TIR 04-30: Revised Electronic Filing Requirements TIR 04-30 replaces TIR 03-15, TIR 03-11, and TIR 02-22

In a continuing effort to take advantage of new technology as a tool to improve tax administration, the Commissioner of Revenue hereby modifies the Department of Revenue’s (DOR) electronic filing requirements. The Commissioner’s authority to issue electronic filing mandates is granted under G.L. c. 62C, § 5.[1]

This TIR introduces or expands electronic filing requirements for certain filers, and postpones electronic filing requirements for others, changing some filing requirements mandated by TIR 03-15, TIR 03-11 and TIR 02-22. Modifications and new requirements are set forth in section II, below. Previously published electronic filing requirements that continue in effect are set forth in section III, below. Definitions, rules, and requirements applicable to all electronic filers are set forth in section IV, below.

II. New or Modified Provisions

A. Postponement of Electronic Filing Requirement for Financial Institutions, Insurance Companies, and Public Utilities

The Commissioner, in TIR 03-11, section IX, required financial institutions with gross income as defined in G.L. c. 63, § 1 of $500,000 or more, insurance companies with taxable revenue as described in c. 63, §§ 20 through 23 of $500,000 or more, and public utilities with gross income from all sources of $500,000 or more to pay electronically as of January 1, 2004. TIR 03-11 announced that these thresholds would be lowered to $100,000 on January 1, 2005 and that returns for those entities would have to be filed electronically in addition to being paid electronically. The Commissioner postpones until further notice the application of the electronic filing requirement announced in TIR 03-11, section IX, as it applies to insurance companies, financial institutions, and public utilities. The electronic payment requirement for these types of entities that are at or above the $100,000 threshold, however, remains in place to begin on January 1, 2005. Financial institutions, insurance companies, and public utilities over the $100,000 threshold described above must file paper returns but must nonetheless make all payments electronically. Electronic payments can be made via the Webfile for Business section of the DOR Website.

B. Electronic Filing Requirement Modified for Corporate Extension Requests

In TIR 03-15, the Commissioner required all corporations to use electronic means to request extensions and make the accompanying payments as of January 1, 2005. The Commissioner hereby modifies that requirement. Extension requests for corporate excise must be made electronically if the taxpayer is required to file and pay electronically. Corporations with more than $100,000 in gross receipts or sales (as described in section III.C below) must, therefore, make extension requests and any accompanying payment electronically as of January 1, 2005. In addition, this TIR requires any corporation making a payment of $5,000 or more with its corporate excise extension request to file the request and make the payment using electronic means as of January 1, 2005. Financial institutions, insurance companies, and utility corporations are not included in the electronic extension requirements.

Electronic extension requests and payments can be made via DOR’s online Webfile for Business website, at https://wfb.dor.state.ma.us/webfile/business/Public/Webforms/Login/Login.aspx.

C. Income Tax Preparers Who Filed 200 or More Personal Income Tax Returns during 2004 Must File Returns Electronically; Threshold Drops to 100 the Next Year

For tax years beginning on or after January 1, 2004, income tax return preparers who completed 200 or more original Massachusetts Forms 1 and 1-NR-PY, including those E-filed, during the previous calendar year are required to use electronic means to file all personal income tax returns (i.e., Forms 1 and 1-NR-PY), unless the taxpayer specifically directs on the paper form that filing be on paper. For tax years beginning on or after January 1, 2005, the threshold at which income tax return preparers must file electronically is reduced to 100 or more original returns during the previous calendar year. The income tax return preparer must continue to use electronic means to file personal income tax returns in all subsequent years unless the income tax return preparer prepared no more than 25 original individual income tax returns during the previous calendar year. The term “income tax return preparer” means any person or entity who prepares for compensation, or who employs one or more persons to prepare for compensation, any personal income tax return or any claim for refund of personal income tax. The preparation of a substantial part of a return or claim for refund is treated as if it were the preparation of the entire return or claim for refund. A tax return preparer is not required to file electronically a return upon which the taxpayer has specifically directed that the return not be filed by electronic means.

The Commissioner encourages, but does not require, payment of tax liability for electronically filed personal income tax returns to be made electronically. Electronic payment may be accomplished by the practitioner through the electronic transmission process or by the practitioner or taxpayer through DOR’s Web Services for Income site, at https://wfb.dor.state.ma.us/webfile/wsi/.

