Affiliated Businesses. Two or more businesses are affiliated when the same owner or the same group of common owners holds in the aggregate, directly or indirectly, 50% or more of the total value of the ownership interest or 50% or more of the combined voting power in each business. The Commissioner will apply the constructive ownership provisions of Code § 318 for purposes of determining ownership under 830 CMR 64H.6.11, regardless of whether the ownership is represented by stock shares, partnership interests, or other indicia of ownership, provided that the constructive ownership provisions shall apply to siblings in addition to the relationships enumerated in Code § 318. Affiliated businesses include all members of an affiliated group as defined by Code § 1504.
Business. Any activity engaged in by any person or caused to be engaged in by him or her with the object of gain, benefit, or advantage, whether direct or indirect, that would constitute a trade or business for federal income tax purposes.
Code. The Internal Revenue Code in effect for the applicable period.
Commissioner. The Commissioner of Revenue or the Commissioner's duly authorized representative.
Department. The Massachusetts Department of Revenue.
Gross Income. The amount properly reportable as the total amount of income of a business, less any amount attributable to cost of goods sold.
Qualifying Employee. Any person performing services for a business for consideration, if the relationship between the person performing services and the person for whom the person performs such services is the relationship of employer and employee, as described in I.R.C. § 3401(c), (d), and Treas. Regs. §§ 31.3401(c)-1, 31.3401(d)-1, whether or not the individual is treated as such by the business, and who meets both of the following criteria:
Qualifying Employee also includes any partner, owner, or officer of a business who normally works for the business for 30 hours per week or more.
Qualifying Small Business. A small business that meets all of the prerequisites of M.G.L. c. 64H, § 6(qq) and 830 CMR 64H.6.11 for the applicable period, including compliance with the registration and certificate presentation requirements of 830 CMR 64H.6.11(6).
Seasonal Business. A seasonal business is a business that operates for periods of less than 12 consecutive months during the calendar year in the regular course of its business.
Small Business. A business that has five or fewer qualifying employees and that had gross income of less than $1,000,000 for the preceding calendar year, and that reasonably expects gross income of less than $1,000,000 for the current calendar year. All members of an affiliated business are deemed to be a single business for purposes of the small business exemption.
Small Business Exemption (SBE). The exemption from tax available under M.G.L. c. 64H, § 6(qq) for a qualifying small business.
SBE Certificate. The certificate the Department issues after a small business registers for the SBE.
Tax. The excise imposed under M.G.L. c. 64H or M.G.L. c. 64I.
Taxable Energy. Gas, steam, electricity, or heating fuel which is subject to tax imposed under M.G.L. c. 64H or M.G.L. c. 64I.
Vendor. For purposes of 830 CMR 64H.6.11, a retailer or other person selling taxable energy.
Example 1: ABC Jewelry Boutique is a business that purchases electricity for its own use. It has five or fewer qualifying employees during calendar year 2019. During calendar year 2018, it had gross income of $980,000. It expects to have gross income of $990,000 during 2019. ABC would be a small business for purposes of the SBE for calendar year 2019.
Example 2: Same facts as Example 1, except that ABC reasonably expects to have $1,500,000 in income for calendar year 2019. ABC is ineligible to register for an exemption certificate for calendar year 2019 because it reasonably expects to have gross income in excess of $1,000,000. If, in August of 2019, it reasonably expects its gross income for 2019 to be less than $1,000,000, ABC would be a small business for purposes of the SBE as of August 2019, but may not claim the exemption retroactively.
Example 3: Same facts as Example 1, except that in August of 2019 ABC knows that its gross income will exceed $1,000,000 for calendar year 2019. ABC no longer qualifies as a small business for calendar year 2019. If ABC registered and received an SBE Certificate for 2019, it must revoke its registration in August of 2019 and notify its vendors.
