830 CMR, § 62.5A.1
Certain types of income received by non-residents from sources within Massachusetts are excluded from taxation, such as non-business-related interest, dividends and gains from the sale or exchange of intangibles that are not derived from or effectively connected with the carrying on of a trade or business, and certain qualified pension income.
Massachusetts source income derived from pass-through entities, such as partnerships, trusts, estates, limited liability companies (LLCs), or S corporations, generally is also subject to Massachusetts income taxation for non-residents. The activities of a pass-through entity are attributed to its owners, including non-resident partners, members, or shareholders. Thus, if a non-resident has an ownership interest in a pass-through entity that is engaged in the conduct of a trade or business in Massachusetts, or derives income from the ownership of real or tangible personal property in Massachusetts, the non-resident is treated as if conducting those activities in his or her individual capacity.
The income of a pass-through entity that derives from or is effectively connected with the conduct of a trade or business or the ownership of real or tangible personal property in Massachusetts retains its character as it passes through a tiered structure of pass-through entities before becoming income to the non-resident. Thus, income that is derived from a trade or business does not convert to non-business-related income as it passes through a series of entities. Similarly, Massachusetts source income of any pass-through entities engaged in a unitary business that conducts a trade or business in Massachusetts is taxable to a non-resident member to the extent it would be taxable if received directly by the nonresident.
In the case of multi-tiered unitary businesses where at least one entity in the structure is engaged in the conduct of a trade or business or the ownership of real or tangible personal property in Massachusetts, and income derived from one or more members of the unitary business is taxable in another state, the group of entities must apportion its income, as determined under 830 CMR 62.5A.1.
When a non-resident earns or derives income from sources both in Massachusetts and elsewhere, only that portion of the income earned or derived from Massachusetts is taxed. The types of deductions and exemptions available to a non-resident with respect to Massachusetts source income are generally the same as those granted to a resident.
All transactions involving the taxation of non-residents are subject to the sham transaction rule, as defined in 830 CMR 62.5A.1.
To the extent that any rule in 830 CMR 62.5A.1 conflicts with that in another regulation, such as 830 CMR 62.17A.1, "Massachusetts Taxation of S Corporations and their Shareholders," the most recently promulgated rule applies.
Code, as defined in M.G.L. c. 62, § 1, which refers to the federal Internal Revenue Code, with certain modifications.
Corporate Trust, any partnership, association, or trust, the beneficial interest of which is represented by transferable shares, which is subject to tax imposed by M.G.L. c. 62 as a corporate trust.
Domicile, the place which is an individual's true, fixed and permanent home, determined by established common law principles and the facts and circumstances in each case.
Entertainer, an individual employee, partner or sole proprietor who receives compensation to perform, entertain, amuse, or inform (as, for example, a lecturer) at one or more discrete events.
Federal Gross Income, gross income as defined under the Code.
Massachusetts Cooperative Housing Corporation, a corporation organized or existing under M.G.L. c. 157B, or M.G.L. c. 157, § 3A.
Massachusetts Gross Income, federal gross income as modified by M.G.L. c. 62, § 2(a).
Massachusetts Source Income, Massachusetts gross income derived from or effectively connected with:
Massachusetts Timesharing Arrangement , an arrangement under which a taxpayer purchases a right to use accommodations located in Massachusetts for a specific period of less than a year's duration during any given year over a period of greater than three years.
Member, may include a shareholder of an S corporation; a partner in a partnership, including a limited partner in a limited partnership, or a partner in a limited liability partnership; a member of a limited liability company; or a beneficiary of an estate or trust other than a corporate trust.
Non-resident, any natural person who is not a resident or inhabitant.
Partner, a member of an entity organized as a general partnership, limited liability partnership, or limited partnership, or a member of any business entity subject to tax as a partnership for Massachusetts purposes.
Partnership, an unincorporated association of two or more individuals or entities organized to carry on, as co-owners, a business for profit. A partnership includes any business entity treated as a partnership for Massachusetts tax purposes, such as LLCs that are classified as partnerships for federal tax purposes. Businesses subject to Massachusetts tax on their income at the entity level, such as a corporate trust or an LLC that elects to be taxed as a corporation for federal tax purposes, are not treated as partnerships for Massachusetts tax purposes.