D. Electronic Filing Required for Personal Income Tax Extension Requests with No Payment or with Payments of $5,000 or More

For tax years beginning on or after January 1, 2004, any extension request and payment made by or on behalf of a taxpayer filing Forms 1 or 1-NR/PY must be made using electronic means if a payment of $5,000 or more accompanies the extension request. In addition, extension requests must be made by electronic means if no payment accompanies the extension request. Two electronic options are available for most extension filers. Personal income tax extensions may be requested via Telefile Extension at 617-660-2222. Personal income tax extensions may also be requested over the web at DOR’s Web Services for Income site, at https://wfb.dor.state.ma.us/webfile/wsi/.

E. Electronic Filing and Payment Requirements for Fiduciaries

TIR 03-11 required fiduciaries filing Form 2 with total Part A, Part B, and Part C net taxable income (as defined in G.L. c. 62, § 2(b)) of $50,000 or more to pay electronically, as of January 1, 2004; this threshold was to be lowered to $30,000 and the requirement that such returns be filed electronically was to be added as of January 1, 2005. The Commissioner hereby postpones the change in threshold; the threshold at or above which fiduciaries must pay electronically remains $50,000. In addition, the Commissioner postpones the requirement that fiduciary returns above the threshold be filed electronically. Fiduciaries who are at or above the $50,000 threshold (total Part A, Part B, and Part C net taxable income on Form 2) must continue to use electronic means to make any payments to the Department. Chapter 262 of the Acts of 2004 (chapter 262) modified the tax treatment of trusts, effective for taxable years beginning on or after January 1, 2005, by imposing the tax on income for certain trusts at the beneficiary level, rather than at the trust level. While income included in the gross income of a beneficiary by reason of Internal Revenue Code sections 652 or 662 will be taxed at the beneficiary level, trusts with accumulated income or capital gains will continue to file Form 2 and pay taxes on the trust income at the trust level. See TIR 04-23 for more information on chapter 262 and the changes in taxation of fiduciaries.

Electronic payment for fiduciaries may be accomplished via the DOR Web Services for Income site, at https://wfb.dor.state.ma.us/webfile/wsi/ .

F. Employers Must Electronically Submit Wage Reports for 50 or More Employees

Under chapter 262 of the Acts of 2004, amending c. 62E, § 2, “the commissioner may require an employer of 50 employees or more, including a governmental entity or a labor organization, or a payer of income to submit such information using a form and means of electronic transmittal prescribed by the commissioner.” Effective beginning with the first calendar quarter of 2005, any employer filing wage reports for 50 or more employees must file the quarterly wage report using electronic means.

Electronic wage reporting may be submitted through Webfile for Business, at https://wfb.dor.state.ma.us/webfile/business/public/webforms/login/login.aspx.

G. Pension Payers Must File and Pay Withholding Electronically

Payers of nonpayroll payments reported on Form M-945 who are withholding tax on behalf of recipients of those payments must file and pay electronically for disbursements made on or after January 1, 2005. Payments reported on Form M-945 include pensions, annuities, IRAs and certain other deferred income subject to withholding under Code § 3405.

Electronic filing and payment may be accomplished via the Webfile for Business program. Information on how to register, file and pay is available at http://www.mass.gov/dor.

III. Electronic Filing and Paying Requirements Established by the Commissioner in TIRS 03-15, 03-11, and 02-22 and Still in Effect

A. Third Party Bulk Filers Must File and Pay Withholding Taxes Electronically for All Returns

Third-party bulk filers are individuals or companies that collect withholding taxes from employers for the purpose of filing returns and depositing withheld taxes. The Department announced in TIR 03-11 the requirement that all third party bulk filers E-file all returns due on or after July 1, 2003, and make all payments electronically.

B. Electronic Requirements for Wage Withholding, Room Occupancy, and Sales and Use Tax

1. Mandatory Electronic Filing Threshold for Employers, Operators and Vendors Set at $10,000 in Aggregate Tax Liability

An employer remitting wage withholding under chapter 62B, an operator remitting state and local room occupancy excise under chapter 64G, and a vendor remitting sales and use taxes under chapters 64H and 64I, including sales taxes imposed on meals and telecommunications services, must file all returns and documents electronically and pay amounts due via electronic funds transfer for these taxes as of January 1, 2004 if the filer’s combined liability for the three categories of taxes for the preceding calendar year was $10,000 or more. Filing entities using a payroll processing service that E-files wage withholding returns and payments are not, however, required to E-file room occupancy and sales and use tax returns and documents unless their combined liability for the three categories of taxes reaches the $10,000 threshold. Any employer, operator, or vendor that remits one or more of the three categories of taxes listed in this section may voluntarily file electronically, even if the total annual amount remitted is below the $10,000 threshold. This threshold was most recently modified in TIR 03-11.

