830 CMR, § 63.42.1

Current through Register 1533, October 25, 2024

Section 63.42.1 - Section 42 - Application for Alternative Apportionment

(1)Scope of Regulation; Outline of Topics; Effective Date.

(a)Scope of Regulation.

1. If a corporation believes that the allocation and apportionment provisions of M.G.L. c. 63, § 38 are not reasonably adapted to approximate the net income derived from business carried on by the corporation within Massachusetts, the corporation may apply to the Commissioner to have its Massachusetts income determined by a method other than that provided in M.G.L. c. 63, §§ 38 and 42.

2. If a corporation subject to a regulation issued under M.G.L. c. 63, § 38(j) believes that the provisions of such regulation are not reasonably adapted to approximate the net income derived from business carried on within Massachusetts by the corporation, that corporation may apply to the Commissioner to have its Massachusetts income determined by a method other than that provided in the applicable regulation issued under M.G.L. c. 63, § 38(j).

3.830 CMR 63.42.1 does not apply to financial institutions subject to the allocation and apportionment provisions of M.G.L. c. 63, § 2A. Such entities are entitled to apply the alternative apportionment provisions of M.G.L. c. 63, § 2A(g) and are otherwise subject to the rules therein.

(b)Outline of Topics. 830 CMR 63.42.1 is organized as follows:

1. Scope of Regulation; Outline of Topics; Effective Date.

2. Definitions.

3. Application Process.

4. Alternative Apportionment Method.

5. Commissioner's Review and Determination.

6. Penalties.

7. Abatement.

8. Taxpayer Corporation Filing as Member of a Massachusetts Combined Group.

(c)Effective Date. 830 CMR 63.42.1 is effective for applications for alternative apportionment submitted on or after October 6, 2017.

(2)Definitions. For the purposes of 830 CMR 63.42.1, the following terms have the following meanings:

Alternative Apportionment. A method, other than that provided in M.G.L. c. 63, § 38 and 830 CMR 63.38.1, or a regulation issued under M.G.L. c. 63, § 38(j), to determine a corporation's net income derived from business carried on within Massachusetts.

Applicant. A corporation, as defined in 830 CMR 63.42.1, applying for permission to use alternative apportionment under M.G.L. c. 63, § 42 and 830 CMR 63.42.1.

Application. An application for alternative apportionment pursuant to M.G.L. c. 63, § 42 submitted on Form AA-1, Application for Section 42 Method of Apportionment, or such other form as may be prescribed by the Commissioner.

Commissioner. The Commissioner of Revenue or the Commissioner's representative duly authorized to perform the duties of the Commissioner relating to alternative apportionment.

Corporation. A business corporation subject to tax under M.G.L. c. 63, § 39.

Duly-filed Return. A return required by M.G.L. c. 62C that is filed on or before the due date or within any extension granted by the Commissioner under M.G.L. c. 62C, § 19. A duly-filed return for purposes of M.G.L. c. 63, § 42, refers to the taxpayers's orginally filed return for the taxable period and does not include an amended return.

Statutory Apportionment. The method of determining net income derived from business carried on within Massachusetts as provided in M.G.L. c. 63, § 38 and 830 CMR 63.38.1, or a regulation issued under M.G.L. c. 63, § 38(j).

(3)Application Process. If a corporation believes that the allocation and apportionment provisions of M.G.L. c. 63, § 38, or, where applicable, a regulation issued under M.G.L. c. 63, § 38(j), are not reasonably adapted to approximate its net income derived from business carried on in Massachusetts, the corporation may apply to the Commissioner to have its Massachusetts income determined by an alternative apportionment method. An applicant seeking alternative apportionment must submit Form AA-1, or such other form as may be prescribed by the Commissioner, with its duly-filed return. An application will not be considered if it is received by the Commissioner after the due date or, where applicable, the due date as validly extended, for the applicant's corporation excise return.

(a)Contents of Application. An application must contain a statement of the reasons, supported by detailed facts, why the applicant believes that the allocation and apportionment provisions of M.G.L. c. 63, § 38, or, where applicable, a regulation issued under M.G.L. c. 63, § 38(j), are not reasonably adapted to approximate its net income derived from business carried on within Massachusetts. The applicant must show by clear and cogent evidence that the income attributed to Massachusetts using statutory apportionment does not fairly represent the extent of the applicant's business activity in Massachusetts. An application must also contain a detailed description of the applicant's proposed alternative apportionment method. The applicant must provide a written explanation of the proposed alternative method, attaching sufficient documentation to support the overall result reached. The Commissioner may request additional information from the applicant.

(b)Return; Tax Due. An application must be submitted with a duly-filed tax return showing computation of tax using both statutory apportionment and the applicant's proposed alternative apportionment method. The amount of tax due with the return must be computed using statutory apportionment.

(4)Alternative Apportionment Method. The applicant's proposed alternative method may include, with respect to all or any part of the applicant's business activity, one or more of the following:

(a) the exclusion of one or more factors;

(b) the inclusion of one or more additional factors;

(c) the allocation of particular items of income, gain, deduction or loss; or

(d) the employment of other adjustments or methodology.

(5)Commissioner's Review and Determination.