Part-year Resident, a taxpayer who moves to Massachusetts or establishes a permanent place of abode in Massachusetts and becomes a tax resident during the tax year, or a taxpayer who terminates his or her status as a Massachusetts resident and establishes a residence outside of the state during the tax year.
Pass-through Entity, includes a limited partnership, limited liability partnership, general partnership, a limited liability company that is treated as a partnership for Massachusetts tax purposes, an S corporation, and a trust not taxed at the entity level, including a grantor-type trust, but not including a corporate trust, and an estate not taxed at the entity level.
Person, an individual, corporation, society, association, partnership or other entity.
Presence for Business in Massachusetts , physical presence in Massachusetts for the purpose of engaging in any activity, the object of which is financial profit, gain, benefit, or advantage, direct or indirect.
Professional Athlete who is not a Member of a Professional Athletic Team, an individual employee, partner or sole proprietor who receives compensation to compete in athletics (other than as a member of a professional athletic team) at one or more discrete sporting events. For rules that apply to non-resident professional team athletes, see830 CMR 62.5A.2.
Related Business Activities, as more fully defined in 830 CMR 62.5A.1(6)(d), include activities where there is a sharing or exchange of value between the segments of a single entity or multiple entities such that the activities are mutually beneficial, interdependent, integrated, or such that they otherwise contribute to one another. The term also includes the short-term investment of capital in a non-unitary business segment or activity, or any other investment that serves an operational function.
Resident or Inhabitant, any natural person domiciled in Massachusetts or any natural person who is not domiciled in Massachusetts but who maintains a permanent place of abode in Massachusetts and spends in the aggregate more than 183 days of the tax year in Massachusetts, including days spent partially in and partially out of Massachusetts.
S Corporation, an S corporation as defined in the Code.
Sham Transaction, a transaction that does not have:
Sham Transaction Rule, the rule, set forth at M.G.L. c. 62C, § 3A, that permits the commissioner, in his discretion, to disallow the asserted tax consequences of a transaction by asserting that it is a sham transaction; in such cases the taxpayer has the burden of proving by clear and convincing evidence that it is not a sham transaction, as more fully described in M.G.L. c. 62C, § 3A.
Tiered Structure, a pass-through entity that has a pass-through entity as a member. As between two entities, the pass-through entity that is a member is the upper-tier entity, and the entity of which it is a member is the lower-tier entity. A tiered pass-through entity arrangement may have two or more tiers; in such cases, a single entity can be both a lower-tier and an upper-tier entity.
Trust, a trust as defined under Massachusetts law, but for purposes of 830 CMR 62.5A.1, not including a corporate trust.
Unitary Business, a group of related businesses under common ownership that have one or more of the following factors:
Evidence of a unitary business includes facts indicating that there is a flow of value among the entities, or that capital transactions among the businesses serve an operational rather than an investment function.
Example (3)(a)(2). Taxpayer is a resident of New Hampshire and works in Massachusetts from 1984 through 2004. Upon retirement in 2004 Taxpayer receives a severance compensation package that includes $10,000 for severance pay and $5,000 for unused sick leave. The entire $15,000 package is derived from and attributable to Taxpayer's employment in Massachusetts. The entire $15,000 package is thus Massachusetts source income.
The income derived by a non-resident limited partner of a Massachusetts limited partnership engaged exclusively in buying, selling, dealing in or holding securities on its own behalf and not as a broker, is not subject to the Massachusetts income tax. See M.G.L. c. 62, § 17(b). The Massachusetts source income derived by a non-resident general partner of such a partnership is subject to Massachusetts income tax, provided the partnership is engaged in the conduct of a trade or business in the Commonwealth, or owns or leases real property in the Commonwealth.
Example (3)(b)(2). Florida domiciled LLC ("Florida LLC") has three non-resident members. Florida LLC owns a Massachusetts domiciled LLC ("Massachusetts LLC") that invests in securities on its own behalf and is not engaged in a trade or business. Florida LLC owns a New York domiciled LLC ("New York LLC") that has an office in Boston that offers management services and advice to Massachusetts LLC and receives a fee from Massachusetts LLC based on a percentage of the portfolio value of Massachusetts LLC. Florida LLC also owns Real Estate LLC, commercially domiciled in Utah, but which owns an office tower in Boston and collects rents on that. Real Estate LLC is not engaged in a unitary business with the other members of the group.
