communications at dukeman@dor.state.ma.us.

 

April 17 tax filing deadline a week away; 1M tax returns due

About one-million tax filers have yet to file their return as the filing season enters the homestretch.

With state -- and federal -- income taxes due on April 17th (thanks to Patriots Day in Massachusetts on April 16 and Emancipation Day in Washington D.C. also on the 16th) 2.367 million tax returns have been filed, with close to 3.4 million returns expected.

The number of returns filed is running slightly ahead of last year's pace, by 52,000 returns, so this last-minute approach to filing is normal taxpayer behavior.

Nearly $840 million has been paid out in refunds to 1.78 million taxpayers, up $21 million from the amount paid last year at this time to 1.74 million taxpayers. The average refund this year is $470; it was $469 a year ago.

Slightly more than 60,000 taxpayers have filed for the Senior Circuit Breaker Tax Credit, up 3,793 taxpayers or 7 percent from a year ago. The amount of credit paid to senior taxpayers is $46.7 million, up 8 percent of $3.48 million from a year ago.

If you have questions about filing state income tax, DOR's customer service is available Monday-Friday from 9 a.m. to 5 p.m at 1-800-392-6089. There is also plenty of filing information at www.mass.gov/dor.

You may choose to file your state income tax using WebFile for Income, a free web-based application. Once you have registered for WebFile, you may also check the status of your refund online or use DOR's new mobile app available from Apple or Google.

The average turnaround time for refunds is currently 5 days for paper returns and 3 days for electronic returns; those times will increase as those 1 million tax returns reach DOR in the next week.

March revenue better than last year but less than forecast

 

 

Posted by:

Robert Bliss, Director of Communication, Department of Revenue 

 

DOR released its March revenue report yesterday in which there were two story lines.

The monthly revenue report includes both a review of the month, with a comparison to the same month a year ago, as well as a review of revenue collection year-to-date(YTD) along with a comparison to the previous year's YTD.

While the press releases presents a written summary of the numbers, the one-page tax collection summary presents the actual revenue numbers.

Perusing that summary reveals that there was one revenue story for March -- namely, that corporate/business tax collections were $50 million below benchmark -- but a separate story for the YTD report, with tax collections running $87 million below benchmark due to less than forecast income tax collections.

Corporate and business tax collections had been running ahead of forecast for the first eight months of the year, but fell $50 million below benchmark in March (and $32 million less than March 2011) leaving the overall March revenue collection of $1.802 billion some $29 million below benchmark.

YTD, the explanation for revenue running $87 million below benchmark is found in income tax collections, which are up $270 million or 3.5 percent, but which have fallen $169 million short of forecast. Basically, it is fair to say that income tax revenue has gone up, but not as much as was built into the forecast.

Both YTD income tax withholding (up $260 million or 3.7 percent but still $74 million under benchmark) and income tax cash estimated payments (down $17 million from a year ago or 1.4 percent and $73 million below benchmark) are down.

As Commissioner Amy Pitter noted in the press release, "Withholding overall has grown, but at the rate forecast, while income tax cash estimated payments dropped off in December and since then have been flat, possibly reflecting a slow down in the collection of investment related income."

So with the big months of April, May and June ahead, the Commonwealth has collected $14.697 billion, $343 million or 2.4 percent more than at the same point a year ago, but $87 million shy of the benchmark.

Clock ticking on 1.3 million waiting to file tax returns

It is now getting close to procrastination time. Both state and federal income taxes this year are due on April 17 -- and with two weeks to go, nearly 1.3 million tax filers out of an estimated 3.4 million have yet to file their MA income tax.

That's about 40 percent of all the tax returns DOR expects to receive for tax year 2011.

It's not unusual; at this time a year ago, 71,000 fewer taxpayers had filed.

Massachusetts tax returns are due on April 17 because April 15 is a Sunday and April 16 is Patriot's Day. Federal tax returns are due April 17 because April 16 is Emancipation Day, a holiday celebrated in the District of Columbia that closes government offices in D.C.

As of April 2, more than 2.12 million tax returns had been filed, 70,491 more than at the same point a year ago.

Nearly 87 percent of all returns have been filed electronically, up slightly from 86 percent a year ago.

