830 CMR, § 63.32B.2
Affiliated Group, a Massachusetts affiliated group as defined by 830 CMR 63.32B.2(2), unless the context requires differently.
Affiliated Group Election, an election by a taxable member on behalf of itself and its affiliates to treat as its combined group all corporations that are members of its Massachusetts affiliated group, on such terms and in keeping with such requirements as are further explained by 830 CMR 63.32B.2 and such forms or other notices as are issued by the Department. See830 CMR 63.32B.2(10).
Affiliated Group Income, the aggregate taxable net income or loss of the group members of a Massachusetts affiliated group for a taxable year in which an affiliated group election is in effect, which is to be apportioned (or attributed under 830 CMR 63.32B.2(7)(k)) to the members of the group pursuant to the affiliated group election made by such group, whether in the absence of the application of the affiliated group election some or all of any such apportioned income would have been allocable to a particular state.
Code, the federal Internal Revenue Code as amended and in effect for the taxable year.
Combined Group, a group of two or more corporations related by common ownership including one or more corporations that are subject to tax on their income under M.G.L. c. 63, § 2, 2B, 32D, 39 or 52A that are required to be included in a combined report pursuant to M.G.L. c. 63, § 32B, as enacted by St. 2008, c. 173, because the corporations are engaged in a unitary business. A combined group specifically includes or excludes certain types of corporations as described at 830 CMR 63.32B.2(4). The combined group shall consist of the one or more taxable members of the group, irrespective of their place of incorporation or formation, and the additional non-taxable members of such group as determined under 830 CMR 63.32B.2(5). In the case of an affiliated group election, the term "combined group" refers to the Massachusetts affiliated group to which the election applies.
Combined Group's Taxable Income, the aggregate taxable net income or loss, subject to apportionment and derived from a unitary business or the aggregate taxable income or loss of a Massachusetts affiliated group in the case of an affiliated group election, in either case as reported on a combined report of every taxable member and non-taxable member of the combined group.
Combined Report, a schedule or schedules, as required by M.G.L. c. 63, § 32B, as enacted by St. 2008, c. 173, and 830 CMR 63.32B.2 or such other rules as the Commissioner may establish, which are to be attached to a taxpayer's tax return and that report the income and apportionment information of all corporations that are members of the taxpayer's combined group, as well as any supporting information, as required by the Commissioner.
Commissioner, the Commissioner of the Massachusetts Department of Revenue or the Commissioner's duly authorized representative.
Commonly Owned or Common Ownership, where more than 50% of the voting control of one or more corporations or other entities, as applicable in the context, is directly or indirectly owned by one or more common owners, whether corporate or non-corporate, subject to the following specific rules and examples.
Example 1. Corporation A, a widely-held publicly-traded corporation, owns 51% of the stock of Corporation B; B owns 51% of Corporation C; and C owns 60% of Corporation D. Corporations A, B, C, and D are all treated as commonly owned or under common ownership, and subject to inclusion in a combined group.
Example 2. Same facts as in Example 1, except Corporation C owns 40% of Corporation D, with another 20% of D being owned by an individual who owns 100% of Corporation A. All of Corporations A, B, C, and D are, again, treated as commonly owned or under common ownership, and subject to inclusion in a combined group. D is treated as commonly owned through the aggregation of C's 40% ownership in D and the related individual's 20% ownership in D.
Example 3. Individual (W) owns 51% of Corporation A, 60% of Corporation B, and 100% of Corporation C. Corporations A, B, and C are all treated as commonly owned or under common ownership, and subject to inclusion in a combined group. The same conclusion would be reached if W owned 35% of B and W's husband, a related person, owned 25% of B, so that together W and her husband owned 60% of B.
Example 4. Foreign corporation (F) owns 100% of the stock of Corporation A (organized in the U.S.) and of Corporation B (also organized in the U.S.). A and B each directly or indirectly own various corporate subsidiaries in separate chains leading up to A and B, where the voting control of each subsidiary is more than 50%-owned by a higher-tier corporation in the chain. A and B and all of their respective direct and indirect subsidiaries are treated as commonly owned or under common ownership, and subject to inclusion in a single combined group. Assuming that no worldwide election is made and that F is not a foreign corporation that would be included in a "water's edge" combined group under 830 CMR 63.32B.2(5)(b)1.b. or c., F itself would not be subject to inclusion in such combined group.
Example 5. Individual I-1 owns stock representing 40% of the voting control of Corporation A and stock representing 20% of the voting control of Corporation B. Individual I-2 owns 30% of A and 45% of B. I-1 and I-2 are not related persons, and A and B are not otherwise related persons. A and B are not treated as commonly owned or under common ownership, and thus are not subject to inclusion in a combined group.
Example 6. Assume the same facts as in Example 4. Both A and B and all of their direct and indirect subsidiaries are engaged in unitary business X. In addition, A and all of its subsidiaries are engaged in unitary business Y, but B and its subsidiaries are not engaged in unitary business Y. Assuming that an affiliated group election is not made, A and B and all of their respective direct and indirect subsidiaries would be included in a combined group with respect to unitary business X, and A and all of its direct and indirect subsidiaries would be included in a combined group with respect to unitary business Y.
Consolidated Return, a return of income filed with the federal government pursuant to Code § 1501 by an affiliated group as determined under Code § 1504.
Corporation, a business corporation within the meaning of M.G.L. c. 63, § 30, whether or not organized in Massachusetts. For taxable years beginning prior to January 1, 2009, a "corporation" refers to either a foreign or domestic business corporation, utility corporation, financial institution, or insurance company, depending upon the context, as determined under the pertinent provisions of M.G.L. c. 63 in effect for such years.
Credit, any tax credit that a corporation may apply against its excise under the pertinent provisions of M.G.L. c. 63.
Disregarded Entity, a disregarded entity within the meaning of M.G.L. c. 63, § 30.
Federal Consolidated Group, an affiliated group as defined in Code § 1504 that has filed a consolidated return of income under Code § 1501.
Massachusetts Affiliated Group, an affiliated group as defined in Code § 1504 that participates in the filing of a federal consolidated return except that the Massachusetts affiliated group shall also include all corporations that are under common ownership that are includable in a combined group under 830 CMR 63.32B.2(4)(b) and (5)(b) irrespective as to whether such corporations are engaged in one or more unitary businesses and irrespective whether such corporations are included in more than one consolidated return filed by more than one federal consolidated group. See also830 CMR 63.32B.2(10)(a) through (c). For example, in cases where the common ownership standard is met, a Massachusetts affiliated group shall include all corporations incorporated in the United States or formed under the laws of the United States, any state, the District of Columbia or any territory or possession of the United States that are commonly owned, directly or indirectly, by any member of such affiliated group. Also, a Massachusetts affiliated group shall include any other commonly owned corporation, regardless of the place of its incorporation or formation, that has property, payroll, and sales factors within the United States that average 20% or more. Further, a Massachusetts affiliated group shall include any other commonly owned corporation, regardless of place of incorporation or formation, that earns more than 20% of its income, directly or indirectly, from intangible property or service-related activities, the costs of which generally are deductible for federal income tax purposes, whether currently or over a period of time, against the business income of other members of the group, but in this case only to the extent of that income and the apportionment factors that relate to that income.
Net Operating Loss, a net operating loss within the meaning of M.G.L. c. 63, § 30.5.
Non-taxable Member, a member of a combined group that is not subject to tax on its income under M.G.L. c. 63, § 2, 2B, 32D, 39 or 52A. A non-taxable member that is not subject to income tax under said sections may nonetheless be subject to the non-income measure of the corporate excise as determined under M.G.L. c. 63, § 39.
Partnership, a partnership within the meaning of M.G.L. c. 63, § 30.
Principal Reporting Corporation, the taxable member of a combined group that reports the income of the combined group and otherwise acts as the agent of the members of the group, as further described at 830 CMR 63.32B.2(11).
Taxable Member, a member of a combined group that is subject to tax on its income under M.G.L. c. 63, § 2, 2B, 32D, 39 or 52A, other than a corporation described in M.G.L. c. 63, § 38Y.
Unitary Business, a group of two or more corporations related by common ownership that are sufficiently interdependent, integrated or interrelated through their activities so as to provide mutual benefit and produce a significant sharing or exchange of value among them or a significant flow of value between the separate parts. This sharing, exchange or flow of value to a corporation located in this state provides the constitutional basis to apportion the resulting income of the unitary business even if that income arises from activities conducted outside the state. The term unitary business shall be construed to the broadest extent permitted under the Constitution of the United States. Any business conducted by a partnership shall be treated as the business of the partners, whether the partnership interest is directly held or indirectly held through a series of partnerships, to the extent of the partner's distributive share of the partnership's income, regardless of the magnitude of the partner's ownership interest or its distributive share of partnership income. Moreover, a business conducted directly or indirectly by one corporation is unitary with that portion of a business conducted by another, commonly-owned corporation through its direct or indirect interest in a partnership if the activities conducted by the former corporation and the partnership are unitary regardless of the magnitude of the partner's ownership interest or its distributive or any other share of partnership income. A group of corporations related by common ownership may be engaged in more than one unitary business.
Example. The following example provides an illustration of the partnership rules included in the definition of a "unitary business." X, Y, Z and U are corporations with the following relationships. X owns 55% of Y and Z. U is unrelated to X, Y and Z. Y and U own, respectively, 30% and 70% of partnership P. X, Y and Z are each engaged in discrete businesses that are not unitary with one another. Z is engaged 100% in the manufacture of widgets. P is engaged 100% in the distribution of Z's widgets, a business that is unitary with the business of Z. P's widget business is treated as the business of Y to the extent of Y's distributive share of P's income, 30%. Therefore, Z is engaged in a unitary business with Y to this extent.
Worldwide Election, an election by a taxable member of a combined group on behalf of all of the members of such group engaged in a unitary business to treat as its combined group for purposes of 830 CMR 63.32B.2 all members that are engaged in such unitary business, wherever located, on such terms and in keeping with such requirements as are further explained by 830 CMR 63.32B.2 and such forms or other notices as are issued by the Department. See830 CMR 63.32B.2(5).