Taxation of non-resident members of Florida LLC. The Massachusetts source income of Real Estate LLC, determined pursuant to the allocation and apportionment rules of 830 CMR 62.5A.1(6), is identified and reported to Florida LLC, and is taxable to the non-resident members. It is not subject to further apportionment under 830 CMR 62.5A.1(6) at the level of Florida LLC. Income from Massachusetts LLC is not subject to Massachusetts taxation to the non-resident members, because Massachusetts LLC only invests in securities on its own behalf. The Massachusetts source income derived from New York LLC, determined pursuant to the allocation and apportionment rules of 830 CMR 62.5A.1(6)(a), is taxable because the management company is engaged in the conduct of a trade or business in Massachusetts. The income of the group is not subject to the apportionment provisions described at 830 CMR 62.5A.1(6)(b), because the entities subject to Massachusetts taxation are not engaged in a unitary business.
Example (3)(b)(3). A non-resident is a member of a Nevada LLC. The Nevada LLC sells computer software, and has an 80% ownership interest in a Partnership that develops computer software in Massachusetts. The partnership is treated as a partnership for federal and Massachusetts tax purposes. The income of the Partnership flows through the LLC to non-resident members. The LLC and the Partnership are functionally integrated, and are a unitary business. Subject to the apportionment rules found at 830 CMR 62.5A.1(6), below, the income of the Partnership that is passed through to the nonresident shareholders is Massachusetts source income.
Example (3)(c)(2). Taxpayer works in Massachusetts from 1997 until 2004. Taxpayer lives in Massachusetts in 1997, and then moves to Rhode Island, continuing to work in Massachusetts, with some work days spent in Rhode Island. Taxpayer is granted stock options according to the following schedule:
Grant Date | # of shares | Option Price/Share | Exercise Date | Price at Exercise/Share | Income From Exercise |
11/19/1997 | 150 | $14.68 | 12/9/2004 | $108.5625 | $14,082 |
11/18/1998 | 1,200 | 13.82 | 5/28/2004 | 94.0625 | 96,291 |
11/17/1999 | 1,500 | 25.22 | 12/9/2004 | 108.5625 | 125,014 |
Taxpayer had the following apportionment percentages for the years during which the options were unexercised:
1997, 100% (taxpayer was a resident during 1997 and worked exclusively in Massachusetts during that year); 1998, 83%; 1999, 93.45%; 2000, 89.36%; 2001, 91.27%; 2002, 95.71%; 2003, 93.47%; 2004, 97.44%.
Calculation of apportioned stock option income is as follows:
The total Massachusetts source income derived from these options in 2004 is $218,466.
Example (3)(c)(3). Executive works for C Corporation in Massachusetts in 2003 and is promised one thousand shares of stock as a bonus in 2003, but the stock is not actually issued until 2004, after Executive has been transferred to C Corporation's Boise, Idaho headquarters. The receipt of this stock is attributable to Executive's employment in Massachusetts and is taxable as Massachusetts source income to a non-resident in 2004, the year of federal recognition.
Example (3)(c)(4). Franchise Owner owns several franchises of a fast food chain in Massachusetts, each of which is a separate corporation. Franchise Owner sells her interest in the corporations and executes an agreement with the purchaser not to open any competing fast food restaurant near the existing stores. The covenant not to compete provides for payments over a period of three years. Franchise Owner moves to another state and never returns to Massachusetts. Since all the income from the covenant not to compete derives both from the Franchise Owner's former conduct of and her sale of a trade or business in Massachusetts, it is Massachusetts source income for the duration of the covenant, notwithstanding Franchise Owner's change in domicile or lack of business activity in Massachusetts for the years of receipt.
Example (3)(c)(5.1). Taxpayer worked in Massachusetts from 1985 through 2002 and retires, moving out of state. A portion of her pension package includes nonqualified benefits that non-domiciliary states are permitted to tax under federal law. Those benefits are paid in 2003 and years thereafter. Because this taxable pension income is derived from Taxpayer's employment in Massachusetts, it is Massachusetts source income taxable to Taxpayer in the year of receipt.