More than 1.6 million taxpayers have received refunds averaging $469; a year ago more than 1.5 million taxpayers had received refunds averaging $471,

The amount of refunds paid is $766.45 million, more than the $745.13 million paid at the same point a year ago.

The average electronic refund is sent within three business days while the average paper return refund is sent in five days; those are essentially the same as last year.

 

Marijuana tax stamps still on sale even though law up in smoke

A Massachusetts newspaper reported this week that two men arrested for possession of five pounds of marijuana had also run afoul of state tax law.

The story went on to quote from the law ... which was all well and good except the law was thrown out in a Supreme Judicial Court case settled in 1998, Commissioner of Revenue v. Mullins. In ruling against the Commonwealth, the SJC said the law was aimed at drug dealers and amounted to a double jeopardy penalty since it imposed a high rate of taxation, had a deterrent purpose, was clearly conditioned on the commission of a crime, and bore no logical relationship to legal possession.

Some background is in order. in 1993, the Massachusetts Legislature passed the Massachusetts Controlled Substance Tax which authorized DOR to print tax stamps for controlled substances such as marijuana. Even though the SJC ruling made the law moot, it has not been repealed. The law set a tax rate of $3.50 per gram or $99.20 per ounce of controlled substance.

After the SJC decision, DOR kept the stamps, which are purple and about the size of a postage stamp.

Indeed, since the law first took effect, DOR has earned about $2,500 from the stamps which sell for $3.50 each, with most of those sales registered after the SJC decision.

Who is buying a stamp that has no valid legal purpose, given the SJC decision? Stamp collectors. Some purchasers sell the stamps as collectibles on web-based auction sales sites for as much as $20.

If you'd like to order your collectible, gag gift or stocking stuffer -- and folks, supplies are running low, so act now since DOR will not re-order the useless stamps once they are gone -- you can obtain them by downloading DOR form CST-1, Marijuana and Controlled Substances Stamp order form and mailing it to DOR at the address listed on the form.

We can't make this stuff up.

MV sales tax collection up; gasoline excise collection down

The Commonwealth has collected more than $800 million in revenue from the sale of motor vehicles ($422 million) and the gasoline excise tax ($391.6 million) in the first eight months of FY12.

But the two sources of revenue have been trending in opposite directions: sales tax revenue from motor vehicles is up $33 million for the first eight months of FY12, while gasoline excise tax revenue is down almost $5 million in that same period.

Taxpayers are buying motor vehicles, but they are also pumping less gasoline into them.

A year ago, with cost of a gallon of gasoline approaching $4 a gallon -- just as it seems to be doing today after a price fall-off that saw a gallon sell for $3.35 a gallon as recently as three months ago -- conventional wisdom was that tax revenue from the gasoline excise tax would go down as the price went up.

However, the data disputed that notion; a year ago, gasoline excise tax collections were up, not down, and they finished FY11 at $581.7 million, $3.4 million more than in FY10.

In a post dated March 11, 2011, this blog noted that “Economists note that consumers react to price hikes not with quick action, but with measured, more long-term responses, especially if price spikes become permanent price hikes. Drivers may choose to purchase more fuel efficient vehicles, change to public transportation, or move closer to their workplace. There are other factors, such as household disposable income.”

A year later, in March 2012, it may well be that consumers have responded by cutting down slightly on gasoline consumption, but the fact remains they are still very much buying motor vehicles.

By the way, a year ago Massachusetts gasoline excise tax of 21-cents per gallon ranked 27^th (with No.1 the highest); today, Massachusetts with the same excise tax, ranks 29^th, according to the Tax Foundation.

DOR mobile app now available from Apple and Google

The Department of Revenue has produced, in-house, a new mobile smartphone app that allows taxpayers to check the status of their refund, file for an extension and make an estimated payment, take corrective action should a refund be held up, and keep up with DOR alerts and video.

In a press release issued today, DOR Commissioner Amy Pitter said that "DOR wants to engage and communicate with taxpayers in the easiest and most direct manner possible, and for many taxpayers, that means their smartphones which are already a center for commerce and personal business."

The release includes links to Apple and Google where the app can be downloaded at no cost. No other state revenue department offers a similar app with the same level of functionality.

Pitter said she was "proud of the development work for this app that was done by DOR's Information Services Organization Web and Mobile Team," and noted that the groundwork had been laid for more apps in the future.

DOR's homepage features a story complete with screenshots of the new app.