Example. W is a corporation incorporated under the laws of a foreign country that is doing business in Massachusetts and is subject to tax under M.G.L. c. 63, § 39. W is engaged in a unitary business with corporations X, Y and Z, none of which is subject to Massachusetts tax. X is a corporation incorporated under the laws of a U.S. state, Y is a corporation incorporated under the laws of a U.S. possession and Z is a corporation that is incorporated under the laws of a foreign country. Z does not have a U.S. domestic apportionment formula of 20% or more as determined under 830 CMR 63.32B.2(5)(b)1.b. and is not subject to the provisions of 830 CMR 63.32B.2(5)(b)1.c. Further, each of the corporations, X, Y and Z, are includible within a combined group within the meaning of 830 CMR 63.32.2(4)(b). W may make an election to determine its apportioned share of the combined group's taxable income on a worldwide basis, in which case it shall take into account the additional income and apportionment information of X, Y and Z. If W does not make a worldwide election, it shall determine its apportioned share of the combined group's taxable income taking in account the additional income and apportionment information of only X and Y, and not Z. For purposes of the analysis it is not relevant whether W has a U.S. domestic apportionment formula of 20% or more as would be determined under 830 CMR 63.32B.2(5)(b)1.b., or whether W could be subject to the provisions of 830 CMR 63.32B.2(5)(b)1.c., as W is a taxable member of the combined group and said provisions apply to determine the water's edge inclusion of non-taxable members of the combined group.
Corporations L, M and N are corporations that are related by common ownership. M and N are corporations that are formed under the laws of a U.S. jurisdiction as referenced in 830 CMR 63.32B.2(5)(b)1.a. M is subject to Massachusetts tax, whereas N is not subject to Massachusetts tax. L is formed under the laws of a non-U.S. jurisdiction (i.e., L is not incorporated or otherwise formed under U.S. laws as referenced in 830 CMR 63.32B.2(5)(b)1.a.). Also, the average of L's property, payroll and sales factors within the U.S. is not 20% or more within the meaning of 830 CMR 63.32B.2(5)(b)1.b.
L is engaged in lending activity and lends to M and N. L's lending activities fund M and N's business activities and the three corporations are engaged in a unitary business (L's lending activities forge its unitary link with M and N, see830 CMR 63.32B.2(3)(e)). The combined group is required to file a combined report in Massachusetts and does not make a worldwide election.
During the tax year in question, M and N deduct on their federal consolidated return a total of $1,000,000 in interest expense paid to L. L's total gross income for the year, including the $1,000,000 interest payments received from M and N, is $2,000,000. The $1,000,000 of interest from M and N is included in L's federal gross income. L has $100,000 in costs deductible under U.S. accounting principles, which are reasonably related and not disproportionate to the $1,000,000 of gross income items received from M and N.
Because L receives more than 20% of its gross income from its loans to M and N, L is deemed by the Commissioner to be included in a "water's edge" combined group with M and N to the extent of this gross income, $1,000,000, and to the extent of L's expenses that are reasonably related and not disproportionate to this gross income, $100,000. In determining the combined group's taxable income, the activities of L are considered but only to the extent that they generated said income. The intra-group interest payments by M and N to L are eliminated in the determination of the combined group's taxable income. Thus, the combined group's taxable income as calculated for the taxable year in question is not reduced for a separate deduction to M or N for such interest payments or increased for the separate income of L from the receipt of such payments. However, the combined group's taxable income is reduced by a deduction for L's $100,000 of qualifying expenses related to its interest payments received from M and N. The property and payroll of L, to the extent that they relate to L's $1,000,000 of interest payments from M and N are included in the computation of the group's apportionment formula (i.e., for purposes of computing the apportionment percentage for M, the Massachusetts taxpayer that is included in the combined group). However, the interest payments received by L from M and N, which constitute the intra-group sales, are eliminated for purposes of computing the group's apportionment formula. It should be noted that this elimination is on account of the intra-group elimination of the payments between M and N on the one hand and L on the other, wholly apart from the fact that interest is generally excluded (except in cases in which a financial institution is included in the combined group) from the sales factor in any event. See830 CMR 63.32B.2(7)(h).
Depending upon the circumstances of any individual taxpayer, without limitation as to other possible adjustments, other items of income or adjustments to the taxpayer's apportioned net income may also apply.
Example 1. X, Y and Z are general business corporations that are members of a combined group engaged in a unitary business in tax year 2009. X is not a taxpayer in Massachusetts, whereas both Y and Z are Massachusetts taxpayers. X owns 100% of the stock of Y, and Y owns 100% of the stock of Z. For tax year 2009, X has $100,000 of income prior to the inclusion of any inter-company dividends, whereas Y and Z each have $50,000 of income prior to the inclusion of any inter-company dividends. Consequently, the combined group's taxable income to be apportioned to the Massachusetts taxpayers, Y and Z, prior to the inclusion of any dividends, is $200,000. None of the corporations have earnings and profits from sources other than the unitary business.
On December 31, 2009, Z issues a dividend of $125,000 to Y and Y issues a dividend of $225,000 to X. Under the LIFO rule Y eliminates $50,000 of the dividend paid by Z because $50,000 of the $125,000 dividend relates to the 2009 earnings of the XYZ unitary business that are included in the combined report. Thus, Y has to account for the remaining $75,000 of the dividend paid by Z, as that portion of the dividend relates to earnings from the unitary business that are not included in the 2009 combined report (i.e., from tax years prior to 2009). Because all of the latter $75,000 distribution is out of non-excludible earnings and profits of the unitary business, it is includible in the
XYZ combined group's taxable income and the dividends received deduction of $71,250 (i.e., 95%) is taken at that level.
X eliminates $175,000 of its $225,000 dividend from Y under the LIFO rule. The amount eliminated is $175,000 because:
The remaining $50,000 of the dividend paid by Y to X relates to earnings from the XYZ unitary business that are not included in the 2009 combined report (and that were not included in a prior combined report). X has to account for the remaining $50,000 of the dividend paid by Y and, since the $50,000 relates to non-excludible earnings from the XYZ unitary business, this income is included in the XYZ combined group's taxable income and the dividends received deduction of $47,500 (i.e., 95%) is taken at that level.
The total taxable income of the combined group, including both the dividends and the deductions, is $206,250.
Example 2. X, Y and Z are general business corporations that are members of a combined group engaged in a unitary business in tax year 2009. X is not a taxpayer in Massachusetts, whereas both Y and Z are Massachusetts taxpayers. X owns 100% of the stock of Y, and Y owns 100% of the stock of Z. For tax year 2010, X has $100,000 of income prior to the inclusion of any inter-company dividends, whereas Y and Z each have $50,000 of income prior to the inclusion of any inter-company dividends. Consequently, the combined group's taxable income to be apportioned to the Massachusetts taxpayers, Y and Z, prior the inclusion of any dividends, is $200,000.
On December 31, 2010, Z receives a dividend from Corporation U of $200,000. On the same day, Z pays a dividend of $200,000 to Y. Z owns 25% of the stock of U. The business of U is unrelated to the unitary business of the XYZ group and the remaining 75% of U is owned by unrelated parties; therefore, U is not part of the XYZ unitary business. Further, the facts demonstrate that the dividend income received by Z from U is allocable to Massachusetts.
The $200,000 dividend received by Z from U in tax year 2010 is not included in the XYZ group's 2010 unitary business income. Rather, Z must separately account for this $200,000 as allocable income. Z is entitled to a 95% dividends received deduction of $190,000 that it applies to the dividend income. In computing its taxable income for the year, Z will add the $10,000 net amount from the allocable dividend to its apportioned share of the XYZ group's unitary business income.
Z has $250,000 of current year earnings, $50,000 of which (20% of the total) is included in the XYZ combined report for the 2010 tax year. Applying the pro rata dividend rule, 20% of the $200,000 dividend paid by Z to Y, $40,000, is deemed to be paid out of the XYZ group's unitary business income included in the 2009 combined report. Therefore, Y eliminates this $40,000. However, Y must account for the remaining $160,000 in dividend income received from Z. Further, this $160,000 dividend from Z to Y retains its character to Y as income allocable to Massachusetts (and not, for example, as income derived from the XYZ unitary business). Therefore, if Y is domiciled in Massachusetts this income is allocated to Massachusetts (whereas if Y is not domiciled in Massachusetts, the $160,000 is not taxable in Massachusetts). Assuming that the $160,000 in dividend income is taxable to Y, Y is entitled to a 95% dividends received deduction of $152,000 with respect to this income. In this instance, in computing its income Y would add the $8,000 net amount to its apportioned share of the XYZ group's unitary business income.
Example. C and D are corporations engaged in a unitary business during tax year 2009. During the 2009 tax year, C makes a charitable contribution of $5,000 and D makes a charitable contribution of $7,500. The total unitary business income of the CD combined group, before any charitable expense deduction, is $50,000. The 10% Code § 170 income limitation to be applied to a charitable expense deduction is applied to the combined group's taxable income, resulting in a dollar limitation of $5,000 (i.e., 10% x $50,000). The amount of expense allowed as a deduction, $5,000, is allocated between C & D. Thus, $2,000 of the contribution made by C and $3,000 of the contribution made by D are deducted from group income, which is reduced to $45,000. In addition to its share of the unitary business income, C has separate allocable income of $20,000. Irrespective as to whether this separate allocable income is taxable in Massachusetts, C shall deduct $2,000 of its charitable contribution (i.e., 10%) from this separate income. C's disallowed charitable contribution deduction available for carry forward to the next tax year is $1,000. D has separate apportionable income of $10,000 and shall apply $1,000 of its charitable expense (i.e., 10%) against this apportionable income on a pre-apportioned basis. D's disallowed charitable contribution deduction available for carry forward to the next tax year is $3,500.
The rules set forth in 830 CMR 63.32B.2(6)(c) generally apply to determine the combined group's taxable income that is to be apportioned or, where there is no member of the combined group that has apportionable income, attributed to the taxable members of the combined group. After the apportioned or attributed Massachusetts income of the taxable members of the combined group has been determined there may be additional Massachusetts adjustments to such members' income that apply, including the application of any net operating loss carry forwards, see830 CMR 63.32B.2(8).