Once the tax liability of an employer, operator, or vendor reaches the electronic filing threshold in one year, the filing entity must E-file in all subsequent years regardless of the amount due, as long as it has an obligation to file one of the three categories of taxes in Massachusetts. Filing entities that E-file voluntarily even though their tax liability does not exceed $10,000 may choose not to E-file in subsequent years, so long as their combined liability for the three categories of taxes is below the threshold.

2. Electronic Filing of Wage Withholding, Room Occupancy Excise, and Sales and Use Tax Returns with Zero Tax Due

TIR 03-11 announced that, as of July 1, 2003, any filing entity that remits wage withholding under chapter 62B, state and local room occupancy excise under chapter 64G, or sales and use taxes under chapters 64H and 64I, including sales taxes imposed on meals and telecommunications services, must submit returns by electronic means if the filing entity files a return or document but owes no tax. This requirement can be met by any acceptable means of electronic filing, including telephone filing. This requirement applies to all filing entities remitting returns for the listed taxes, including third party bulk filers, regardless of the dollar amount of their annual tax liability.

3. New Businesses Must File Returns and Pay Taxes Electronically for Wage Withholding, Room Occupancy, and Sales and Use Tax

Under TIR 03-11, all new businesses, including business operators, professionals, and organizations that are required to register with the Massachusetts Department of Revenue on or after September 1, 2003, must use electronic means to file certain returns and make certain tax payments. New businesses or existing businesses applying for an additional registration that collect any of the following must file and pay electronically: withholding on wages or retirement distributions; sales and/or use tax on goods, telecommunications services, meals and/or beverages; and state and local room occupancy excise. Businesses that register on or after September 1, 2003 must file and pay the listed taxes electronically regardless of the dollar amount of their annual tax liability. The personal income tax return of an individual who also operates a business need not be filed electronically solely because the individual runs a business and would be filing Schedule C with Form 1.

4. Amendments and Abatement Requests

An employer remitting wage withholding under chapter 62B, an operator remitting state and local room occupancy excise under chapter 64G, and a vendor remitting sales and use taxes under chapters 64H and 64I, including sales taxes imposed on meals, with liability over the $10,000 threshold must file amendments and abatement requests for these taxes by electronic means. (Amendments and abatement requests for tax on telecommunication services must be filed on a paper Form CA-6.) If, however, the return was a return with zero tax due that was filed by touch-tone telephone, the filer may file a paper Form CA-6.

C. Corporate Excise Requirements: Electronic Payment as of January 1, 2004; Electronic Filing of Returns for Corporations over Threshold as of January 1, 2005

Payment by electronic means is required from all corporations subject to the corporate excise, including security corporations, with more than $100,000 in gross receipts or sales (from U.S. Form 1120, line 1c, or U.S. Form 1120-A, line 1c). This threshold, established in TIR 03-11, applies as of January 1, 2004. Electronic filing of returns, as distinct from payments, is required from corporations over the threshold as of January 1, 2005. All corporations subject to the corporate excise, including security corporations (but with the exception of financial institutions, insurance companies, and utility corporations), with more than $100,000 in gross receipts or sales must transmit all returns, documents and tax payments using electronic means as of January 1, 2005. (The electronic requirements for financial institutions, insurance companies and public utilities are explained in II.A, above.)

D. Mandatory Electronic Filing of Partnership Returns as of January 1, 2005

Annual partnership information returns (Forms 3) are required under G.L. c. 62C, §§ 6 and 7. Partnerships must also submit Schedules 3K-1, explaining each partner’s distributive share, to the Department and to each partner. The Department of Revenue announced in TIR 03-11 the requirement that, as of January 1, 2005, partnerships at or over the partnership E-file income threshold or loss threshold, or with 25 or more partners, must submit all Forms 3 and Schedules 3K-1 to the Department by electronic means. The partnership income threshold is reached when the partnership has, in one tax year, (1) $50,000 or more in gross income, including (but not limited to) gross receipts from a trade or business, gross income from the sale or rental of real or tangible personal property, or from royalties, interest, or dividends; or (2) $100,000 or more received from the sale of stock and securities. The partnership loss threshold is reached when the partnership has, in one tax year, (1) $50,000 or more in ordinary loss from trade or business activities; or (2) $100,000 or more in losses from the sale of stock and securities.