Example (3)(c)(5.2). Same facts as in Example (3)(c)(5.1), but Taxpayer worked for the same company in various states from 1985 through 2002. Taxpayer is allowed to source her non-qualified pension benefits to Massachusetts in the same proportion as her period of Massachusetts employment credited toward her pension bears to the total period of employment credited toward her pension. The apportionment calculation for this example must be based on the entire employment period from 1985 through 2002, assuming that all of those years were credited toward Taxpayer's pension.
Example (3)(c)(6). See Example (3)(a)(2).
Example (3)(c)(7.1). LLP is a limited liability partnership that conducts its business out of its Massachusetts headquarters. It consists of 20 partners. In 2002, ten partners withdraw, leaving ten Active Partners and ten Withdrawn Partners. Upon withdrawal, the ten Withdrawn Partners cease to be members of the partnership, and move out of state. The Withdrawn Partners receive annual payments for ten years after withdrawal. Because these payments are attributable to the partners' conduct of a trade or business in Massachusetts, they are taxable Massachusetts source income to the non-residents.
Example (3)(c)(7.2). Same facts as in Example (3)(b)(7.1), except that from 1998 through 2002 the partnership had one or more non-resident individual partners and had income derived from business activities in another state, and that other state had jurisdiction to levy an income tax on the partnership or partners. Five-Year Partner was a partner during the period 1998 through 2002. The partnership should apply the average apportionment percentage of the partnership under 830 CMR 62.5A.1(6) during the period 1998 through 2002 and notify the Five-Year Partner of the Massachusetts source income portion of his annual payments.
Example (3)(c)(8.1). Limited Liability Partner, a non-resident, owns a 25% partnership interest in a Massachusetts limited liability partnership that operates a computer consulting business in Massachusetts. Partner contributed funds to the limited liability partnership upon its creation, but took no part in its management or operations. Partner sells his interest in the partnership and recognizes a capital gain for federal tax purposes. Partner is taxable in Massachusetts on the gain.
Example (3)(c)(8.2). Same facts as in Example (3)(c)(8.1), but the partnership had one or more nonresident individual partners, had income derived from business activities in another state, and such other state had the jurisdiction to levy an income tax on the partnership or partners. Non-resident Limited Liability Partner may apportion the gain on the sale of the partnership interest. The proper method for determining apportionment is to use the average of the apportionment percentages under 830 CMR 62.5A.1(6), taken from each partnership Form 3, during the period the partner owned the partnership interest.
Example (3)(c)(8.3). Limited Partner, a non-resident, purchased an interest in a limited partnership that was not publicly traded, but that had Massachusetts source income. After two years, Limited Partner sells her interest. Limited partner is taxable on the apportioned share of gain from the disposition, apportioned by averaging the apportionment percentages of the partnership under 830 CMR 62.5A.1(6) during the two years Limited Partner owned her shares
Example (3)(c)(8.4). Investor is an out-of-state employee of National Corp, a C corporation doing business in Massachusetts. Investor works in National Corp's Massachusetts offices. Investor purchases stock of National Corp as an ordinary investment unrelated in any way to his compensation. The gain on Investor's sale of the stock is not Massachusetts source income.
Example (3)(c)(8.5). Employee works in Massachusetts and is granted a bonus of restricted stock, subject to risk of forfeiture, with vesting conditioned on her employer's reaching certain projected increases in corporate earnings. Employee does not make an election to include the value of the stock in gross income in the year of the transfer under IRC § 83(b). Three years later Employee moves out of state, and sells the stock before it becomes substantially vested, triggering inclusion of the gain in income as compensation for federal income tax purposes. Employee's gain is Massachusetts source income taxable to Employee.
Example (3)(d)(1.1). A Vermont resident owns real estate located in Massachusetts that is sold for a profit. The Vermont resident will be subject to Massachusetts income tax on the net gain derived from the sale.
Example (3)(d)(1.2). A New York resident receiving rental income from real estate located in Massachusetts will be subject to Massachusetts income tax on such income.
