Commonwealth Conversations: Revenue

City and Town examines MASSPCSO sham transaction case

Division of Local Services attorney James Crowley has written a very clear and compelling story on a complicated tax case for the latest edition of City and Town , the free DLS publication emailed biweekly to thousands of local officials across the Commonwealth.

Aptly titled "That's Nobody's Business: Sham Corporation Denied Personal Property Tax Exemption," Crowley surgically dissects an Appeals Court decision issued last year that upheld an Appellate Tax Board denial of a property tax exemption to a leasing corporation.

The court ruled that the leasing corporation, MASSPCSO, formed by the wireless telecommunications company Sprint Spectrum, L.P., was a sham because it did not engage in business and was created solely for the purpose of avoiding taxes.

Sprint formed the sham leasing company as a way to transfer taxable equipment to a subsidiary (MASSPCSO) and then lease back the equipment for use in Massachusetts as a way of avoiding local personal property taxes. The local assessors didn't buy the scheme, and neither did the courts.

As Crowley noted, "the Appeals Court observed that MASSPCSO had no employees; failed to keep separate bank accounts; did not independently make investments; did no business with other parties except where it was incidental to leasing equipment to the parent; did not lease property to third parties; could not act independently; did not purchase equipment or be responsible for debt incurred in conjunction with said purchases."

In other words, a classic sham transaction.

DOR to hold 14 meetings on Sr. Circuit Breaker Tax Credit

Brian Lynch of DOR's Office of Advocacy, Training and Communication begins a two-month series of presentations on the Senior Circuit Breaker Tax Credit starting tomorrow at 1 p.m. in Wellesley at the Council on Aging, 219 Washington St.

DOR's web homepage has a complete list of Brian's tour, which is designed to educate taxpayers 65 and older about the benefits of the credit. All sessions will be held at local Council on Aging offices.

For tax year 2011, the credit is worth as much as $980 for eligible taxpayers 65 and older who either own or rent their home. Seniors who live in public or subsidized housing are not eligible for the credit.

Boston Globe weighs in on bundled cell phones

The Boston Globe today took its turn today at examining the sales tax policy governing bundled cell phone transactions.

Reporter Michael Farrell's story is a fair recitation of the history of the policy. Farrell noted that one wireless seller, Sprint, is paying the difference in sales tax between the sales price of the phone and the retail or wholesale price on which the tax is actually computed, unlike other wireless sellers.

This blog has published numerous posts and comments on bundled cell phones, and welcomes Farrell's contribution to the discussion.

If you'd like to sample some of the back and forth, type in "bundled cell phone transactions" in the blog search field (scroll down from the top of the blog and you will find it on the right hand side) and have at it.

Income tax estimated payments come up short in December

DOR released today the December revenue report and the story is all about income tax cash estimated payments, or the lack thereof.

December's collection of $1.969 billion was $87 million less than projected, due almost entirely to a $93 million shortfall in income tax cash estimated payments.

The December summary spreadsheet lays out the numbers. Whiles sales tax revenue was above benchmark and corporate/business tax below benchmark, they offset each other. But there was no offset for the shortfall in income tax cash estimated payments.

There is no certain explanation for the shortfall. These payments are frequently received in December so that taxpayers may use them as deductions on their federal 2011 tax returns. This year, there were two fewer December deposit days than a year ago, and the final deposit day fell on a holiday weekend, so some of these payments may be pushed into January.

Indeed, DOR has always cautioned that December and January need to be viewed as a whole when it comes to cash estimated payments.

Income tax cash estimated payments are made by taxpayers who have reason to believe they will owe tax on income earned from gains recorded on investments or dividends.

It is possible that some taxpayers who continued to make estimated payments in 2011 based on their gains in 2010 have now realized that they do not owe any additional tax, and thus they are not paying additional income tax cash estimated payments.

The Commonwealth received $192 million in such payments last month, which was $90 million less than December 2010 and $93 million less than forecast. On a year-to-date basis, however, income tax cash estimated payments of $686 million are just $33 million less than a year ago, down 4.6 percent, and $84 million less than forecast.

The flow has not stopped, but it has slowed down. "We should have a more complete picture on income tax cash estimated payments later this month," DOR Commissioner Amy Pitter said.

Overall, revenues of $9.847 billion for the first half of FY12 finished $252 million ahead of a year ago, an increase of 2.6 percent, and $49 million below the revised FY12 benchmark of $21.010 billion. 

2011 sales tax holiday saved consumers estimated $20.98M

DOR has released its final report on the 2011 sales tax holiday weekend that occurred on August 13-14, estimating that the amount of sales tax revenue foregone was approximately $20.98 million, exceeding the estimate of $19.9 million from the 2010 sales tax holiday weekend.

Last summer, just prior to the holiday, DOR issued a preliminary estimate of $20.5 million in potential savings to consumers from the holiday weekend.

The most commonly asked question about this report is why can't DOR say precisely how much sales tax revenue was foregone to the Commonwealth and saved by taxpayers.

Sales tax is reported to the Commonwealth no later than the 20th of the month following. For example, information on December sales tax collections will not be reported until January 20th.

Retailers do not list individual transactions by date when they report that data,  but simply lump together the entire amount of taxable retail sales for the month, and then apply the 6.25 percent sales tax and forward that amount to the Commonwealth.

As a result, DOR receives no reporting on the volume of taxable or untaxable sales on any given day or days. Individual retailers undoubtedly have some information on this, but they are not required to share it with DOR.

So in the absence of hard data, DOR estimates using the methodology outlined in the report.