Businesses that collect sales and use tax in Massachusetts were not required to file or make payments to the Department of Revenue (DOR) between March 2020 and October 30, 2021. Collection of the tax was still required on qualified sales during the period. The taxes are now due and enforcement and penalties are commencing on late payers.
COVID brings financial hardship to Massachusetts businesses
Immediately after COVID-19 was identified in Massachusetts, in the early months of 2020, most businesses that served the public were shut down. It would be three months before phased openings would begin.
Restaurants and bars were particularly hard hit. Some restaurants closed permanently during the early months of the pandemic. They could not absorb the continued overhead expenses during the shutdown. Many businesses stayed open, and some even continued to pay their staff.
Staying afloat has been a challenge for those businesses that hung in there. Many foodservice businesses went into debt. A few were eligible for a variety of loans to continue operating. Some businesses that could not get help with overhead expenses did not pay their sales and use taxes.
Tax extensions and penalty waivers offered to businesses
Both Massachusetts and the federal government granted extensions for personal and business tax filing. These extensions helped thousands of people and businesses to weather the storm of business uncertainty during the height of the first year of the pandemic.
Massachusetts granted the extension of Sales and Use Taxes with 830 CMR 62C.16.2 and TIR 21-7. The tax obligations were not waived, the requirements for filing, reporting of taxes due, were extended until October 30, 2021, and payment of the taxes to November 1, 2021. For those businesses with less than $150,000 in tax liability for the 12 months ending February 29, 2020, penalties and interest were waived. For those with more than $150,000 in tax liability, only penalties were waived.
Cumulative taxes were due on November 1, 2021. Penalties and interest began accruing on any amounts outstanding on that date for all taxpayers. Some businesses have been unable to meet the payment obligations, leaving them vulnerable to increased penalties.
Penalties for noncompliance
- The penalty for not filing the Sales and Use Tax Return timely is 1% of the tax that should have been reported on the form computed monthly.
- Not paying timely – ½ of 1% of the amount of unpaid tax for each month
- Not paying assessment timely – ½ of 1% for unreported sales or use tax within thirty days of receiving a Notice of Assessment from the Commissioner of the Department of Revenue (DOR).
These penalties can add up rather quickly.
Waivers or abatement of penalties through Massachusetts DOR
Administrative Procedure AP 633, provides information for taxpayers and others about the penalties for not filing or paying taxes in a timely manner. This also includes guidelines for the consideration of waivers or abatements of penalties. There may be qualifying circumstances for continued waivers of penalties and interest for businesses that find themselves unable to meet their tax obligations. Payment agreements can be arranged with DOR.