E. Paper Forms 1 and 1-NR-PY Produced by Tax Preparation Software Must Contain 2D Bar Coding

TIR 03-11 required that, as of January 1, 2004, all paper Forms 1 (resident personal income tax returns), Forms 1-NR/PY (nonresident/part-year resident personal income tax returns), and supporting Massachusetts schedules that are produced by tax preparation software programs must contain two-dimensional (2D) bar coding and fixed-position text. The Department has made 2D specifications available to all software developers that produce Massachusetts tax preparation software. All Massachusetts tax preparation software developed for commercial or individual use must be approved by the Department, and must, without the possibility of override, set 2D barcodes to print on forms specified by the Department. Returns submitted to the Department without the required 2D barcodes may be rejected for failure to conform with DOR specifications, thereby subjecting taxpayers to late penalty and interest charges.

F. Electronic Purchase of Cigarette Excise Stamps

TIR 03-11 required that all cigarette stampers appointed by the Commissioner to purchase and affix cigarette excise stamps must, pursuant to c. 64C, § 30 pay for these stamps via electronic transfer of funds for any stamps purchased on or after September 1, 2003. An exception to the electronic payment requirement will be made for stampers that pay for cigarette stamps at the time they pick up their stamps from the Department. Stampers shall continue to file returns on paper.

G. Electronic Payment of Motor Fuels Excise

Payers of excise on gasoline (including aviation fuel) subject to tax under G.L. 64A, aircraft (jet) fuel subject to tax under G.L. c. 64J and special fuels subject to tax under G.L. c. 64E must, as of September 1, 2003, make all payments by electronic means if they made motor fuels excise payments of more than $10,000 in the preceding calendar year. Notwithstanding this electronic payment requirement, filers shall continue to file returns on paper. This requirement was first issued in TIR 03-11.

IV. General Information Regarding Electronic Filing and Electronic Funds Transfer

A. Definition of Electronic Filing

For purposes of this TIR, electronic filing includes the use of a computer, internet, touch-tone telephone, or any other electronic submission of data compatible with the Massachusetts Department of Revenue’s equipment and facilities, to transmit return or document information in a manner prescribed by the Commissioner.

B. Electronic Filers Must Also Pay Electronically

Electronic filers must also make payments under the Electronic Funds Transfer (“EFT”) program imposed under G.L. c. 62C, § 85 and 830 CMR 62C.78.1. 830 CMR 62C.78.1(3)(b)(5). The regulation permits modification of the EFT program by providing that “any further expansion of the EFT program will be announced in advance by Technical Information Release (TIR) or other Department of Revenue public written statement.” 830 CMR 62C.78.1(3)(b)(6). Any thresholds or procedures established under the EFT regulation that differ from those announced here are hereby modified. While electronic filers must make payments under EFT, filers may be required to make payments under the EFT program without being required to file electronically. A filer that must file and/or pay one type of return or tax by electronic means is not necessarily required to use electronic means for other returns or payments, unless a separate electronic requirement applies.

C. Registration

A business filing entity must register for the E-file program, for either mandatory or voluntary participation. The registration procedure can be found at the Webfile for Business link at http://www.mass.gov/dor. To register, the filing entity’s contact person will go to the Welcome page, and click on “Register” from the available choices. The program will lead the contact person to the correct path for online registration based on the person’s responses to a series of questions. Within a few days DOR will email the result of the application. Once approved, the taxpayer can log in to WebFile for Business by entering the user name and password created during the registration process. While the Commissioner strongly encourages all businesses to use DOR’s web application to meet their E-file requirements, telefiling of business taxes is an alternative for those unable or unwilling to use the Internet. Registration for telefiling is available at 617-887-MDOR or toll-free in Massachusetts at 1-800-392-6089. Further information on electronic filing and paying is available at the listed phone numbers, as well as at the DOR website.

D. Timely File and Pay Requirements

1. Filing

An E-filed return or report shall be deemed to be timely filed if electronically submitted on or before the due date, before midnight Eastern time, with all required information accurately entered. Upon submission, the filing entity will receive a confirmation number and confirmation time-and-date stamp, which constitute the substantiating date mark providing proof of the time and filing date. Unforeseeable technical problems that are beyond the taxpayer’s control may be considered reasonable cause justifying an abatement of penalty for late filing.