Example 1. A unitary group is comprised of members A and B. Both A and B have nexus in Massachusetts. A manufactures widgets, all of which it then sells to B. B sells the widgets to unrelated parties. A has $1,000 of property, $150 of payroll and $300 of sales (i.e., the sales made to B). All of A's property, payroll, and receipts are attributable to manufacturing. B has $50 of property, $150 of payroll, and $500 of sales (i.e., of property purchased from A). For purposes of apportionment, A is a manufacturing corporation using a single sales factor apportionment formula. However, as all of A's sales are to another group member, A has no applicable sales factor and none of the group's income is apportioned to A. A's activities and its property, payroll, and sales are considered together with those of B for purposes of determining whether B is a manufacturing corporation. Therefore, B is considered to be engaged in manufacturing and $1,000/1,050 of its property, $150/300 of its payroll, and $500/500 of its sales (excluding the intercompany sales) are attributable to manufacturing. Applying the provisions of M.G.L. c. 63, § 38(l), B's deemed manufacturing activity is substantial. B must apportion the group's combined income to Massachusetts using a single sales factor apportionment formula. B's denominator is $500 and its numerator is the portion of the $500 attributable to Massachusetts sales.
Example 2. Same facts as in example one except that A has $1,000 of sales, $300 of which are to B and $700 are to unrelated parties. B has $2,000 of sales, $500 of which relate to goods purchased from A and $1,500 relate to goods purchased from unrelated vendors that are then resold. A uses a single sales factor apportionment formula. Its sales factor denominator is $2700 (excluding $300 of intercompany sales) and its numerator is the portion of its $700 in direct sales that are attributable to Massachusetts customers. B is also deemed to be engaged in substantial manufacturing because A's manufacturing activity is attributed to B and 25% (i.e., $500/2,000) of its sales are manufacturing sales, which satisfies the "substantial manufacturing" threshold. B therefore also uses a single sales factor apportionment. B's denominator is $2,700 and its numerator is the portion of its $2,000 in sales that are attributable to Massachusetts sales.
Example 3. Same facts as example two except that only B has nexus in Massachusetts. B continues to use a single sales factor apportionment formula. B's denominator remains $2,700. B's numerator is the sum of its numerator in example 2 and A's numerator in example 2.
Example. A combined group includes corporation A, which owns a building with an original cost of $10 million, and corporation B, which leases use of the building from corporation A and actually uses the one floor of the building that it leases at a fair market annual rent of $250,000. The property is located in Massachusetts. The numerator and denominator of B's property factor shall include $2 million (i.e., 8 x $250,000) attributable to the intercompany lease. The numerator and denominator of A's property factor shall include $8 million, which equals the original cost of the building of $10 million, reduced by the amount included in the numerator and denominator of B's property factor.
If a member of the combined group is a financial institution taxable under M.G.L. c. 63, § 2, then its property for purposes of this attribution of the combined group's taxable income is calculated under the provisions of M.G.L. c. 63 § 2A, however, the property value determined under M.G.L. c. 63, § 2A for certain intangible property is reduced by 80%. See830 CMR 63.32B.2(7)(h)1. The 80% reduction is not to be made when the combined group consists solely of a combined group of financial institutions. All other group members are to determine their property and payroll for purposes of this attribution of the combined group's taxable income under M.G.L. c. 63, § 38. The income separately attributed to each combined group member, when totaled, must equal 100% of the combined group's taxable income.
Example 1. Combined nexus and non-nexus general business corporations, where the non-nexus general business corporation has no Massachusetts sales. X, Y and Z are corporations engaged in a unitary business during tax year 2009. For taxable year 2009, X and Y are general business corporations subject to three factor apportionment with a double weighted sales factor under M.G.L. c. 63, § 38 and taxable under M.G.L. c. 63, § 39; whereas Z is a non-taxpayer corporation that would be subject to apportionment as a general business corporation under M.G.L. c. 63, § 38 and would be taxable under M.G.L. c. 63, § 39 if it were subject to tax in Massachusetts. The combined group's taxable income as determined under 830 CMR 63.32B.2(6)(c) is $100,000. The apportionment information and factor and tax determinations of the three corporations are as follows:
| X (nexus) Bus. corp. | Y (nexus) Bus. corp. | Z (no nexus) Bus. corp. | Combined | |
| MA property | $5,000,000 | $1,000,000 | ||
| Everywhere property | $17,000,000 | $1,000,000 | $2,000,000 | $20,000,000 |
| MA payroll | $1,000,000 | $5,000,000 | ||
| Everywhere payroll | $2,000,000 | $5,000,000 | $1,000,000 | $8,000,000 |
| MA sales | $5,000,000 | $1,000,000 | ||
| Everywhere sales | $10,000,000 | $3,000,000 | $2,000,000 | $15,000,000 |
| Member X | Member Y | Member Z | |
| Property numerator | $5,000,000 | $1,000,000 | n/a |
| Property denominator | $20,000,000 | $20,000,000 | n/a |
| Property factor | 25.00% | 5.00% | n/a |
| Payroll numerator | $1,000,000 | $5,000,000 | n/a |
| Payroll denominator | $8,000,000 | $8,000,000 | n/a |
| Payroll factor | 12.50% | 62.50% | |
| Sales numerator | $5,000,000 | $1,000,000 | n/a |
| Sales denominator | $15,000,000 | $15,000,000 | n/a |
| Sales factor | 33.33% | 6.67% | n/a |
| Apportionment % | 26.04%* | 20.21%* | n/a |
*Three factor, double weighted sales.
| Member X | Member Y | Member Z | Total | |
| Apportionment % | 26.04% | 20.21% | n/a | |
| Combined group TI | $100,000 | $100,000 | n/a | |
| Apportioned income | $26,040 | $20,210 | n/a | |
| Tax rate | 9.50% | 9.50% | n/a | |
| Tax | $2,474 | $1,920 | n/a | $4,394 |
Example 2. Combined nexus and non-nexus general business corporations, where the non-nexus general business corporation has Massachusetts sales. The facts are the same as in example 1., except that Z has $1,000,000 in Massachusetts sales.
Therefore, because Z is a non-nexus corporation, an additional step is required for purposes of computing the apportionment formulas of X and Y, wherein the Massachusetts sales of Z are re-attributed to X and Y. See830 CMR 63.32B.2(7)(b).
| X (nexus) Bus. corp. | Y (nexus) Bus. corp. | Z (no nexus) Bus. corp. | Combined | |
| MA property | $5,000,000 | $1,000,000 | ||
| Everywhere property | $17,000,000 | $1,000,000 | $2,000,000 | $20,000,000 |
| MA payroll | $1,000,000 | $5,000,000 | ||
| Everywhere payroll | $2,000,000 | $5,000,000 | $1,000,000 | $8,000,000 |
| MA sales | $5,000,000 | $1,000,000 | $1,000,000 | |
| Everywhere sales | $10,000,000 | $3,000,000 | $2,000,000 | $15,000,000 |
| Member X | Member Y | Member Z | |
| Nexus member MA sales | $5,000,000 | $1,000,000 | n/a |
| Total nexus members' MA sales | $6,000,000 | $6,000,000 | n/a |
| Nexus member sales % | 83.33% | 16.67% | n/a |
| Non-nexus member sales | n/a | n/a | $1,000,000 |
| Assigned non-nexus member sales | $833,333 | $166,667 | n/a |
| Sales factor numerator | $5,833,333 | $1,166,667 | n/a |
| Member X | Member Y | Member Z | |
| Property numerator | $5,000,000 | $1,000,000 | n/a |
| Property denominator | $20,000,000 | $20,000,000 | n/a |
| Property factor | 25.00% | 5.00% | n/a |
| Payroll numerator | $1,000,000 | $5,000,000 | n/a |
| Payroll denominator | $8,000,000 | $8,000,000 | n/a |
| Payroll factor | 12.50% | 62.50% | |
| Sales numerator | $5,833,333 | $1,166,667 | n/a |
| Sales denominator | $15,000,000 | $15,000,000 | n/a |
| Sales factor | 38.89% | 7.78% | n/a |
| Apportionment % | 28.82%* | 20.76%** | n/a |
*Three factor, double weighted sales. c. Tax Determination.
| Member X | Member Y | Member Z | Total | |
| Apportionment % | 28.82% | 20.76% | n/a | |
| Combined group TI | $100,000 | $100,000 | n/a | |
| Apportioned income | $28,820 | $20,760 | n/a | |
| Tax rate | 9.50% | 9.50% | n/a | |
| Tax | $2,738 | $1,972 | n/a | $4,710 |
Example 3. Combined nexus and non-nexus general business and manufacturing corporations, where the non-nexus general business corporation has Massachusetts sales. The facts are the same as in example 2., except that X is not a general business corporation but rather a manufacturing corporation subject to single sales factor apportionment under M.G.L. c. 63, § 38. Assume for purposes of the example that X does not sell any of its manufactured property to Y or Z such that the provisions of 830 CMR 63.32B.2(7)(g)2. are implicated.
| X (nexus) Manuf. corp. | Y (nexus) Bus. corp. | Z (no nexus) Bus. corp. | Combined | |
| MA property | $5,000,000 | $1,000,000 | ||
| Everywhere property | $17,000,000 | $1,000,000 | $2,000,000 | $20,000,000 |
| MA payroll | $1,000,000 | $5,000,000 | ||
| Everywhere payroll | $2,000,000 | $5,000,000 | $1,000,000 | $8,000,000 |
| MA sales | $5,000,000 | $1,000,000 | $1,000,000 | |
| Everywhere sales | $10,000,000 | $3,000,000 | $2,000,000 | $15,000,000 |
| Member X | Member Y | Member Z | |
| Nexus member's MA sales | $5,000,000 | $1,000,000 | n/a |
| Total nexus member MA sales | $6,000,000 | $6,000,000 | n/a |
| Nexus member sales % | 83.33% | 16.67% | n/a |
| Non-nexus member sales | n/a | n/a | $1,000,000 |
| Assigned non-nexus member sales | $833,333 | $166,667 | n/a |
| Sales factor numerator | $5,833,333 | $1,166,667 | n/a |
| Member X | Member Y | Member Z | |
| Property numerator | n/a | $1,000,000 | n/a |
| Property denominator | n/a | $20,000,000 | n/a |
| Property factor | n/a | 5.00% | n/a |
| Payroll numerator | n/a | $5,000,000 | n/a |
| Payroll denominator | n/a | $8,000,000 | n/a |
| Payroll factor | n/a | 62.50% | |
| Sales numerator | $5,833,333 | $1,166,667 | n/a |
| Sales denominator | $15,000,000 | $15,000,000 | n/a |
| Sales factor | 38.89% | 7.78% | n/a |
| Apportionment % | 38.89%* | 20.76%** | n/a |
* Single factor, sales.
