Massachusetts Response to Bonus Depreciation

BNA, 8/16/02
Massachusetts Revenue Department Release Explains Disallowed Federal Depreciation Deduction
Massachusetts taxpayers that have filed 2001 income tax returns taking the new federal bonus depreciation deduction must file amended returns because the federal bonus depreciation deduction is not available in the state, the Massachusetts Department of Revenue said in a technical information release (TIR No. 02-11) dated Aug. 1.

The state enacted legislation (H.B. 5006) April 17 (81 DTR H-3, 4/26/02) decoupling state tax rules from the new federal bonus depreciation provisions of Internal Revenue Code Section 168(k), enacted as part of the Job Creation and Worker Assistance Act of 2002 (Pub. L. No. 107-147).

Taxpayers that already have filed 2001 returns taking the deduction must file amended returns, the department said.

The federal law established a 30 percent depreciation bonus for qualified capital investments by businesses, effective for 36 months for property placed in service after Sept. 10, 2001.

The release explained that Massachusetts law was amended to decouple it from Section 168(k) for purposes of the depreciation deduction. The changes to both the corporate excise and personal income tax took effect for taxable years ending after Sept. 10, 2001.

For Massachusetts purposes, for taxable years ending after Sept. 10, 2001, depreciation is to be claimed on all assets, according to the release, regardless of when they were placed in service.

Amended 2001 Returns Required
Taxpayers that filed a 2001 Massachusetts tax return and paid all taxes due, taking advantage of the new Section 168(k) provisions, are required to file an amended return correcting their depreciation calculation and write "depreciation recalculation" in capital letters at the top of the amended return, DOR said.
Additional tax may be required as a result of the deduction disallowance, but the release said the department will waive interest and penalties on this additional payment for up to 180 days after the due date of the original return.

Further, taxpayers who timely filed an application for an extension of time to file their 2001 return must submit their final return by the extension due date and calculate their liability without the new federal rules. These taxpayers should write "depreciation recalculation" in capital letters at the top of the amended return.

If the final return indicates that a taxpayer did not pay 80 percent of the total tax liability with the extension application as a result of using the new federal deduction in the calculation, the taxpayer will not incur interest or penalties for late payment or underpayment as a result of the recalculation.
2002 Estimated Payments

Taxpayers who timely filed and paid estimated tax payments toward their 2002 tax liability and calculated their tax liability based on the new federal rules should recalculate their remaining tax payments to correctly determine their amount of estimated tax due for the 2002 tax year.

These taxpayers should file forms for underpayment of estimated tax and write "depreciation recalculation" in capital letters at the top of the form and "waiver" in capital letters on the appropriate line. The taxpayers will not incur underpayment of estimated tax penalties as a result of the recalculation, the department said.

Text of the release is available at http://www.dor.state.ma.us/rul_reg/tir/TIR_02_11.htm.

State Tax Today, 4/30/02:

Massachusetts HB 5006, signed into law as Chapter 96, decouples the state's equipment depreciation schedule from the acceleration provisions of federal economic stimulus legislation.

From BNA:

Massachusetts Lawmakers Pass Bill to Decouple State Law From New Federal Bonus Depreciation Rules

BOSTON--Massachusetts lawmakers passed and sent to the governor April 11 legislation (H. 5006) that will disallow under state law the so-called bonus depreciation rules contained in new Internal Revenue Code Section 168(k). The new federal rules allow an additional first-year depreciation deduction equal to 30 percent of the adjusted basis of the qualified property placed in service.

Because of the way in which Massachusetts is tied to the federal tax code, state law would have automatically allowed the new bonus depreciation rules to be used by corporate excise filers, including financial institutions, utility corporations, and general business corporations, according to Revenue Commissioner Alan LeBovidge. It would also have included individuals to the extent they claim trade or business deductions, he said. The legislation would retroactively decouple the Massachusetts depreciation provisions from the new federal rules.

Acting Gov. Jane Swift (R) is expected to sign the measure, which would take effect immediately under an emergency preamble. State revenue estimates projected that the rules would cost the state approximately $60 million for the remainder the current fiscal year and $300 million to $500 million over the next three years. The measure also authorized the commissioner to waive interest and penalties for those taxpayers who have already filed their state tax forms and utilized the
Section 168(k) deduction. Taxpayers would still be required to pay the additional tax, but would not be required to pay interest or penalties on the additional tax payment required because of the retroactive change. The waiver period will extend for up to 180 days after the due date of the return, regardless of any extension.

The legislation also would extend to 120 days the time period during which the Department of Revenue is not required to pay interest on taxpayer refunds. Under current law, the DOR is required to pay interest on refunds beginning 45 days after the returns should have been filed. The extension would apply only for the 2002 tax filing period.

By Martha Kessler

RIA, May 10, 2002:

 Massachusetts. Massachusetts Governor Jane Swift has signed into law L. 2002, H5006, which de-links the Massachusetts depreciation provisions from the new federal bonus depreciation rules, retroactively  for taxable years ending after September 10, 2001.

BNA, 5/20/02:

The new federal depreciation allowance under Section 101 of the Job Creation and Worker Assistance Act (Pub. L. No. 107-147) is not adopted for Massachusetts corporate excise and personal income tax purposes, under a draft documented circulated May 10 by the Massachusetts Department of Revenue.

The proposed technical information release explained the decoupling of Massachusetts law from the new federal bonus depreciation provisions of Internal Revenue Code Section 168(k).

The federal act provided for a special depreciation allowance for certain property placed into service during the three-year period beginning Sept. 11, 2001, and ending Sept. 11, 2004. Specifically, the agency said, the federal act allows an additional first-year depreciation deduction equal to 30 percent of the adjusted basis of the qualified property. These new "bonus" depreciation rules are contained in a new subsection (k) to I.R.C. Section 168.

DOR explained in the proposed release that Massachusetts law was recently amended to decouple it from the adoption of I.R.C. Section 168(k) for purposes of depreciation.

For Massachusetts purposes, for taxable years ending after Sept. 10, 2001, depreciation is to be claimed on all assets, regardless of when they are placed in service, using the method used for federal income tax purposes prior to the enactment of I.R.C. Section 168(k), the release said.

Taxpayers who filed a 2001 Massachusetts tax return and paid all taxes due with their return, taking advantage of the provisions under I.R.C. Section 168(k), are required to file an amended Massachusetts return correcting their depreciation calculation, DOR said. Taxpayers should write "DEPRECIATION RECALCULATION" on the return envelope and on the top of the amended tax return. While an additional tax payment may be required as a result of the recalculation, interest and penalties on the additional payment will be waived for up to 180 days after the due date of the original return, regardless of any extension, DOR said.