Example (3)(d)(1.3). A Connecticut resident owns real estate located in Massachusetts. She sells the property for a gain and as part of the consideration for the sale receives a note from the buyer for 20% of the purchase price. Under the note the buyer will pay principal and interest in installments over the next five years. Both the gain and interest received will be subject to Massachusetts income tax, whether or not the non-resident elects to defer recognition of the income under the installment sale provisions set forth in M.G.L. c. 62, § 63.
Example (3)(d)(1.4). Texas General Partnership has three non-resident partners. The Partnership owns shares in a REIT that is formed as a corporation that are sold on a secondary market, such as through an investment firm, which it has purchased at arms length. Income from the REIT is not treated as income from real estate, but rather as income from certain intangibles not subject to Massachusetts income tax for nonresidents, according to the rule at 830 CMR 62.5A.1(4)(b). As in all cases, such income may be taxable to non-residents under the sham transaction rule.
Example (3)(d)(1.5). Mall Partners is a partnership with three non-resident partners that owns malls throughout the country, including a mall in Massachusetts. Income derived from the Massachusetts mall is Massachusetts source income derived from real property, and is taxable to the non-resident partners.
Example (3)(d)(1.6). Non-resident is a partner in a partnership that owns ten acres of land in Massachusetts. Non-resident sells his interest in the partnership. Non-resident is taxable on the gain from the sale.
Example (3)(e)(1.1). A Maine resident who purchases a Massachusetts lottery ticket and wins a prize will be subject to Massachusetts income tax on the full amount of the winnings.
Example (3)(e)(1.2). A New Hampshire resident visits a horseracing track in Massachusetts, places a bet on a horse and wins. The full amount of the winnings will be subject to Massachusetts income tax.
Example (3)(f)(1). A non-resident scientist develops a formula for a new drug product, patents the formula and grants a license to a pharmaceutical company, which produces the product at its Springfield, Massachusetts plant. The entire income from the licensing agreement is Massachusetts source income to the scientist.
Example (3)(h)(1.1). A former politician, a resident of California, now earns a living speaking at various functions across the country. She spends one day in Massachusetts delivering a speech at a convention in Lowell, Massachusetts and earns $30,000. This nonresident is considered to be carrying on business in Massachusetts because the fee is earned as a direct consequence of the Massachusetts activity, and this activity is not merely ancillary to her business conducted outside of Massachusetts.
Example (3)(h)(1.2). A dentist employed by a health maintenance organization in Portland, Maine, comes to Massachusetts for a paid six-week training course in pediatric dentistry. Her presence for business in Massachusetts is ancillary to her primary employment duties elsewhere and is therefore casual, isolated and inconsequential. She is not considered to be carrying on employment in Massachusetts.
Example (3)(h)(1.3). A New York attorney, practicing law as a sole practitioner primarily in New York City, is retained by a Massachusetts business in connection with a pending lawsuit in a Massachusetts court. All of the trial preparation occurs in New York but the attorney appears in court in Massachusetts every day for four weeks. This non-resident is considered to be carrying on business in Massachusetts while in the Commonwealth because the duties performed in Massachusetts are not merely ancillary to his primary business outside Massachusetts.
Example (5)(a)(1.1). An auditor living in Providence, Rhode Island is employed by an accounting firm in Boston at an annual salary of $66,000. The auditor is considered to have a trade or business including employment carried on in Massachusetts. He works a total of 240 days during the year. He works on audit engagements in Rhode Island and Connecticut on 160 days of the year and works 80 days in Boston. His Massachusetts source income is $22,000, calculated as follows:
Example (5)(a)(1.2). A telecommuter works for a Massachusetts firm, mainly out of her home in Ohio. The telecommuter works a total of 240 days during the tax year, and is in Massachusetts on 60 of those days. Her salary is $120,000 per year. Her Massachusetts source income is $30,000, calculated as follows:
The following example is an instance where the rule in 830 CMR 62.5A.1(5)(a) is modified to apply to a specific industry.