**Three factor, double weighted sales.
| Member X | Member Y | Member Z | Total | |
| Apportionment % | 38.89% | 20.76% | n/a | |
| Combined group TI | $100,000 | $100,000 | n/a | |
| Apportioned income | $38,890 | $20,760 | n/a | |
| Tax rate | 9.50% | 9.50% | n/a | |
| Tax | $3,695 | $1,972 | n/a | $5,667 |
Example 4. Combined nexus and non-nexus manufacturing and general business corporations, where a non-nexus general business corporation has Massachusetts sales and the nexus manufacturing corporation has throwback sales. X, Y, and Z are corporations engaged in a unitary business during tax year 2010. The activities of the group are such that one or more members are taxable in the six New England states plus New York and New Jersey. X and Y have activities that make them taxable in Massachusetts. Z does not have any activities that make it taxable in Massachusetts and as such Z does not have Massachusetts nexus. X is a manufacturing corporation and has its sales office in Massachusetts. X makes sales into the six New England states, New York, New Jersey, Delaware, Maryland, Florida, and Canada. The sales by X destined to Massachusetts total $5,000,000. The sales by X destined to Florida, Maryland, and Delaware total $500,000. The combined group's taxable income as determined under 830 CMR 63.32B.2(6)(c) is $250,000. The apportionment information and factor and tax determinations of the three corporations are as follows:
| X (nexus) Manuf. corp. . | Y (nexus) Bus. corp | Z (no nexus) Bus. corp. | Combined | |
| MA property | $5,000,000 | $1,000,000 | ||
| Everywhere property | $17,000,000 | $1,000,000 | $2,000,000 | $20,000,000 |
| MA payroll | $1,000,000 | $5,000,000 | ||
| Everywhere payroll | $2,000,000 | $5,000,000 | $1,000,000 | $8,000,000 |
| MA destination sales | $5,000,000 | $1,000,000 | $1,000,000 | |
| MA throwback sales* | $500,000 | |||
| MA sales | $5,500,000 | $1,000,000 | $1,000,000 | |
| Everywhere sales | $10,000,000 | $3,000,000 | $2,000,000 | $15,000,000 |
*Because no member of the group was taxable in Maryland, Florida or Delaware, sales made into those states are thrown back to Massachusetts and included in the numerator of the sales factor if those sales were not made by employees, agents or others connected with a sales office located outside Massachusetts. See830 CMR 63.38.1(9)(c)2.
| Member X | Member Y | Member Z | |
| Nexus member MA sales | $5,500,000 | $1,000,000 | n/a |
| Total nexus members' MA sales | $6,500,000 | $6,500,000 | n/a |
| Nexus member sales % | 84.62% | 15.38% | n/a |
| Non-nexus member sales | n/a | n/a | $1,000,000 |
| Assigned non-nexus member sales | $846,200 | $153,800 | n/a |
| Sales factor numerator | $6,346,200 | $1,153,800 | n/a |
| Member X | Member Y | Member Z | |
| Property numerator | $5,000,000 | $1,000,000 | n/a |
| Property denominator | $20,000,000 | $20,000,000 | n/a |
| Property factor | 25% | 5.00% | n/a |
| Payroll numerator | $1,000,000 | $5,000,000 | n/a |
| Payroll denominator | $8,000,000 | $8,000,000 | n/a |
| Payroll factor | 12.5% | 62.50% | |
| Sales numerator | $6,346,200 | $1,153,800 | n/a |
| Sales denominator | $15,000,000 | $15,000,000 | n/a |
| Sales factor | 42.31% | 7.69% | n/a |
| Apportionment % | 42.31%* | 20.72%** | n/a |
*Single factor, sales.
**Three factor, double weighted sales.
| Member X | Member Y | Member Z | Total | |
| Apportionment % | 42.31% | 20.72% | n/a | |
| Combined group TI | $250,000 | $250,000 | n/a | |
| Apportioned income | $105,775 | $51,800 | n/a | |
| Tax rate | 9.50% | 9.50% | n/a | |
| Tax | $10,049 | $4,921 | n/a | $14,970 |
Example 5. Combined nexus and non-nexus general business and financial corporations, where the non-nexus general business corporation has no Massachusetts sales. X, Y and Z are corporations engaged in a unitary business during tax year 2009. For taxable year 2009 the corporations reflect the following facts: X is a financial institution subject to three factor apportionment under M.G.L. c. 63, § 2A and taxable under M.G.L. c. 63, § 2; Y is a general business corporation subject to three factor double weighted sales factor apportionment under M.G.L. c. 63, § 38 and taxable under M.G.L. c. 63, § 39; Z is a non-nexus taxpayer corporation that would be subject to apportionment as a general business corporation under M.G.L. c. 63, § 38 and would be taxable under M.G.L. c. 63, § 39 if it were subject to tax in Massachusetts. For taxable year 2009, X, a financial institution, has $105,000,000 in everywhere property as determined under M.G.L. c. 63, § 2A, which includes $100,000,000 in intangible property (e.g., loans and credit card receivables). Because X is to be combined with one or more general business corporations, it must reduce the value of its intangible property by 80% for purposes of determining the group property factor. See830 CMR 63.32B.2(7)(h). Because Y and Z are to be combined with a financial institution, they must each adjust their sales factor denominator and Y is also to adjust its sales factor numerator for purposes of determining the group sales factor by including sales that would be included in their sales factor computations if they were subject to M.G.L. c. 63, § 2A(d)(i) through (d)(xi). See830 CMR 63.32B.2(7)(h). The combined group's taxable income as determined under 830 CMR 63.32B.2(6)(c) is $100,000. The apportionment information and factor and tax determinations of the three corporations are as follows:
X (nexus) Fin. Inst. | Y (nexus) Bus. corp. | Z (no nexus) Bus. corp. | Combined | |
MA property | $20,000,000 | $2,000,000 | ||
MA property adjusted | $4,000,000* | $2,000,000 | ||
Everywhere property | $105,000,000 | $2,000,000 | $3,000,000 | |
Everywhere property adjus'd | $25,000,000* | $2,000,000 | $3,000,000 | $30,000,000 |
MA payroll | $1,000,000 | $5,000,000 | ||
Everywhere payroll | $2,000,000 | $5,000,000 | $1,000,000 | $8,000,000 |
MA sales | $5,000,000 | $1,000,000 | ||
MA sales adjusted | $5,000,000 | $1,500,000** | $6,500,000 | |
Everywhere sales | $10,000,000 | $3,000,000 | $2,000,000 | $15,000,000 |
Everywhere sales adjusted | $10,000,000 | $4,000,000** | $3,000,000 | $17,000,000 |
*X's Massachusetts property and everywhere property is adjusted to reduce its intangible assets by 80%; since X has $5,000,000 in tangible assets located outside the state, in addition to $100,000,000 in total intangible assets, its everywhere property is reduced from $105,000,000 to $25,000,000.
**Y and Z's Massachusetts and everywhere sales are adjusted to include sales that would be included in Y and Z's sales factor computations if it were subject to the financial institution apportionment rules set forth at M.G.L. c. 63, § 2A(d)(i) through (d)(xi).
| Member X | Member Y | Member Z | |
| Property numerator | $4,000,000 | $2,000,000 | n/a |
| Property denominator | $30,000,000 | $30,000,000 | n/a |
| Property factor | 13.33% | 6.67% | n/a |
| Payroll numerator | $1,000,000 | $5,000,000 | n/a |
| Payroll denominator | $8,000,000 | $8,000,000 | n/a |
| Payroll factor | 12.50% | 62.50% | |
| Sales numerator | $5,000,000 | $1,500,000 | n/a |
| Sales denominator | $17,000,000 | $17,000,000 | n/a |
| Sales factor | 29.41% | 8.82% | n/a |
| Apportionment % | 18.41%* | 21.70%** | n/a |
*Three factor, equal weighting.
**Three factor, double weighted sales.
| Member X | Member Y | Member Z | Total | |
| Apportionment % | 18.41% | 21.70% | n/a | |
| Combined group TI | $100,000 | $100,000 | n/a | |
| Apportioned income | $18,410 | $21,700 | n/a | |
| Tax rate | 10.50% | 9.50% | n/a | |
| Tax | $1,933 | $2,062 | n/a | $3,995 |
Example 6. Combined S and C corporations with resident and non-resident shareholders. S1, S2 and C are corporations engaged in a unitary business during tax year 2009 with business activities both within and without Massachusetts. All three corporations have the same two 50% individual shareholders, one of whom, R, is a resident and one of whom, NR, is a non-resident. The gross receipts for the unitary group for tax year 2009, net of intercompany eliminations, exceeds $6 million. S1 is a manufacturing corporation within the meaning of M.G.L. c. 63, § 38, whereas both S2 and C are general business corporations. Both R and NR have federal distributive share income from S1 and S2 and also dividend income from C. S1, S2 and C have only unitary business activity from their joint activities and, for example, none of the corporations have any allocable income. The combined group has net income of $4,000,000. The corporations have to separately determine their income for federal income tax purposes, and as discussed below S1 and S2 have to separately determine their income to determine each shareholder's distributive share. The separately determined net income for Massachusetts and federal purposes for S1 and S2, respectively, is $1,000,000, and for C is $2,000,000 (i.e., assume no Massachusetts and federal differences for purposes of the example). The apportionment information for the corporations is as follows:
| S1 (nexus) Manuf. Corp | S2 (nexus) Bus. corp. | C (nexus) Bus. corp. | Combined | |
| MA property | $20,000,000 | $12,000,000 | $4,000,000 | |
| Everywhere property $104,000,000 | $60,000,000 | $24,000,000 | $20,000,000 | |
| MA payroll | $1,000,000 | $5,000,000 | $100,000 | |
| Everywhere payroll | $2,000,000 | $5,000,000 | $2,000,000 | $9,000,000 |
| MA sales | $15,000,000 | $6,000,000 | $1,000,000 | |
| Everywhere sales | $30,000,000 | $10,000,000 | $20,000,000 | $60,000,000 |
M.G.L. c. 63 analysis. To determine their apportioned M.G.L. c. 63 income, the three corporations perform the same analysis as would apply in a case involving only C corporations (see, e.g., 830 CMR 63.32B.2(7)(1)Example 5.). Since S1 is a manufacturing corporation it applies a single sales factor apportionment percentage. Since both S2 and C are general business corporations, they apply a three factor apportionment percentage that includes a double weighted sales factor. Upon determining their apportioned M.G.L. c. 63 income, S1 and S2 apply the tax rate as determined under M.G.L. c. 63, § 32D, whereas C applies the tax rate as determined under M.G.L. c. 63, § 39.