(a)In General. The Commissioner will consider each proper and timely-filed application for alternative apportionment, and make a determination as set forth in 830 CMR 63.42.1(5)(b). An application for alternative apportionment may be withdrawn at any time before the applicant has been notified of the Commissioner's determination.

(b)Commissioner's Determination.

1. If in the Commissioner's judgment the allocation and apportionment provisions of M.G.L. c. 63, § 38 or, where applicable, a regulation promulgated under M.G.L. c. 63, 38(j), are reasonably adapted to approximate the applicant's net income derived from business carried on within Massachusetts, the application will be denied, and the applicant's net income derived from business carried on within Massachusetts will be determined using statutory apportionment. The Commissioner shall notify the applicant of the determination to deny the application.

2. If in the Commissioner's judgment it appears that the allocation and apportionment provisions of M.G.L. c. 63, § 38 or, where applicable, a regulation promulgated under M.G.L. c. 63, 38(j), are not reasonably adapted to approximate the applicant's net income from business carried on within Massachusetts, the Commissioner will determine the amount of the applicant's net income derived from business activity carried on within Massachusetts, either by adopting the applicant's proposed method or by a reasonable alternative. The Commissioner shall notify the applicant of the method the Commissioner proposes to apply.

a.Applicant's Opportunity to Object to Proposed Method. Upon receipt of notification of the Commissioner's intent to apply a proposed alternative method, the applicant has 60 days, or such longer period as the Commissioner may expressly allow, to advise the Commissioner in writing of any objections to the Commissioner's proposed method. The Commissioner may further discuss with the applicant the Commissioner's proposed method, and as a result the Commissioner may in his discretion revise his proposed method.

b.Determination of Alternative Method. After consideration of any objections submitted pursuant to 830 CMR 63.42.1(5)(b)2.a., or if no objections are submitted within the period described in such subsection, the Commissioner shall notify the applicant of the Commissioner's determination as to the alternative method to be applied. The alternative apportionment method so determined by the Commissioner shall be considered the method of apportionment applicable to the taxpayer under M.G.L. c. 63.

c.Amended Return; Refund. The applicant must submit an amended return showing computation of the tax using the alternative apportionment method determined by the Commissioner. Where applicable, a refund of an overpayment, with any applicable interest, will be made pursuant to M.G.L. c. 62C, § 36.

3. If the Commissioner does not act upon an application for alternative apportionment before the expiration of nine months from the date the application was properly filed, the application is deemed denied. The Commissioner and the applicant may consent in writing to extend the time for the decision on the application.

(c)Determination May Be Effective for Three Years. An alternative apportionment method determined by the Commissioner shall be effective for up to three tax years as provided in the Commissioner's determination of alternative method, absent any material change in the applicable facts and law. The applicant shall indicate its use of the alternative apportionment method on each duly-filed tax return in the manner prescribed by the Commissioner.

(6)Penalties. If an applicant files a return reporting its tax using any method of allocation and apportionment other than statutory apportionment without first complying with the provisions of 830 CMR 63.42.1, or if after so complying an applicant files an amended return using a method of allocation and apportionment that is contrary to the method determined under 830 CMR 63.42.1(5)(b)1. or 2., as applicable, the return filed will be considered incorrect or insufficient within the meaning of M.G.L. c. 62C, § 28. If a taxpayer that has been notified by the Commissioner that it has filed an incorrect or insufficient return refuses or neglects within 30 days after the date of the notification to file a proper return, or if a taxpayer files a false or fraudulent return, the Commissioner may determine the tax due and assess the tax at not more than double the amount so determined under M.G.L. c. 62C, § 28. The Commissioner may also impose a penalty under M.G.L. c. 62C, § 35A, in addition to any other penalties established by law.

(7)Abatement. An applicant aggrieved by the denial of its application or aggrieved by the Commissioner's determination of an alternative apportionment method may file an application for abatement pursuant to M.G.L. c. 62C, § 37, in such form as the Commissioner may require. No tax will be abated on the ground that an alternative apportionment method should have been used unless the corporation has properly applied for alternative apportionment under M.G.L. c. 63, § 42 and 830 CMR 63.42.1.

(8)Taxpayer Corporation Filing as Member of a Massachusetts Combined Group. A taxpayer corporation that files a Massachusetts corporate excise return as a member of a combined group (i.e., that files a Massachusetts combined report under M.G.L. c. 63, § 32B) may apply for alternative apportionment if it believes that the allocation and apportionment provisions of M.G.L. c. 63, § 38, or where applicable, a regulation under M.G.L. c. 63, § 38(j), are not reasonably adapted to approximate its net income derived from business activity carried on within Massachusetts. The application must be submitted by the principal reporting corporation on behalf of the member that is requesting alternative apportionment. In the review of such an application, the Commissioner will consider the business activities of all of the members of the combined group members and the Massachusetts apportionment percentages of all such taxable members in determining whether the combined group's taxable income attributed to Massachusetts reasonably reflects the business activity of the combined group carried on within Massachusetts. The alternative apportionment request of the taxable member of the combined group will be granted only if the Commissioner concludes that the combined group's taxable income attributed to Massachusetts does not reasonably reflect the business activity of the combined group in Massachusetts.

830 CMR, § 63.42.1

Date of Promulgation: 1/8/88

Amended by Mass Register Issue 1349, eff. 10/6/2017.