Example 4: Same facts as Example 1, except that after registering and qualifying for the SBE Certificate in calendar year 2019, in December of 2019 ABC reasonably expects to have $2,000,000 in gross income for the next calendar year 2020. Although it was a qualifying small business when it registered in 2019, ABC no longer qualifies as a small business for calendar year 2020. If ABC registered and received an SBE Certificate for 2020, it must revoke its registration for 2020 and notify its vendors.
A business that has already registered and received an SBE certificate and that later determines that it does not have five or fewer qualifying employees, must revoke its registration as detailed in 830 CMR 64H.6.11(6)(d). The business must also file use tax returns and pay any tax due for any transactions where no sales tax was collected and the business did not qualify as a small business.
A seasonal business that has already registered and received an SBE certificate and that later determines that it does not have five or fewer qualifying employees, must revoke its registration as detailed in 830 CMR 64H.6.11(6)(d). The seasonal business must also file use tax returns and pay any tax due for any transactions where no sales tax was collected and the business did not qualify as a small business.
Example 1: XYZ Corporation is a small business that employs a number of people to perform weekend security guard services for various companies. It consists of one full time owner operator who works 30 or more hours per week. The corporation also employs 15 security guards who normally work eight hours each day on Saturdays and Sundays. Under these facts, for the calendar years in question, XYZ Corporation has only one qualifying employee, since only one individual normally works 30 hours per week or more. The 15 part-time security guards who work only 16 hours per week are not qualifying employees. Thus, the business has five or fewer qualifying employees.
Example 2: Betty's Office Cleaning Service, Inc. ("Betty's") is a business owned and operated by Betty, who works 30 hours per week for the business. Betty employs a number of people who provide day and evening office cleaning services to a large office building. All individuals work according to a fixed regular schedule as follows: Five individuals work on Mondays, Tuesdays, and Wednesdays from 4:00 P.M. until 11:00 P.M (21 hrs/wk). On Thursdays and Fridays, Betty's uses five different individuals who work the same shift from 4:00 P.M. to 11:00 P.M (14 hrs/wk). Under these facts, Betty is the only qualifying employee working for Betty's, because each of the other employees works less than 30 hours per week.
Example 3: "The Four G's Bakery" is a local business that operates a neighborhood bakery. It is owned by four sisters who are equal partners in the business: Greta, Gertrude, Gilda, and Grace. Greta and Gertrude each work 40 hours per week at the bakery. Gilda does the bookkeeping for the business at home. Grace, who provided most of the initial capital for the business, occasionally works at the bakery if one of the other workers is unable to go to work. In addition to Greta and Gertrude, the bakery also hired Fanny and Frieda to work 40 hours per week for an indefinite (rather than temporary) period of time, and Paula and Phyllis, who each work 20 hours per week.
For purposes of determining if The Four G's Bakery has five or fewer qualifying employees, Greta, Gertrude, Fanny and Frieda must be counted as qualifying employees of the business, since a qualifying employee includes any person, including a partner, owner, or officer of the business who normally works for the business for 30 hours per week or more. Paula and Phyllis are not qualifying employees, since neither normally works for the business for 30 hours per week or more. Gilda and Grace normally work for the business, although their hours vary. Since any partner, owner, or officer of the business who normally works for the business is presumed to be a qualifying employee, the business must demonstrate that Gilda and Grace do not work for 30 hours per week or more. If the business cannot demonstrate that Gilda and Grace normally work for the business for less than 30 hours per week, the business is presumed to have six qualifying employees and therefore does not have five or fewer qualifying employees.
Example 4: Sally's Ski Emporium ("Sally's") is a seasonal ski shop operating on the premises of a ski resort in Massachusetts. Most calendar years it operates from January through April and from November through December and is closed from May through October. From January through April of a given year, Sally's has ten full-time employees and will have the same employees from November through December. It will have no employees from May through October. After applying the formula set forth in 830 CMR 64H.6.11(5)(e), (10 x 6) + (0 x 6)/12= 60/12 = 5, Sally's has a monthly average of five qualifying employees.
830 CMR, § 64H.6.11