| S1 (nexus) Manuf. Corp | S2 (nexus) Bus. corp. | C (nexus) Bus. corp. | |
| Property numerator | $20,000,000 | $12,000,000 | $ 4,000,000 |
| Property denominator | $104,000,000 | $104,000,000 | $104,000,000 |
| Property factor | n/a | 11.54% | 3.85% |
| Payroll numerator | $1,000,000 | $5,000,000 | $100,000 |
| Payroll denominator | $9,000,000 | $9,000,000 | $9,000,000 |
| Payroll factor | n/a | 55.56% | 1.11% |
| Sales numerator | $15,000,000 | $6,000,000 | $1,000,000 |
| Sales denominator | $60,000,000 | $60,000,000 | $60,000,000 |
| Sales factor | 25% | 10% | 1.67% |
| Apportionment % | 25% | 21.77%* | 2.07%* |
| MA apportioned income | $1,000,000 | $870,940 | $82,906 |
*Three factor, double weighted sales.
M.G.L. c. 62 analysis. R is taxable on federal distributive share income from S1 and S2 without any adjustment, although R may claim a credit against this distributive share income for other state income tax paid on such distributive share by R or S1 or S2. R is taxable on its dividends from C with no credit applicable. NR has federal distributive share income from S1 and S2 and is taxable on its apportioned share of this income. See M.G.L. c. 62, § 5A(b) (the Commissioner may adopt regulatory rules as to non-resident taxation). In the case of S1, the apportionment is done using single sales factor apportionment, whereas in the case of S2, the apportionment is done using three factor apportionment with a double weighted sales factor. NR is to file a Massachusetts non-resident return that documents its apportioned S1 and S2 income as Massachusetts source income. If either S1 or S2 had any allocable income, NR's distributive share of this allocable income would not be apportioned but rather would be either 100% taxable or non-taxable in Massachusetts depending upon whether the income is allocable to Massachusetts. Under M.G.L. c. 62, S1 and S2 must compute their net income in the same manner as they did prior to the enactment of M.G.L. c. 63, § 32B. In addition, because S1 and S2 have nonresident shareholders both S1 and S2 must compute their own separate apportionment percentages to determine the nonresident's distributive share of Massachusetts source income from S1 and S2. S1 and S2 compute their apportionment percentages as follows:
| S1 (nexus) Manuf. Corp | S2 (nexus) Bus. corp. | |
| Property numerator | $20,000,000 | $12,000,000 |
| Property denominator | $60,000,000 | $24,000,000 |
| Property factor | n/a | 50% |
| Payroll numerator | $1,000,000 | $5,000,000 |
| Payroll denominator | $2,000,000 | $5,000,000 |
| Payroll factor | n/a | 100% |
| Sales numerator | $15,000,000 | $6,000,000 |
| Sales denominator | $30,000,000 | $10,000,000 |
| Sales factor | 50% | 60% |
| Apportionment % | 50% | 67.50%* |
| Separate MA net income | $1,000,000 | $1,000,000 |
| MA apportioned income | $500,000 | $675,000 |
*Three factor, double weighted sales.
As a Massachusetts resident, R would report R's distributive share of the total unapportioned net income of S1 and S2 on R's personal income tax return. Since R is a 50% shareholder in both corporations, R reports $1,000,000, i.e., $500,000 from each entity. As a nonresident, NR would report NR's distributive share of the Massachusetts source income of S1 and S2 on NR's Massachusetts non-resident income tax return. Since NR is a 50% shareholder in both corporations, NR reports $587,000, i.e., $250,000 from S1 and $337,500 from S2.
Example 7. Combined mutual fund service corporation and nexus and non-nexus general business corporation where the non-nexus general business corporation has Massachusetts sales. X, Y and Z are corporations engaged in a unitary business during tax year 2009. For taxable year 2009, X is a mutual fund service corporation subject to single sales factor apportionment under M.G.L. c. 63, § 38. As a mutual fund service corporation, X must separate its gross income into two categories, mutual fund sales and non-mutual fund sales (i.e., other sales). Therefore, for purposes of the combined group, X is treated as two separate members. X derives 80% of its gross income from mutual fund sales, and 20% of its gross income from other sales. Y is a general business corporation subject to three factor apportionment with a double weighted sales factor under M.G.L. c. 63, § 38 and taxable under M.G.L. c. 63, § 39. Z is a non-taxpayer corporation that would be subject to apportionment as a general business corporation under M.G.L. c. 63, § 38 and would be taxable under M.G.L. c. 63, § 39 if it were subject to tax in Massachusetts. Z has $1,000,000 in Massachusetts sales. Therefore, because Z is a non-nexus corporation, an additional step is required for purposes of computing the apportionment formulas of X and Y, wherein the Massachusetts sales of Z are re-attributed to X and Y. See830 CMR 63.32B.2(7)(b). The combined group's taxable income as determined under 830 CMR 63.32B.2(6)(c) is $100,000. Further, assume for purposes of the example that X does not provide mutual fund services to Y or Z such that the provisions of 830 CMR 63.32B.2(7)(g) are implicated. The apportionment information and factor and tax determinations of the three corporations are as follows:
| X (nexus) (mut. fund) | X (nexus) (other sales) | Y (nexus) Bus. corp. | Z (no nexus) Bus. corp. | Combined | |
| MA property | $3,000,000 | $2,000,000 | $1,000,000 | ||
| Everywhere property | $15,000,000 | $2,000,000 | $1,000,000 | $2,000,000 | $20,000,000 |
| MA payroll | $850,000 | $150,000 | $5,000,000 | ||
| Everywhere payroll | $1,600,000 | $400,000 | $5,000,000 | $1,000,000 | $8,000,000 |
| MA sales | $4,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | |
| Everywhere sales | $8,000,000 | $2,000,000 | $3,000,000 | $2,000,000 | $15,000,000 |
| Member X (mut. fund) | Member X (other sales) | Member Y | Member Z | |
| Nexus member MA sales | $4,000,000 | $1,000,000 | $1,000,000 | n/a |
| Total nexus member MA sales | $6,000,000 | $6,000,000 | $6,000,000 | n/a |
| Nexus member sales % | 66.66% | 16.67% | 16.67% | n/a |
| Non nexus member sales | n/a | n/a | n/a | $1,000,000 |
| Assigned non nexus member sales | $666,666 | $166,667 | $166,667 | n/a |
| Sales factor numerator | $4,666,666 | $1,166,667 | $1,166,667 | n/a |
| Member X (mut. fund) | Member X (other sales) | Member Y | Member Z | |
| Property numerator | n/a | $2,000,000 | $1,000,000 | n/a |
| Property denominator | n/a | $20,000,000 | $20,000,000 | n/a |
| Property factor | n/a | 10.00% | 5.00% | n/a |
| Payroll numerator | n/a | $150,000 | $5,000,000 | n/a |
| Payroll denominator | n/a | $8,000,000 | $8,000,000 | n/a |
| Payroll factor | n/a | 1.88% | 62.50% | n/a |
| Sales numerator | $4,666,666 | $1,166,667 | $1,166,667 | n/a |
| Sales denominator | $15,000,000 | $15,000,000 | $15,000,000 | n/a |
| Sales factor | 31.11% | 7.78% | 7.78% | n/a |
| Apportionment % | 31.11%* | 6.86%** | 20.77%** | n/a |
* Single factor, sales.
**Three factor, double weighted sales.
| Member X (mut. fund) | Member X (other sales) | Member Y | Member Z | Total | |
| Apportionment % | 31.11% | 6.86% | 20.77% | n/a | |
| Combined group TI | $100,000 | $100,000 | $100,000 | n/a | |
| Apportioned income | $31,110 | $6,860 | $20,770 | n/a | |
| Tax rate | 9.50% | 9.50% | 9.50% | n/a | |
| Tax | $2,955 | $652 | $1,973 | n/a | $5,580 |
Example 8. Combined corporations where no corporation is entitled to apportion. X, Y and Z are corporations engaged in a unitary business in tax year 2009. None of the corporations can apportion their income because none of the corporations have income from business activities that are taxable in another state. Consequently, the combined group cannot apportion its income. Therefore, 100% of the combined group's taxable income is taxable in Massachusetts. The combined group's taxable income in tax year 2009 as determined under 830 CMR 63.32B.2(6)(c) is $1,000. To determine the amount of this income that is attributed to each combined group member the following information is relevant. X is an S corporation and a manufacturing corporation with sales of $1,000, average property of $2,000 and a payroll of $500. Y is a financial institution with receipts of $2,000, average property of $11,000 ($10,000 of which is intangible property within the meaning of M.G.L. c. 63, § 2A) and a payroll of $1,000. Z is a general business corporation with sales of $1,000, average property of $1,000 and a payroll of $500. The computation of the respective income of the combined group members for tax year 2009, which must add up to $1,000, is as follows:
X S corp. | Y Fin. Inst. | Z Bus. corp. | Combined | |
MA property | $2,000 | $3,000* | $1,000 | $6,000* |
Everywhere property | $6,000 | $6,000 | $6,000 | |
Property factor | 33.33% | 50% | 16.67% | |
MA payroll | $500 | $1,000 | $500 | $2,000 |
Everywhere payroll | $2,000 | $2,000 | $2,000 | |
Payroll factor | 25% | 50% | 25% | |
Total factor percentage | 58.33% | 100% | 41.67% | 200% |
Average factor | 29.167% | 50% | 20.833% | 100% |
Income computation | $291.67 | $500 | $208.33 | $1,000 |
* The property factor for Y includes 20% of Y's $10,000 of intangible property (i.e., $2,000) plus $1,000 of other property.