Example (5)(a)(1.3). In some cases, a non-resident flight crew member, such as a pilot or flight attendant, may be subject to taxation in Massachusetts. The general apportionment rules at 830 CMR 62.5A.1(5)(a) do not adequately measure a flight crew member's activities in the state. Using the authority stated in 830 CMR 62.5A.1(5), the Commissioner has by rule created an alternate allocation and apportionment method, as follows. When a flight crew member is unable to establish the exact amount of pay received for services performed in Massachusetts, the employee should apportion his or her income to Massachusetts by multiplying the gross income related to his or her employment, wherever earned, by an apportionment factor, that is, a fraction, the numerator of which is Massachusetts workdays and the denominator of which is total workdays. For purposes of this example, a Massachusetts workday is any workday that a flight crew member flies out of Massachusetts. For workdays on which a flight crew member does not fly out of Massachusetts, the general rule at 830 CMR 62.5A.1(5)(a) applies, and any day part of which is spent in Massachusetts will be treated as a Massachusetts workday, unless the taxpayer can prove that he or she worked outside of Massachusetts for more than half the day. The term "total work days" is the sum of all days that an employee is either flying or is required to be on duty (non-flight workdays).
Example (5)(d)(1.1). A non-resident surgeon is called in from New York to perform tests and surgery at a Boston hospital. The surgeon spends six days performing the tests and surgery in Boston and is paid $50,000. The entire $50,000 is income subject to the Massachusetts income tax.
Example (5)(d)(1.2). A non-resident carpenter is contracted by a Vermont resident to remodel her Vermont home and perform other work as needed. The carpenter works a total of 90 days remodeling the house. As part of the contract, the carpenter works for 45 additional days repairing the Vermont resident's Massachusetts vacation house. The carpenter is paid a total of $21,000 for his services under the contract. His Massachusetts source income from this contract is $7,000, calculated on the following basis:
The above three factors must be carried out to four decimal places. The apportionment percentage is a fraction, the numerator of which is the property factor plus the payroll factor plus twice the sales factor, and the denominator of which is four. The resulting figure is then multiplied by the entire net income of the trade or business, wherever derived. The result is the Massachusetts source income.
Example (5)(e)(1.1). A non-resident entertainer performs for three evenings at Symphony Hall in Boston and earns $100,000. The entire $100,000 is income subject to Massachusetts income tax.
Example (5)(e)(1.2). A non-resident professional dancer earns an annual salary of $50,000. She dances in all 40 of her dance company's performances during the tax year, 20 of which took place in Massachusetts. The income subject to tax in Massachusetts is $25,000, calculated by multiplying $50,000 by 20/40.
Example (5)(e)(1.3). A non-resident professional tennis player plays in one tournament in Massachusetts during the tax year. She spends six days in Massachusetts and earns $75,000 in winnings from the tournament. The entire $75,000 income is subject to Massachusetts income tax.
Example (5)(f)(1). Taxpayer lived in Massachusetts in 2005 and worked for a single corporation in both Massachusetts and Connecticut during that year. In 2006, Taxpayer moved to Florida. In 2008, Taxpayer receives income that is attributable to her work for that corporation in 2005. Taxpayer has no apportionment percentage available for 2005, because Taxpayer was a resident and subject to 100% allocation of income. Taxpayer is unable to establish the exact amount of pay received for services performed in Massachusetts. Taxpayer can, however, prove through documentation that she worked 50% of her working days in Massachusetts and 50% in Connecticut. The Massachusetts source income is the amount of the payment attributable to 2005 multiplied by the resulting apportionment percentage of 50%.
Example (6)(b)(1.1). General Partnership (General) has a 50% interest in Subsidiary Partnership (Subsidiary); the entities are engaged in a unitary business. General has the following apportionment factors attributable to Massachusetts, presented as a fraction of Massachusetts activity divided by activity everywhere: Property, 25/100; Payroll, 50/100; Sales, 1000/10,000. General has income of $1,000. Subsidiary has the following apportionment factors, presented as a fraction of Massachusetts activity divided by activity everywhere: Property, 10/100; Payroll, 50/100; Sales, 1000/10,000. Subsidiary has a loss of $500. The Massachusetts income of the unitary group is calculated as follows: Income = $1,000 (General's income) - $250 (representing half the loss of Subsidiary; half because General has a 50% interest in Subsidiary) = $750. The $750 income figure must be multiplied by the blended apportionment factors. The blended factors are determined by adding the full factor of General to half the value of Subsidiary's factors (again, because of the 50% ownership). Thus the blended property factor is (25 + 5)/(100 + 50) = 30/150; the blended payroll factor is (50 + 25)/(100 + 50) = 75/150; the blended sales factor (to be counted twice according to the double weighted sales factor rule) is [(1000 + 500)/(10,000 + 5,000)] = 1,500/15,000; the sum of these factors is then divided by four to yield the following result:.2 +.5 +.1 +.1 =.9 / 4 =.225.
