TIR 06-23: 2006 Amendment to G.L. c. 63, § 38N - Modification of DOR's Role in Reviewing Certified Projects
This Technical Information Release announces the recent amendment to G.L. c. 63, § 38N, set forth in section 62 of chapter 123 of the Acts of 2006. Under the amendment, effective June 24, 2006, the Commissioner of Revenue (Commissioner) is no longer directed to certify applications for the economic opportunity area (EOA) credit before a corporation may take the credit or to periodically review certified projects to determine continued compliance with certain requirements. Corporations seeking to take the credit are no longer required to file the EOA credit application with the Commissioner for certification thereof.
II. Background and the 2004 Amendment to G.L. c. 63, § 38N
General Laws chapter 63, section 38N authorizes a credit against the tax imposed by chapter 63 for corporations that participate in a certified project in an economic opportunity area. The credit allowed is an amount equal to five per cent of the cost of eligible property. The credit is a component of the Economic Development Incentive Program administered by the Economic Assistance Coordinating Council (EACC) within the Massachusetts Office of Business Development pursuant to G.L. c. 23A.
In August of 2004, G.L. c. 63, § 38N was amended by St. 2004, c. 262, § 45 to direct the Commissioner to certify the EOA credit by determining whether designations for economic target areas (ETAs), economic opportunity areas (EOAs), and certified projects were in compliance with the statutory provisions of G.L. c. 23A, and whether corporations applying for the EOA credit were fulfilling their job creation commitments. A corporation had to file an application with the Commissioner and could not take the credit on its return until the Commissioner certified its application. In addition, the Commissioner was directed to review certain certified projects every two years, and to notify the EACC of any certified projects determined to be no longer in compliance.
III. The 2006 Amendment to G.L. c. 63, § 38N
In June of 2006, G.L. c. 63, § 38N was again amended. See St. 2006, c. 123, § 62. As amended, G.L. c. 63, § 38N, now provides in relevant part:
- A credit allowed under section 38N may be taken only after the taxpayer completes a report signed by an authorized representative of the corporation, and files the report with the EACC within 2 years after the initial project certification by the EACC and annually thereafter.
- The EACC shall certify that property eligible for the credit is a certified project within an economic opportunity area, as defined in section 3E of said chapter 23A, and wholly within an area designated as an economic target area pursuant to section 3D of chapter 23A, and also that the certified project reasonably satisfies the employment projections specified in the original project proposal.
- The EACC shall determine whether the certified project is in compliance with the definition of certified project set forth in section 38N and whether the project has a reasonable chance of increasing employment opportunities as advanced in the initial proposal as certified by the EACC.
- If the EACC determines that the certified project is no longer in compliance, then the EACC shall revoke certification of the project as provided in section 3F of chapter 23A and notification of decertification shall be given to the Commissioner who shall disallow any future credits to the project under section 38N.
- If a project is considered decertified for reasons of fraud or material misrepresentation, as determined by the EACC and the Commissioner, the Commissioner shall have a cause of action against the controlling business of the project for the value of any economic benefits received, including, but not limited to, the amount of the tax credit allowed under section 38N.
- Nothing in section 38N shall limit the authority of the Commissioner to make adjustments to a corporation's liability upon audit.
The effective date of the amendment is June 24, 2006.
Pursuant to this 2006 statutory amendment, with respect to tax returns timely filed on or after June 24, 2006, a corporation eligible to take the EOA credit is no longer required to file a separate EOA credit application with the Commissioner, and the Commissioner will not review any such application. In addition, effective June 24, 2006, the Commissioner will no longer conduct the periodic review of certified projects required under prior law, and will no longer issue notices of intent to decertify or refer certified projects to the EACC for decertification. The Department of Revenue will consider a project to be decertified only upon receipt of notice of decertification from the EACC.
With respect to returns filed or required to be filed before June 24, 2006 (or amended returns with respect to periods for which returns were filed or required to be filed before June 24, 2006), the Commissioner will continue to review EOA credit applications required in connection with those returns. If the Commissioner does not certify a corporation's application filed in connection with its return or if a corporation does not file the EOA credit application as required, the Commissioner will not allow the amount of the EOA credit that the corporation attempted to take on its return to reduce its corporate excise liability. Consequently, the Commissioner will issue a Notice of Intention to Assess. The corporation will not be allowed future use of any amount of EOA credit disallowed because the Commissioner did not certify the corporation's EOA credit application. The corporation's EOA credit carryover, if any, will not be affected and will still be available for future use.
Although corporations are no longer required to file an application with the Commissioner after June 23, 2006, the Department is still responsible for ensuring that the EOA credit for eligible property used in a certified project has been properly calculated and claimed on a taxpayer's tax return. See 830 CMR 63.38N.1.
/s/ Alan LeBovidge
Commissioner of Revenue
December 1, 2006