In the case of NOL carry forward from two or more such years, the Massachusetts apportionment factor numerators shall be averaged for all such loss years, weighting the factors for each loss year in accordance with the amount of the loss carried forward to the current year calculated on a post-apportionment basis, and the resulting average Massachusetts property, payroll, and sales factor numerators shall be divided by the current year group denominators to determine an apportionment percentage. The apportionment percentage thus determined shall be multiplied by the current year combined group taxable income. The product is the maximum current year income of the member that may be offset in the taxable year by its pre-combination NOL carry forward, subject to any other applicable loss carry forward limitation. The Commissioner may disregard material transactions among affiliated entities on or after November 1, 2008, to the extent that such transactions would affect the limitation under 830 CMR 63.32B.2(8)(f).
Example 1. X and Y are commonly owned taxpayer corporations during the three year period 2007-2009. X is a general business corporation taxable under M.G.L. c. 63, § 39, whereas Y is a financial institution taxable under M.G.L. c. 63, § 2. For taxable year 2007, X has a 20% apportionment and an apportioned loss of $10,000, which "grosses up" to a pre-apportionment NOL of $50,000 ($10,000 divided by .20) to carry forward. Y also has a loss for tax year 2007, but because it is a financial institution it cannot carry forward this loss. In taxable year 2008, X again has an apportionment percentage of 20%, but has no taxable income, whereas Y has apportioned taxable income of $20,000. Although X has a NOL carry forward of $50,000 from 2007 in taxable year 2008 that NOL carry forward cannot be shared with Y. In tax year 2009, the two corporations are engaged in a unitary business. In conducting their 2009 unitary business, the XY combined group has combined income of $100,000, and X and Y have respective apportionment percentages of 20% and 10%. Therefore, X and Y's respective share of the 2009 combined group's taxable income is $20,000 and $10,000. X has a pre-apportioned NOL carry forward of $50,000 from 2007 that must be converted into a post apportionment computation for purposes of X using this NOL as a deduction against its 2009 income. To accomplish this conversion, X multiplies its $50,000 2007 carry forward by its 2007 apportionment percentage of 20%, resulting in a carry forward of $10,000. Consequently X has a $10,000 2007 NOL carry forward that can be applied against its $20,000 of income for the 2009 tax year. X has no remaining carry forward from 2007 that can be brought forward into 2010.
Example 2. X, Y and Z are commonly owned taxpayer corporations taxable under M.G.L. c. 63, § 39 during the three year period 2008-2010. For taxable year 2008, X, Y and Z file as a combined group under the predecessor version of M.G.L. c. 63, § 32B, which has been repealed for taxable years beginning after January 1, 2009. X has an apportioned loss of $100,000 for 2008 and Y and Z have apportioned income, respectively, of $25,000 and $50,000. Consequently, in 2008 $75,000 of X's loss is used to offset the apportioned income of Y and Z and $25,000 remains to be carried forward. In tax year 2009, the three corporations are engaged in a unitary business. In conducting their 2009 unitary business, the XYZ combined group has a combined loss of $80,000, and X, Y and Z have respective apportionment percentages of 25%, 20% and 10%. Consequently, X, Y and Z have an apportioned share of the combined group's loss for 2009 that is, respectively, $20,000, $16,000 and $8,000. In 2010 the XYZ combined group remains unchanged and has combined taxable income of $300,000, and X, Y and Z have respective apportionment percentages of 33.4%, 5% and 10%. Therefore, X, Y and Z's respective share of the 2010 group's income is, respectively, $100,000, $15,000 and $30,000. The Massachusetts income and loss attributes for the XYZ group for tax years, 2009-2010, is computed as follows:
| Tax year 2009 | |||||
| Combined | 2009 NOL to | 2008 NOL | |||
| Entity | Income | App% | MA Income | carry forward | carry forward |
| X | ($80,000) | 25% | ($20,000) | ($20,000) | ($25,000) |
| Y | ($80,000) | 20% | ($16,000) | ($16,000) | n/a |
| Z | ($80,000) | 10% | ($8,000) | ($8,000) | n/a |
| Tax year 2010 | |||||
| Combined | NOL carry | Taxable | |||
| Entity | Income | App% | MA Income | forward used | Income |
| X | $300,000 | 33.34% | $100,000 | $45,714* | $54,286 |
| Y | $300,000 | 5% | $15,000 | $15,000** | $0 |
| Z | $300,000 | 10% | $30,000 | $8,286*** | $21,714 |
* X applies its entire NOL carry forward from 2008, $25,000. X also applies its entire NOL carry forward from 2009, $20,000. X also uses $714 of Y's NOL carry forward from 2009, which is determined based upon its percentage of the income of X and Z after each corporation applies its own NOLs ($55,000/$77,000 multiplied by
Y's $1,000 excess NOL).
** Y applies $15,000 of its NOL carry forward from 2009; it has $1,000 of NOL carry forward from 2009 that remains to share with X and Z.
*** Z applies its entire NOL carry forward from 2009, $8,000, plus Z applies $286 of Y's excess NOL carry forward from 2009, which is determined based upon its percentage of the income of X and Z after each corporation applies its own NOLs ($22,000/$77,000 multiplied by $1,000).
Example 3. X, Y and Z are commonly owned taxpayer corporations taxable under M.G.L. c. 63, § 39 during the three year period 2008-2010. For taxable year 2008, X, Y and Z file as a combined group under the predecessor version of M.G.L. c. 63, § 32B. X has an apportioned loss of $150,000 for 2008 and Y and Z have apportioned income, respectively, of $10,000 and $5,000. Consequently, in 2008 $15,000 of X's loss is used to offset the apportioned income of Y and Z and $135,000 remains to be carried forward. In tax 2009, the three corporations are engaged in a unitary business. In conducting their 2009 unitary business, the XYZ combined group has a combined loss of $20,000, and X, Y and Z have respective apportionment percentages of 10%, 50% and 10%. Consequently, X, Y and Z have an apportioned share of the combined group's loss for 2009 that is, respectively, $2,000, $10,000 and $2,000. In 2010 the XYZ combined group remains unchanged and has combined taxable income of $100,000, and X, Y and Z have respective apportionment percentages of 10%, 50% and 10%. Therefore, X, Y and Z's respective share of the group's 2010 income is, respectively, $10,000, $50,000 and $10,000. The Massachusetts income and loss attributes for the XYZ group for tax years, 2008-2010, is computed as follows:
| Tax year 2009 | |||||
| Combined | 2009 NOL to | 2008 NOL | |||
| Entity | Income | App% | MA Income | carry forward | carry forward |
| X | ($20,000) | 10% | ($2,000) | ($2,000) | ($135,000) |
| Y | ($20,000) | 50% | ($10,000) | ($10,000) | n/a |
| Z | ($20,000) | 10% | ($2,000) | ($2,000) | n/a |
| Tax year 2010 | |||||
| Combined | NOL carry | Taxable | |||
| Entity | Income | App% | MA Income | forward used | Income |
| X | $100,000 | 10% | $10,000 | $10,000* | $0 |
| Y | $100,000 | 50% | $50,000 | $11,667** | $38,333 |
| Z | $100,000 | 10% | $10,000 | $ 2,333*** | $7,667 |
* X has $135,000 of carry forward from 2008 to apply. It applies $10,000 of its 2008 carry forward to eliminate its 2010 taxable income, leaving it with $125,000 to carry forward for its use in subsequent years. None of X's 2008 carry forward can be shared with Y or Z. X also has $2,000 of NOL carry forward from 2009 remaining, which can be shared with Y and Z.
** Y applies its $10,000 NOL carry forward from 2009; Y also uses $1,667 of X's NOL carry forward from 2009 (which unlike X's 2008 NOL carry forward can be shared), which is determined based upon its percentage of the income of Y and Z after each corporation applies its own NOLs ($40,000/$48,000 or 5/6).
*** Z applies its entire NOL carry forward from 2009, $2,000; Z also uses $333 of X's NOL carry forward from 2009, which is determined based upon its percentage of the income of Y and Z after each corporation applies its own NOLs ($8,000/$48,000 or 1/6).
Example 4. Y and Z are corporations taxable under M.G.L. c. 63, § 39 that are engaged in a unitary business during the three year period 2009-2011. For taxable year 2009, the YZ combined group's taxable income is $100,000 and the apportionment percentage of Y and Z is 10%, and 5% respectively. Z also has an allocable loss of $20,000 that derives from an activity that is unrelated to the combined group's unitary business. The apportioned taxable income of Y and Z derived from the combined group prior to the deduction of any losses is $10,000 and $5,000, respectively. Z applies its allocable loss, $20,000, against its apportioned share of the combined group's taxable income, $5,000 and has a remaining loss of $15,000 to carry forward. Z's $15,000 loss carry forward is an allocable loss, and therefore cannot be shared with Y in the 2009 tax year or any future tax year.
For taxable year 2010, the YZ combined group has a net loss of $50,000 and the apportionment percentage of Y and Z is 10% and 6%, respectively. Therefore, Y and Z generate NOL carry forwards of $5,000 and $3,000, respectively. Because these carry forwards are derived from the operation of the combined group's unitary business, Y and Z may share these NOLs with each other in future years. Z also has allocable income from 2010 of $5,000. Z's allocable loss from 2009, $15,000, is deducted from its allocable income from 2010, $5,000, up to the limit specified in M.G.L. c. 63, § 30.5 (i.e., in this case, reducing Z's taxable income to zero). Z retains the remainder of its 2009 allocable NOL derived from 2009, i.e., $10,000, which Z can carry forward and use against its own income (but which cannot be shared with Y) in future years.