Example (6)(c)(1). Massachusetts LLC owns a commercial real estate property that it leases, both to its parent, a Partnership that gives investment advice to clients, and to other unrelated tenants. The Partnership, in turn, is owned by three Owner LLCs, all of which have a commercial domicile in other states. The Owner LLCs own the interests in the Partnership, as well as other business ventures, such as a manufacturing corporation in South Carolina and a public utility corporation in North Dakota. The manufacturing corporation and the utility corporation are not in a unitary business with other entities, nor do they have any contacts with Massachusetts. The Massachusetts LLC and the Partnership have centralization of management and a flow of value between the entities, and comprise a unitary business. In determining the Massachusetts source income of the Owner LLC members, the Massachusetts LLC and the Partnership must combine their taxable net income and calculate the Massachusetts apportionment percentage based on their combined property, payroll, and sales. The unitary business will exclude the income of the manufacturing corporation and the public utility corporation from this determination, and will not take into account any of the property, payroll, or sales of the two corporations in calculating the Massachusetts apportionment percentage of the unitary business.
Example (6)(d)(3.1). Texas LLC owns a minority limited partnership interest in Partnership A. Partnership A conducts business in Massachusetts. Apart from this partnership holding, Texas LLC does not conduct business in Massachusetts. Texas LLC does conduct business in other jurisdictions, either directly or through ownership of other pass-through entities. Neither Texas LLC nor the Commissioner rebuts the presumption that the business activities of Texas LLC and Partnership A are unrelated. Texas LLC must separately apportion to Massachusetts income from the holding or disposition of its interest in Partnership A, using the apportionment factors derived from the partnership's activity. Income from Texas LLC's other activities is not subject to Massachusetts tax jurisdiction and is excluded from the Massachusetts source income that it reports to its members.
Example (6)(e)(2). Non-resident is a partner in Land Hold, a partnership that purchases land in several states and holds the land for subsequent sale to developers. The partnership was formed with an initial capital contribution from its partners, but was not engaged in the conduct of a trade or business in Massachusetts during the year that Nonresident sells his interest in the partnership. The Massachusetts source income derived from the sale is the total gain from the sale, multiplied by fraction set forth in 830 CMR 62.5A.1(6)(e)(2).
Example (7)(b)(1.1). Taxpayer, an unmarried full year resident of New Hampshire, is over 65 and earns $20,000 in Massachusetts source income and $10,000 in New Hampshire during the tax year. Taxpayer is entitled to a personal exemption of $3,300 and an additional exemption of $700 for having attained the age of 65 before the close of the tax year. He may claim an exemption amount of $2,667, calculated on the following basis:
$3,300 (personal exemption) + $700 (age 65 exemption) = $4,000;
$4,000 x $20,000 (Massachusetts source income)/($20,000 + $10,000) (total income from all sources) = $2,667.
Example (7)(b)(1.2). Husband and Wife are full year residents of Maine during the tax year. Husband has $24,000 of Massachusetts source income. Wife earns $25,000 in Maine and $1,000 in Massachusetts. They have one dependent child. They are entitled to claim an exemption of $3,800, calculated on the following basis:
$6,600 (personal exemption) + $1,000 (dependent child exemption) = $7,600;
$7,600 x ($24,000 + $1,000) (Massachusetts source income)/($24,000 + $25,000 + $1,000) (total income from all sources) = $3,800.
Example (8)(a)(1). A non-resident earned $10,000 in Massachusetts and $20,000 in Connecticut in 2000. He may deduct only that FICA amount withheld from the $10,000 earned in Massachusetts.
Estimated tax payments made by individuals cannot be credited against tax due with the composite return. Individuals who have made such payments with respect to a tax year and desire to participate in a composite return filing for that year may file a separate income tax return and request a refund of any overpaid taxes.
830 CMR, § 62.5A.1