Local Tax Developments, Massachusetts City and Town Amnesty: In July of 2010, the Massachusetts legislature passed H. 4877, the Municipal Relief Act, which granted Massachusetts cities and towns the authority to adopt and implement a temporary municipal amnesty program during the state’s fiscal year ending June 30, 2011.
State Tax Amnesty, An Overview
Tax amnesty programs have been big news at the state level for during the last few years. During 2009 through the end of 2010, more than half of the states (plus the city of Philadelphia and the District of Columbia) legislated and implemented some type of amnesty program. (See my August 23, 2010 “Buzz” post, “State Tax Amnesty: An Opportunity for Taxpayers to Pay Delinquent State Taxes, What Taxpayers Need to Know”) Massachusetts, in particular, enacted and held amnesties in both 2009 and 2010. The Commonwealth’s three month 2009 amnesty was geared specifically towards individuals with outstanding individual liabilities. In 2010, Massachusetts implemented a second amnesty which focused on business taxpayers with certain categories of outstanding business liabilities. (See my April 1, 2010 “Buzz” post, “Massachusetts Limited Amnesty Program for Taxpayers with Existing Business Tax Liabilities Begins April 1, 2010”) According to the Department of Revenue’s 2010 amnesty report, the Commonwealth collected $32.6 million in outstanding liabilities in the three month period from April 1, through June 30, 2010; almost $13 million more than was projected to be collected. During the last two years, State amnesties have proven to be a successful method to raise much needed revenues quickly. Therefore, it’s not surprising that municipal governments are now being given the same opportunities to collect local tax delinquencies and raise municipal revenues quickly too.
Massachusetts Municipal Tax Amnesty Guidelines
The Massachusetts Municipal Tax Amnesty will work similarly to the state program in that it must be enacted by the municipality's legislative body. This body will also be responsible for policy decisions about the scope of its city or town amnesty program. In general, a municipal program can’t waive payment of the actual unpaid local taxes but can provide for a waiver of all or a uniform percentage of interest, collection costs and penalties owed on the specified delinquent taxes. Per the municipality’s choice, the local amnesty can apply to both real and personal property delinquencies, motor vehicle excise and/or boat excise tax delinquencies. The enacting municipalities also have a lot of leeway on how to structure their particular amnesty. For instance, they can choose to have the amnesty apply to only certain categories of delinquencies (of those listed), can decide which years will be covered under the amnesty, etc. However, the one aspect that must be consistent is that the application of the waiver of accrued interest, collection costs and penalties must be the same percentage for all types of the tax liabilities included in the program.
Amnesties are generally a win-win for both the government and the taxpayer. Although taxpayers will still be liable for the actual tax or excise they owe, the opportunity to have interest, collection costs and penalties waived can be significant as sometimes these “other costs” can amount to even more than the actual liability itself, as can occur when a liability has been outstanding for many years. Participating in an amnesty and paying back taxes also alleviates the significant consequences that could occur if the local government decides to pursue a delinquent taxpayer, e.g., liens on property and even civil or criminal prosecution. On the downside, amnesties generally only run for short time period. For instance, the City of Dedham just completed its Municipal Amnesty program, which applied only to real estate tax delinquencies and ran only for the two month period from January 1 through February 28, 2011. As any municipal amnesty program must be completed by June 30, 2011, any city or town that enacts a program now will be limited to no more than three months. Taxpayers may not have enough time to fully evaluate whether they want to participate in a municipal amnesty program, or worse, may not have the funds to pay their outstanding liability by the close of the amnesty. It is also extremely unusual for a state or local government to allow a delinquent taxpayer to enter into an installment plan to pay off an amnesty liability as a primary goal of most amnesties is to quickly raise revenues.
Taxpayers with outstanding local tax delinquencies may want to considering coming forward during a municipal amnesty period. Taxpayers should first confirm with their city or town officials whether their municipality will be enacting an amnesty and which local taxes or excise fees will be covered. Taxpayers with significant local delinquencies should consult their CPA or personal tax advisor to completely understand the requirements and benefits of their municipal amnesty program.
Additional Resources and Other Information
- Massachusetts DOR Informational Guideline Release (IGR) 10-208, "Municipal Tax Amnesty Program"
- Article, "Amnesty Offered on Late Taxes, In Forgiving Towns Hope for a Win-Win" March 27, 2011 (see my quotes in this Boston Globe article by Johanna Seltz)
- Massachusetts H. 4877, An Act Relative to Municipal Relief