2. Paying

Payment may be made through an Automated Clearing House (ACH) entity,[2] using ACH Debit or ACH Credit. Unforeseeable errors or system failures on the part of the taxpayer’s bank or the Commonwealth of Massachusetts or its agents may be considered reasonable cause justifying an abatement of penalty for late payment. Taxpayers should be aware that transfers that are rejected for insufficient funds or other reasons under the taxpayer’s control will be subject to a penalty under c. 62C, § 35 in addition to any other penalties that may apply. See TIR 04-27.

a. ACH Debit

ACH Debit means an electronic transfer of funds initiated by Massachusetts DOR, upon taxpayer instruction, to debit a taxpayer’s designated bank account and credit funds to a designated Commonwealth of Massachusetts bank account. An ACH Debit electronic funds transfer will be considered timely if the payer: (1) ensures that the payer’s bank is capable of carrying out the transaction; (2) enters all required information accurately; (3) specifies a settlement date that is on or before the due date; (4) ensures that funds are available for payment; and (5) completes the electronic authorization for the debit before 4:00 p.m. Eastern time on the business day preceding the date the funds are due. Saturday, Sunday, and legal holidays are not business days.

b. ACH Credit

ACH Credit means that a taxpayer through its bank originates an entry to credit a designated bank account and to debit its own bank account. An ACH Credit electronic funds transfer must be initiated with the taxpayer’s bank in sufficient time to allow the payment to enter the ACH system on the business day preceding the date the funds are due. Time frames and procedures that will result in a timely payment vary from bank to bank; the payer must coordinate with its bank to determine when to initiate the transfer so that payment arrives at DOR’s banking institution on or before the due date by midnight Eastern time. A taxpayer using ACH Credit takes responsibility for ensuring that payment arrives timely at DOR’s bank.

E. Supporting Paper Documentation

Taxpayers should retain supporting paper documentation for as long as their contents “are material in the administration of Massachusetts tax laws,” according to the guidelines established under the record retention regulation, 830 CMR 62C.25.1(3). Upon request, taxpayers should be prepared to produce these additional documents.

F. $100 Penalty for Failure to File, Report or Pay Electronically

Recent legislation authorizes the Commissioner to impose a penalty for failure to "conform any filing, data transfer or payment with the method prescribed by the commissioner." G.L. c. 62C, § 33(g), as amended by c. 143, § 2, Acts of 2003. The statute permits the Commissioner to impose a penalty of up to $100 "for each improper return, document or data transmission, and for each improper payment." Penalties may be imposed for nonconforming returns, data transfers, or payments due for tax years beginning on or after January 1, 2005. See TIR 04-12.

G. Administrative Procedures

If a filing entity required to file by electronic means does not do so for any tax required to be filed electronically, the failure to so file shall be deemed a failure to file, unless the failure to file electronically is due to breakdown of the systems or equipment at the Department of Revenue, or other circumstances under which the Commissioner may exercise discretion to waive penalties. See Administrative Procedure 633. If, despite its best efforts, a filing entity has difficulty in its transition from paper to E-file returns, the filing entity should contact the Department’s Customer Service Bureau at (617) 887-MDOR or toll-free in Massachusetts at (800) 392-6089 to inquire about the process for a waiver of penalties. Filing entities required to file electronically will no longer be permitted to satisfy their filing requirements by filing paper returns. All administrative rules regarding tax returns and documents, including deadlines and penalties, shall apply to those submitted by electronic means.

Further information on how to comply with electronic filing and payment requirements may be found at the Department’s website (http://www.mass.gov/dor).

/s/Alan LeBovidge

Alan LeBovidge

Commissioner of Revenue

AL:LEM:lab

180560

October 26, 2004

TIR 04-30

[1] The statute provides that “[a]ny return, document or tax payment required or permitted to be filed under this chapter shall be filed with or transmitted to the commissioner in such manner, format and medium as the commissioner shall from time to time prescribe; shall contain such information as the commissioner deems pertinent; and shall contain or be accompanied by a declaration, in such form as prescribed by the commissioner, that such return or document is made under the penalties of perjury. Any return, document or payment submitted in a manner or medium other than that prescribed by the commissioner shall not be deemed to have been filed.” G.L. c. 62C, § 5.

[2] Automated Clearing House (ACH) is any entity that operates as a clearing house to transmit or receive entries electronically, pursuant to an agreement with an association that is a member of the National Automated Clearing House Association (NACHA). 830 CMR 62C.78.1(2).