For taxable year 2011, the YZ combined group has net income of $200,000 and the apportionment percentage of Y and Z is 10% and 4%, respectively. Therefore, Y and Z's apportioned share of the combined group's taxable income is $20,000 and $8,000, respectively. Neither Y nor Z has any allocable income or loss in 2011. Y applies its NOL carry forward previously derived from the activities of the YZ combined group, $5,000, against its $20,000 in 2011 apportioned income from such group, and thereby reduces this income to $15,000. Z must first apply its NOL carry forward previously derived from the activities of the YZ combined group, $3,000, to reduce its $8,000 in 2011 apportioned income from such group, and thereby reduces this income to $5,000. Subsequently, Z may apply $5,000 of its allocable NOL against its remaining 2011 apportioned income from the YZ group, thereby reducing this income to zero. Z retains the remainder of its 2009 allocable NOL, i.e., $5,000, which Z can carry forward and use against its own income (but which cannot be shared with Y) in future years.
Example 5. Y is a manufacturing corporation taxable in Massachusetts that applies single sales factor apportionment for the tax years 2007-2009. Y has an available NOL from tax year 2007 of $40,000 calculated on a pre-apportionment basis. In 2007 Y had Massachusetts destination sales of $45,000 and sales subject to throwback of $55,000, for a total numerator of $100,000. Also, in 2007 Y had a sales factor denominator of $200,000 and therefore a resulting apportionment percentage of 50%. In 2008, Y is a Massachusetts taxpayer that has no taxable income or loss. In 2009 Y is a member of a combined group engaged in a unitary business with corporation Z. The YZ combined group's 2009 taxable income is $100,000 and Y has a 2009 apportionment percentage, calculated under 830 CMR 63.32B.2(7), of 8%. Therefore, Y's 2009 apportioned share of the combined group's taxable income is $8,000. The denominator of the YZ combined group's 2009 sales factor is $1,000,000. Also, the group is taxable in every state so none of Y's 2007 sales would be considered sales shipped to non-nexus states for throwback purposes if made by Y in 2009.
To calculate the amount of its 2007 NOL that is available to be used in tax year 2009, Y multiplies its pre-apportionment 2007 NOL by its 2007 apportionment percentage (40,000 x 50%), which results in Y having a post-apportionment NOL available from 2007 of $20,000. To calculate the limit on the amount of its 2007 NOL that Y may use in the 2009 tax year, Y must re-determine its 2007 sales factor numerator, excluding sales thrown back to Y in 2007 to the extent those sales were shipped to purchasers in states in which the YZ combined group is taxable in the 2009 tax year. Y's 2007 numerator as re-determined for this purpose is $45,000. Therefore, the limit on the amount of Y's 2007 NOL which may be used by Y in tax year 2009 is Y's revised 2007 numerator divided by the YZ combined group's 2009 denominator times the YZ combined group's taxable income (i.e., 45,000/1,000,000 x $100,000 = 4.5% of $100,000 or $4,500.). Consequently, Y may use $4,500 of its 2007 post apportionment NOL against its 2009 apportioned share of the YZ combined group's taxable income and, upon so doing, has $3,500 of taxable net income. Y then has $15,500 of post-apportioned NOL from 2007 remaining to carry forward to future years.
Example 6. Same facts as in example 5. except that Y also has an NOL carry forward from the 2008 tax year determined on a pre-apportioned basis of $30,000. In 2008 Y had destination sales of $60,000, throwback sales of $20,000 and a sales factor denominator of $240,000. Y's apportionment percentage for 2008 was 33.33%.
To determine the limit on the amount of its pre-combination NOL carry forward that it may use in tax year 2009, Y must first determine how much of its NOL carry forward is available from each of the two tax years 2007 and 2008 on a post-apportionment basis. Y's post-apportionment NOL from 2007 is $20,000, and using its applicable 2008 apportionment factor, Y determines that its post apportionment NOL from 2008 is $10,000. Also, Y's re-determined numerator for 2007 is $45,000 (See example 5) and its re-determined numerator for 2008 (excluding throwback to states in which the group has nexus in the current year) is $60,000. Y must use the weighted average of these numerators (2/3 of the 2007 numerator plus 1/3 of the 2008 numerator) to calculate its limitation under 830 CMR 63.32B.2(8)(f). The weighted average is $50,000. The YZ combined group's 2009 denominator is $1,000,000 and the YZ combined group's 2009 taxable income is $100,000 so the limit on the amount of pre-combination NOL which Y may use in tax year 2009 is $5,000 (i.e., 50,000/1,000,000 x $100,000 = 5% of $100,000 or $5,000.). Y uses $5,000 of its 2007 NOL and has $15,000 of its 2007 NOL (on a post-apportionment basis) available to carry forward to the following year. Y uses none of its 2008 NOL and has $10,000 of 2008 post apportionment NOL to carry forward to the following year. Y's taxable net income after the NOL deduction is $3,000.
Example 7. Same facts as in example 6. except that Y and Z have increased their total Massachusetts property and payroll from tax year 2007 to tax year 2009 and, because this is so, the YZ combined group elects to apply the provisions of 830 CMR 63.32B.2(8)(f)2. to determine the limit on pre-combination NOL carry forwards that may be used by the group members (assume for purposes of the example, however, that Z has no pre-combination NOL carry forwards). The increase in the Massachusetts property and payroll of Y and Z from 2007 to 2009 was 50%. The increase in the Massachusetts property and payroll of Y and Z from 2008 to 2009 was 25%. Y's re-determined 2007 numerator is $45,000 (See example 5.), increased by 50% to reflect the increase in the Massachusetts property and payroll of Y and Z from 2007 to 2009 for a revised figure of $67,500. Y's re-determined 2008 numerator is $60,000 (See example 6.), increased by 25% to reflect the increase in the Massachusetts property and payroll of Y and Z from 2008 to 2009 for a revised figure of $75,000. Applying the weighted average rule (2/3 for 2007, 1/3 for 2008 based on the amount of NOL available), Y's average numerator for the pre-combination loss years is $70,000 and therefore the limit on its pre-combination losses that may be used is $7,000. Y will use $7,000 of the 2007 NOL carry forward and has $13,000 remaining to carry forward to the following year. Y uses none of the 2008 NOL carry forward and has $10,000 available to carry forward to the following year.
Example 1. X, Y and Z are taxpayer corporations engaged in a unitary business in tax year 2009. These corporations have an income measure excise as determined under M.G.L. c. 63, § 39, before the application of any credits, of $10,000, $20,000 and $10,000, respectively. X is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A. Y is a research and development corporation within the meaning of M.G.L. c. 63, § 31A that would be entitled to ITC if it made a qualified acquisition thereunder. Z is a corporation that is not referenced within the meaning of M.G.L. c. 63, § 31A that would not be able to claim the ITC under M.G.L. c. 63, § 31A even it acquired property as referenced therein. In tax year 2009, X purchases equipment to be used in the XYZ unitary business that generates $15,000 of ITC. Also, during tax year 2009, Y engages in activity as part of the unitary business that entitles it to $45,000 of research credit under M.G.L. c. 63, § 38M. The credits for the group are determined as follows:
| Tax year 2009 | |||||||
| Entity | Excise | Credit generated | Own credit used | Shared from X | Shared from Y | Excise post credits | Carry forward credit |
| X | $10,000 | $15,000 | $5,000 | n/a | $4,544 | $456 | $8,581 |
| Y | $20,000 | $45,000 | $18,125 | $1,419 | n/a | $456 | $13,269 |
| Z | $10,000 | n/a | n/a | n/a | $9,062 | $938 | $0 |
X must use its ITC first, which results in it claiming $5,000 of ITC. X is then able to share any excess research credit of Y. X's research credit limitation is $9,062. (X's tax was $10,000 and the group's overall tax was $40,000 and so X contributed to 25% of the group's tax. Accordingly 25% of the $25,000 research credit limitation is applied to X. Thus 25% multiplied by the $25,000 credit limitation or $6,250 plus 75% of the remaining tax of $3,750 or $2,812 equals X's available research credit of $9,062.) However, the research credit is further limited to $4,544 so that the tax due by X is at least $456. Y must use its research credit first against its own excise. Y's available research credit for 2009 is $18,125 (50% of the $25,000 group limitation plus 75% of the remaining tax.). In addition, since Y, like X, is a corporation that is entitled to claim an ITC under M.G.L. c. 63, § 31A, Y may share in X's ITC. The ITC is limited to 50% of Y's excise, and in this case is further limited so that Y's excise does not fall below $456. Therefore, Y can use $1,419 of X's ITC. Z may share Y's research credit. Z's share of Y's research credit is 25% of the group's $25,000 limitation plus 75% of any remaining excise.
The requirements for sharing the carry forward of a credit that is generated for a taxable year beginning on or after January 1, 2009 are the same as those for sharing such a credit in the year that the credit was generated. That is, if the credit is attributable to the combined group's unitary business, the credit carry forward may be shared with the other taxable members of the combined group to the extent such sharing is consistent with the statutory requirement for claiming the credit, as discussed in 830 CMR 63.32B.2(9)(b) through (c). As in the case of the application of a credit for the tax year in which the credit was generated, a credit carry forward must first be applied against the excise of the taxpayer that generated the credit, and then any excess credit may be applied against the excise of the other taxable members of the combined group that may share the credit, in each case consistent with the requirements and limitations that apply to the credit.
