MA Software Sales Tax Presentation


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MA Software Sales Tax Presentation

  1. 1. By: Steven Buccigross August 13, 2013
  2. 2. •  Effective for sales occurring on or after July 31, 2013: –  Not if occurred before, but not paid until after July 31, 2013 •  Sales tax of 6.25% on qualified computer services •  Services must be a “trade or business” of the vendor to be taxable •  Sales must be to a third party 2
  3. 3. •  Computer system design services •  Planning, consulting, designing, of new computer systems (i.e. integrating hardware with software) •  Prewritten software (i.e. Microsoft Office, MacAfee Antivirus, QuickBooks, etc.) •  Website design (if using open source code, i.e. Java) 3
  4. 4. •  Data access/processing services/disaster recovery (i.e. Database) •  Information management systems •  Consulting/evaluation services on existing systems (i.e. data migration) •  Training on modified software/technical support (broken out on invoice) •  Website design/hosting (if using customized code to create website) 4
  5. 5. •  Vendor located in MA and purchaser goes to vendor for service •  Vendor is aware of purchases located within MA (i.e. Invoice) •  Does not matter if software will be “hosted” outside of MA •  MPU (multiple points of use) – Certificates should be obtained by purchaser if used all over the country and tax will only be on purchase of sale allocated to MA purchase 5
  6. 6. •  830 CMR 64H.13 •  TIR 13-10 •  FAQ’s – The new computer and software services tax effective July 31, 2013 (see handout) 6
  7. 7. • •  Massachusetts WebFile System allows electronic filing and payment of Sales/Use returns •  Need to set up account, if not already created •  Account Management/Manage Business Locations/Tax Types to add Sales/Use Tax to existing WebFile account 7
  8. 8. 8 •  Resale Certificates should be collected if no sales tax charged to purchaser. •  Returns are due even if $0 balance due to avoid potential DOR inquiry Amount Collected Return Requirement Due Date > $100 Annually (Form ST-9A) January 20th $101 - $1,200 Quarterly (Form ST-9Q or Form STS-Q for Services) 4/20;7/20;10/20;1/20 < $1,201 Monthly (Form ST-9 or Form STS-M for Services) 20th of each subsequent month
  9. 9. 9 •  Establishes Statute of Limitations: –  3 year period •  Reduces Penalties and Interest: –  Late Filing Penalty = 25% Max –  Late Payment Penalty = 25% Max –  Interest = Fed STR + 4% •  Shows Compliance with Tax Laws: –  Gross Negligence = Additional 20% –  Willful Evasion = $10,000 Max Fine
  10. 10. •  2013 top rate increase for 35% - 39.6% •  Phase out of itemized deduction if AGI is over $300,000 (MFJ) – 3% of AGI •  Phase out of personal exemption if AGI is over $300,000 (MFJ) 10
  11. 11. 11 An employee is liable for additional Medicare tax if the individual’s wages, other compensation, or self- employment income exceeds the threshold for his/her filing status (does not include income from S- Corporation) First $200,000 ($250,000 Married) Employer/Employee All Remaining Wages Employer/Employee Current Law 1.45%/1.45% employed 2.9% self-employed 1.45%/1.45% employed 2.9% self-employed 2013 Tax Increase 1.45%/1.45% employed 2.9% self-employed 1.45%/2.35% employed 3.8% self-employed
  12. 12. •  Employers are required to withhold additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year in the actual pay period in which it pays wages in excess of $200,000 to an employee •  There is no requirement that an employer notify its employee at the time of increased withholdings •  There is no employer match for this additional Medicare tax 12
  13. 13. 13 •  Beginning in 2013, certain investment income will be subject to an additional 3.8% surtax •  The 3.8% tax is imposed on the lesser of: –  Net Investment Income (NII) or –  The excess of Modified Adjusted Gross Income (MAGI) over a certain threshold amount •  Tax imposed on 1040 return, not through payroll
  14. 14. 14 •  What are the “thresholds”? •  The threshold amount for a tax year depends on your filing status Filing Status Threshold Married filing jointly $250,000 Single, Head of Household $200,000 Married filing separately $125,000
  15. 15. 15 •  What is Net Investment Income (NII)?: – Category #1: Gross income from interest, dividends, annuities, royalties and rents – Category #2: Gross income from a passive activity (IRC Section 469 “materially” participation rules) – Category #3: Net taxable gains (i.e. Capital gains, Section 1231 gains)
  16. 16. •  What is NOT included in Net Investment Income?: –  Wages, salary and other compensation income; –  Income on the exercise of compensatory options; –  Income on the vesting of restricted stock; –  Qualified retirement plan distributions –  Non-passive S-Corp and LLC income –  Municipal bond interest ***All of these however are included in Modified Adjusted Gross Income (MAGI)*** 16
  17. 17. •  Example: Single taxpayer with NII of $40,000 and business income of $160,000 – He received a $50,000 retirement plan distribution at year end W/OUT $50K DISTRIB WITH $50K DISTRIB MAGI = $200K MAGI = $250K THRESHOLD = $200K THRESHOLD = $200K EXCESS = $0 EXCESS = $50K NII = $40K NII = $40K SUBJ TO 3.8% = $0 SUBJ TO 3.8% = $40K 17
  18. 18. Steven T. Buccigross, CPA Partner | 617.456.2443 Mr. Buccigross is a partner in Feeley & Driscoll’s audit practice with extensive experience serving as engagement manager for several clients in the following industries: professional services, not-for-profits, manufacturing and distribution, construction, software and private equity funds. Steve has a BS in Business Administration from Bryant University. He is a member of the Massachusetts Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Prior to rejoining Feeley & Driscoll, Steve was a manager with a national accounting firm in the audit practice and served clients across several industries. He spent time serving as practice monitor of the National Office of Risk Management where he developed and performed testing procedures to monitor the firm’s functional areas, which included leadership, ethics, engagement acceptance, human resources, engagement performance and monitoring. In addition, Steve has taken part in the quality control monitoring of audit engagements including interoffice inspections. Steve serves on the Board of Directors for a local non-profit, ARTMORPHEUS, which connects artists in all disciplines with the practical skills, entrepreneurial knowledge and services that will enable them to succeed.