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Massachusetts Advance Prepayment of Sales and Use Tax

What is happening

Effective April 1, 2021, certain MA taxpayers will be required to make advance prepayments to Massachusetts due on or before the 25th day of the filing period, based on any tax collected on (or before) the 21st day of the filing period.

This new requirement applies to businesses whose cumulative Massachusetts sales and use tax liability is greater than $150,000 in the immediately preceding calendar year. 
 

What you need to do

If you are unsure if your company has been impacted by this change, please review the technical bulletin published by the state of Massachusetts: https://www.mass.gov/technical-information-release/tax-provisions-in-the-fiscal-year-2021-budget#_ftn1

If your company is impacted by this change, or if you would like to setup prepayments in MA because you expect to hit that threshold in the future (which may change per MA legislative decisions):

  1. By March 31, 2021, in Avalara AvaTax, create a new filing request for the MA Prepayment return, effective 3/1/2021.
  2. In Avatax, all customers who set up a MA Prepayment return must also ensure that the accompanying MA ST-9 return has been created.

NOTE: The first possible filing period regarding this prepayment in MA would be 3/1/2021 - remitted in April. 

 

Important Questions and Answers

How does Avalara calculate my prepayment?

MA currently has indicated that they may assess a penalty for taxpayers that do not prepay over 70% of their April tax liability.  Providing you set up the MA Prepayment form in AvaTax (see above), Avalara will be calculating this prepayment to reduce the exposure for your business. 

  1. On the 1st of each month, Avalara will build an estimated value based on 80% of the prior month’s transactional data.
  2. This estimated amount will be included on funding figures that you will see in your standard reconciliation. 
  3. On the 22nd of each month, Avalara will compute tax committed from the 1st to the 21st of the month.  This figure is multiplied by 1.1.
  4. Avalara will compare these two figures.  If the newly-calculated amount is greater than the original estimated amount, the new figure will be used as the prepayment amount for that month, and we’ll need to receive additional funding to cover the additional remittance to MA.
    • If you are an ACH Pull customer: Avalara’s Global Client Payments team will pull the variance funding from your company’s bank account. 
    • If you are a Wire customer:  Avalara’s GCP team will notify you by email, providing you with the amount you’ll need to send via same-day wire.

How will this affect my monthly funding for Returns?

For the March 2021 returns filed and paid in April, you’ll see a one-time spike in your Massachusetts funding obligation due to the new prepayment.  Going forward, the funding on the 12th will net the prior month’s prepayment against the current month’s prepayment obligation.

Example of funding  

ExampleofFunding.jpg 

What if I want to use my own calculation?

If you don't want to use the amount calculated by Managed Returns, you can change the amount remitted for your prepayment in Avalara AvaTax. For information on how to do this, see the prepayment section in Step 2 in Reconcile and file using Managed Returns

 

Will the state send notices?

Per the state, the Massachusetts Department of Revenue will be sending taxpayers email notifications through their filing platform, MassTaxConnect.

NOTE: If your company does not receive a notice from the state indicating that you are required to make prepayments, this does not preclude your company from this requirement if you meet the threshold established by the state.