Definitions

(a) General Rule. A pass-through entity that maintains an office or engages in business in Massachusetts must deduct and withhold Massachusetts tax from the member's pro-rata share of the pass-through entity's Massachusetts-source income, unless: (1) the pass-through entity is exempt from this requirement under 830 CMR 62B.2.2(3)(b); or (2) the member is exempt from this requirement under 830 CMR 62B.2.2(3)(c).

(b) Exempt Pass-through Entities. The following pass-through entities are not required to participate in pass-through entity withholding:

1. An Investment Partnership or a partnership that only invests in Investment Partnerships and has no Massachusetts-source income from other sources;

2. A trust or estate that is already required to withhold on nonresident members, if it has any, under M.G.L. c. 62, § 10(g);

3. An upper-tier pass-through entity in a tiered structure that can demonstrate that a lower-tier pass-through entity has previously withheld and made estimated payments of all of the Massachusetts tax on Massachusetts-source income derived by the upper-tier pass-through entity that would otherwise be subject to withholding by the upper-tier entity. (See tiered structures at 830 CMR 62B.2.2(5).)

4. A Publicly Traded Partnership; and

5. An entity that is prohibited under federal or state law from withholding tax from distributions to members as otherwise required under 830 CMR 62B.2.2, such as certain for-profit entities that provide low-income housing which are funded by or through MassHousing or the United States Department of Housing and Urban Development; the exemption applies only for years in which distributions are prohibited under federal or state law. Contractual restrictions on distributions, such as loan covenants or organizational documents, do not qualify an entity for this exemption.

(c) Exempt Members. Generally, withholding is not required for members that fit into one of the categories below. For a member to be treated as exempt, the pass-through entity must: obtain, on or before the later of the last day of the fourth month of the entity's taxable year, or within thirty days of the member joining the entity, certification by the member claiming to be exempt from withholding on a form approved by the Commissioner; retain the certification according to the Commissioner's record retention rules; and produce the certification upon request. The exemption certificate remains in effect until revoked by the member. If the member’s status changes during the tax year, the entity must obtain a new certification within 30 days of the date the member’s status changes. If an entity does not collect the certification from its members because it does not anticipate that it will realize Massachusetts-source income, it must collect the certifications within 30 days of the date the entity could reasonably foresee that it would realize Massachusetts-source income.

1. Federally Tax-exempt. With respect to members that are exempt from federal income tax under Internal Revenue Code § 501, withholding is not required as to nonresident members' distributive shares to the extent that such income is exempt from Massachusetts tax under M.G.L. c. 62 or c. 63, as certified to the pass-through entity by the member.

2. Massachusetts Residents. Generally, withholding is not required as to a member who certifies that the member is a Massachusetts resident that is an individual, estate, or trust.

3. Corporations Otherwise Subject to Tax under c. 63; Pass-Through Entities Doing Business in Massachusetts. Generally, withholding is not required as to members that are corporations that have income, other than their pass-through entity income, that is subject to tax under M.G.L. c. 63 and that are filing a Massachusetts corporate excise return; or as to members that are pass-through entities that must file a return pursuant to M.G.L. c. 62 in Massachusetts. Corporations and pass-through entities claiming to be exempt must certify to their filing of a Massachusetts return.

4. Participating M.G.L. c. 62 Nonresidents. Generally, withholding is not required as to nonresident members taxable under M.G.L. c. 62 who establish that they are compliant with Massachusetts tax laws by:

a. participating in a composite return prepared by the pass-through entity under the rules explained in 830 CMR 62.5A.1(11); or b. filing a certification with the pass-through entity, stating that they agree to file tax returns, make quarterly estimated tax payments, and accept personal jurisdiction in Massachusetts state courts for the determination and collection of taxes, including estimated tax payments, and related interest, penalties, and fees imposed with respect to the income of the pass-through entity. Members that file this certification may nonetheless agree to have the entity withhold on their behalf at any time during the taxable year.

5. Upper-tier Pass-through Entities Comprising Only Exempt Members. Generally, withholding is not required as to upper-tier pass-through entities that certify that all of their members are exempt from withholding under 830 CMR 62B.2.2(3)(c)1. through 4.

6. Nonresident Limited Partners of Qualified Securities Partnerships. Generally, withholding is not required with respect to an individual nonresident limited partner of a Qualified Securities Partnership, to the extent the partner’s distributive share from the Qualified Securities Partnership is not subject to tax in Massachusetts. Also, withholding is generally not required with respect to a corporate nonresident limited partner of a Qualified Securities Partnership to the extent the partner’s distributive share from the Qualified Securities Partnership is not subject to the corporate excise in Massachusetts.

7. Other Exempt Entities. The Commissioner may identify additional exempt entities on the pass-through entity exemption certificate, which will be updated periodically.

(d) Backup Withholding. Notwithstanding the exemptions from withholding under 830 CMR 62B.2.2(3)(c), if the Commissioner notifies a pass-through entity that any resident or nonresident member has not met the member's obligation to file and pay timely, the pass-through entity must withhold and make tax payments on behalf of that member. Backup withholding, if required, shall be for a period of five tax years following the Commissioner's notification to the pass-through entity, unless the Commissioner agrees in writing to a shorter period.

(4) Income Subject to Withholding; Quarterly Payment

(a) Amount of Tax to be Withheld. The tax withheld under 830 CMR 62B.2.2 shall be calculated based on Massachusetts taxable amounts of distributive share allocated to a member subject to withholding. The amount subject to withholding by a pass-through entity is calculated based on the entity’s Massachusetts-source income.

(b) Payments of Tax Withheld. The pass-through entity must make a required annual payment on behalf of each member subject to withholding calculated by multiplying the withholding rate by the lesser of 80% of the member's distributive share for the taxable year, or 100% of the member's prior year distributive share. The pass-through entity shall make four installment payments on the required annual payment on behalf of each subject member for the taxable year. The amount of each installment shall be 25% of the required annual payment. Each installment shall be paid on or before the last day of the month following the close of the quarter of the entity's taxable year.

(c) Withholding Rate. The taxable amount of distributive share shall be multiplied by the following tax rates:

if the member is an individual, estate, or trust, the tax rate imposed on Part B taxable income under M.G.L. c. 62, § 4(b); or

if the member is a corporation, the applicable rate under M.G.L. c. 63; or

if a lower-tier pass-through entity is withholding directly as to the members of an upper-tier pass-through entity as permitted under 830 CMR 62B.2.2(5), the rate imposed on Part B taxable income under M.G.L. c. 62, § 4(b) for taxpayers that are taxable under c. 62 or the appropriate rate under M.G.L. c. 63, for taxpayers that are taxable under c. 63, as the case may be; or

if the member is a pass-through entity, the tax rate on individuals imposed on Part B taxable income under M.G.L. c. 62, § 4(b); or

if no exemption certificate has been filed and the entity has no information about the member, the entity should withhold at the personal income tax rate imposed on Part B taxable income under M.G.L. c. 62, § 4(b).