State & Local Tax Considerations at Year-End: 2021
As we approach the end of 2021, the most significant and challenging issue that many of our banking and financial services clients face in terms of state and local tax matters is the increasing shift to remote work. While this is a societal shift that all industries are dealing with, it is something that is often less familiar to companies in this industry; as such, we have been dealing with an increasing number of questions from our clients.
The discussion below will also highlight two New England-area credit programs that may warrant attention. These have proven to be beneficial to some of our clients in the past, as well as to the communities that they serve.
Many of the basic issues in this area were covered in last year’s year end article, which we suggest readers refer to in terms of background. These matters (state income tax withholding, unemployment, and nexus for other tax types) have only become more pressing over the course of the current year. As a result, it is increasingly important that management understand and plan for the consequences of a more geographically diverse workforce.
The Massachusetts emergency regulation that was the subject of a lawsuit by the State of New Hampshire expired on September 13, 2021. As a result, the old “normal” rules based on work location are now in place and should be considered. The Massachusetts Department of Revenue has published some helpful FAQs in this area. In addition to income tax withholding-related changes, unemployment and paid family medical leave-related changes may need to be made. Emergency rules in many other states have now expired as well.
We recommend that businesses make an effort to understand where, and when, each of their employees have been working during 2021, where they worked during 2020 (in order to assess and understand potential prior period risk), and also what their plans are for 2022 and beyond, if they have not done so already. In addition to coordination with one’s external tax advisors, this will also likely involve coordination with internal human resources and legal teams, in order to fully assess the impact of remote work and to ensure proper messaging, implementation of policies and procedures, etc. It is critical to ensure that all portions of the company are coordinated regarding who is being hired and where, and also regarding when and where employees are working. Coordination with one’s payroll provider, assuming payroll is not handled in house, will be necessary as well.
Credits and incentives are a frequently overlooked area of state and local tax. While some credits are statutory and are merely calculated and claimed on tax filings by eligible businesses, others may require pre-planning and possibly participation in an application process – we have highlighted two such programs below.
First, Massachusetts offers a Community Investment Tax Credit (CITC). This credit is currently scheduled to be available through 2025. The CITC is administered by the Massachusetts Department of Housing and Community Development (DHCD). It is a certificated credit, meaning that the DHCD must certify that a taxpayer has made a qualifying investment in order for the credit to be claimed on a tax return.
The stated purpose of the credit is as follows:
CITC is designed to enable local residents and stakeholders to work with and through community development corporations (CDCs) to partner with nonprofit, public, and private entities to improve economic opportunities for low and moderate income households and other residents in urban, rural, and suburban communities across the Commonwealth.
CDCs accomplish this through adoption of community investment plans to undertake community development programs, policies, and activities.
The CITC is subject to an annual cap, and while it is refundable, it is not transferable. The credit may also be carried forward for a limited period of time. With some limitations, the potential credit amount is 50% of a qualifying investment.
We are currently awaiting the launch of the 2022 program. More information and background can be found here.
Second, New Hampshire’s Community Development Finance Authority (CDFA) offers a tax credit program. The stated purpose of the credit is as follows:
The program aims to support organizations that are engaged in community economic development initiatives that show a high degree of community support, build partnerships and leverage other resources.
Grants made to eligible projects are in the form of tax credit equity. Businesses with New Hampshire tax liability support awarded projects by purchasing the credits, resulting in the nonprofit receiving a donation and the company receiving a 75 percent New Hampshire state tax credit against that contribution. The credit can be applied against the Business Profits Tax, Business Enterprise Tax or Insurance Premium Tax. The donation may also be eligible for treatment as a state and federal charitable contribution.
This CDFA program awards tax credits on an annual basis through a competitive grant process; businesses then evaluate available donation opportunities and make pledges online. More information can be found here.
If you have any questions or if you would like to further discuss any of these items in more detail, please contact Leanne Scott or your preferred BNN professional at 800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.