Example 2. Same facts as in example 1. One year later, in tax year 2010, it remains the case that X, Y and Z are engaged in a unitary business. Also, it remains the case that X is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A; Y is a research and development corporation within the meaning of M.G.L. c. 63, § 31A; and Z is a corporation that is not referenced within the meaning of M.G.L. c. 63, § 31A and that would not be able to claim the ITC under M.G.L. c. 63, § 31A even if it acquired property as referenced therein. X has an excise of $2,000, Y has an excise of $4,000 and Z has an excise of $10,000. X also has $8,581 of ITC credit carry forward that may be shared with Y but not Z (the credit carry forward cannot be shared with Z because Z was not able to claim an ITC in tax year 2009). Y has a research credit carry forward of $13,269 that can be shared with both X and Z since the credit derived from the unitary business conducted by Y with both X and Z in 2009, and also in 2010 both X and Z are members of Y's combined group and are both corporations taxable under M.G.L. c. 63, § 39. None of the corporations have any additional credits for 2010. The credits for the group are calculated as follows:
| Tax year 2010 | |||||||
| Entity | Excise | Carry forward | Own credit used | Shared from X | Shared from Y | Excise post credits | Carry forward credit |
| X | $2,000 | $8,581 | $1,000 | n/a | $544 | $456 | $7,581 |
| Y | $4,000 | $13,269 | $3,544 | n/a | n/a | $456 | - |
| Z | $10,000 | n/a | n/a | n/a | $9,181 | $819 | - |
X must use its ITC carry forward against its own excise first, which results in it claiming $1,000 of ITC. X is then able to share any excess research credit of Y. There is no research credit limitation because the entire group's excise is less than $25,000. Y must use its research credit first against its own excise. Y may claim $3,544 of research credit and reduce its excise to $456. X may use $544 of Y's research credit to reduce its excise to $456. Z may also share Y's research credit. Z is able to claim the remaining $9,181 of Y's research credit. Z's excise is reduced to $819.
Example 3. Same facts as in example 2., except that Y separates part of its operations into a new taxpayer corporation, N, which it forms as a wholly owned subsidiary on January 1 of 2011, and N becomes part of the XYZ combined group as of that date. N and Y are both research and development corporations within the meaning of M.G.L. c. 63, § 31A that would be able to claim ITC thereunder. X has an excise of $2,000, Y has an excise of $4,000, Z has an excise of $10,000, and N has an excise of $4,000. The credits for the group are determined as follows:
| Tax year 2011 | |||||||
| Entity | Excise | Carry forward | Own credit used | Shared from X | Shared from Y | Excise post credit | Carry forward credit |
| X | $2,000 | $7,581 | $1,000 | n/a | n/a | $1,000 | $2,581 |
| Y | $4,000 | n/a | n/a | $2,000 | n/a | $2,000 | - |
| Z | $10,000 | n/a | n/a | n/a | n/a | $10,000 | - |
| N | $4,000 | n/a | n/a | $2,000 | n/a | $2,000 | - |
X may share its ITC credit carry forward with Y and N, both of which are entitled to reduce their excise by 50% consistent with the rules for claiming an ITC. Y can share X's ITC because it is entitled to claim an ITC during tax year 2011 and also was a member of Z's combined group during 2009, the tax year that the ITC was generated. N can share X's ITC because it is entitled to claim an ITC during tax year 2011 and also, though it was not a member of the XYZ combined group in the tax year that the ITC was generated, N is a successor in part to Y, which was a combined group member during 2009, and also there is 100% continuity of ownership as between Y and N.
Example 4. Same facts as in example 2 (with X possessing an ITC carry forward from the unitary business activities of the XYZ combined group from tax year 2009), except that Z acquires 100% of the voting shares of a new taxpayer corporation, V, on January 1 of 2011. V is not engaged in a unitary business with X, Y or Z during 2011. However, the principal reporting corporation of the XYZ unitary group makes an affiliated group election for 2011. V is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A that would be entitled to claim ITC if it made a qualified acquisition thereunder. V has an income measure excise for tax year, 2011, of $4,000. X may not share any of its remaining ITC carry forward from tax year 2009 with V as V was not a part of the XYZ combined group in the tax year that the credit was generated.
Example 5. X, Y and Z are commonly owned taxpayer corporations taxable under M.G.L. c. 63, § 39 during the two year period 2008-2009. For taxable year 2008, X, Y and Z file as a combined group under the predecessor version of M.G.L. c. 63, § 32B, which has been repealed for taxable years beginning on or after January 1, 2009. X is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A and has an ITC carry forward from 2008 of $10,000. Y is a research and development corporation within the meaning of M.G.L. c. 63, § 31A and has a research credit carry forward from 2008 of $20,000. Z is a corporation that is not referenced within the meaning of M.G.L. c. 63, § 31A and would not be able to claim the ITC under that M.G.L. c. 63, § 31A even if it acquired property as referenced therein. In 2009, the three corporations are engaged in a unitary business within the meaning of current M.G.L. c. 63, § 32B, and have an income measure excise as determined under M.G.L. c. 63, § 39, before the application of any credits, of $10,000, $20,000 and $10,000, respectively. The credits for the group are determined as follows:
| Tax year 2009 | |||||||
| Entity | Excise | '08 credit carry forward | Own credit used | Shared from X | Shared from Y | Excise post credits | Carry forward credit |
| X | $10,000 | $10,000 | $5,000 | n/a | $1,875 | $3,125 | $5,000 |
| Y | $20,000 | $20,000 | $18,125 | n/a | n/a | $1,875 | - |
| Z | $10,000 | n/a | n/a | n/a | n/a | $10,000 | - |
X must use its ITC first and can offset 50% of its excise with its ITC. Therefore X uses $5,000 of its ITC. Y must use its research credit first against its own excise. Y's research credit limitation is $18,125 so it must use this amount first. (Y's research limitation is $12,500 plus $5,625. Since Y's liability is 50% of the group's liability Y is allocated 50% of the $25,000 credit limitation or $12,500 plus 75% of the excise remaining in excess of the $12,500 limitation or 75% of $7,500). Y's research credit can be shared with X since both X and Y, as combined group members under former M.G.L. c. 63, § 32B, were able to share the credit during the tax year that it was generated, 2008, and also in 2009 both X and Z are members of Y's combined group and are both corporations taxable under M.G.L. c. 63, § 39. Therefore, X can share in Y's remaining research credit of $1,875. However, X may not share any of its remaining ITC generated in 2008 with either Y or Z, as during tax year 2008 the M.G.L. c. 63, § 31A credit could only be used by the corporation that generated it. Z does not take any credit in this example, but had X not used any of Y's research credit Z could have claimed it. Alternatively, X and Z could have each taken a portion of Y's excess research credit. X has a carryover ITC of $5,000.
Example 6. X, Y and Z are taxpayer corporations engaged in a unitary business in tax year 2009. X is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A. Y is a research and development corporation within the meaning of M.G.L. c. 63, § 31A that would be entitled to ITC if it made a qualified acquisition thereunder. Z is a corporation that is referenced within the meaning of M.G.L. c. 63, § 31A that would have been able to claim the ITC under M.G.L. c. 63, § 31A if it acquired property as referenced therein. X has an ITC carry forward from tax year 2009 that it can carry forward to 2010. In tax year 2010 all of the stock of X is sold to taxpayer corporation N. X is engaged in a unitary business with corporation N in tax year 2010 (although it is presumed under 830 CMR 63.32B.2(3)(b) that X is not engaged in a unitary business with N, assume that the presumption is rebutted). X has $5,000 of ITC carry forward, which derived from a credit that it generated in 2009. N, like X, is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A that would be entitled to claim a credit thereunder. In 2010, X and N have an income measure excise as determined under M.G.L. c. 63, § 39, before the application of any credits, of $5,000 and $5,000, respectively. N does not generate any credit in 2010 and has no credit carry forward. X may apply $2,500 of its ITC credit carry forward against its $5,000 2010 excise and reduce that excise to $2,500 (i.e., by 50%). X may not share its remaining $2,500 of ITC carry forward with N, as it was not engaged in a unitary business with N at the time that it generated the ITC. Also, as X is no longer a member of a unitary group with Y and Z and departed that unitary group with its ITC credit carry forward, neither Y nor Z can use the credit carry forward that belongs to X in tax year 2010.
| Tax year 2010 | ||||||
| Entity | Excise | Carry forward | Own credit used | Shared from X | Excise post credits | Carry forward credit |
| X | $5,000 | $5,000 | $2,500 | n/a | $2,500 | $2,500 |
| N | $5,000 | n/a | n/a | n/a | $5,000 | - |
Example 7. X, Y and Z are taxpayer corporations engaged in a unitary business in tax year 2009. X is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A. Y is not a corporation that would be entitled to ITC if it made a qualified acquisition thereunder. X has an ITC carry forward from tax year 2009 that it can carry forward to 2010. In tax year 2010 all of the stock of X and Y is sold to taxpayer corporation N, which is a member of a combined group with corporation O. X and Y are engaged in a unitary business with corporations N and O in tax year 2010 (although it is presumed under 830 CMR 63.32B.2(3)(b) that X and Y are not engaged in a unitary business with N and O for the tax period after the acquisition, assume that this presumption is rebutted). N and O were engaged in a unitary business in tax year 2009. N has an ITC carry forward in 2010 of $10,000 that derives from a credit that N generated in 2009, during which year O was also entitled to claim an ITC.
In 2010, N and O are manufacturing corporations and Y becomes a research and development corporation, all of whom are entitled to generate an ITC under M.G.L. c. 63, § 31A. In 2010, X, Y, N and O have an income measure excise as determined under M.G.L. c. 63, § 39, before the application of any credits, of $5,000, $10,000, $5,000 and $10,000, respectively. X may apply $2,500 of its ITC credit carry forward against its $5,000 excise and reduce that excise to $2,500 (i.e., by 50%). X may also share its remaining $2,500 of ITC carry forward with Y, as it was engaged in a unitary business with Y in 2009 when it generated this credit and Y is a corporation that is entitled to claim an ITC in tax year 2010. N may apply $2,500 of its ITC credit carry forward against its $5,000 excise and reduce that excise to $2,500 (i.e., by 50%). N may also share $5,000 of its remaining $7,500 of ITC with O, as N was engaged in a unitary business with O in 2009 when it generated this credit and O is a corporation that is entitled to claim an ITC in tax year 2010. Y may apply the $2,500 ITC carry forward that it receives from X to reduce its excise to $7,500. O may apply the $5,000 carry forward that it receives from N to reduce its excise to $5,000. N has $2,500 of ITC to carry forward to 2011.
| Tax year 2010 | |||||||
| Entity | Excise | Carry forward | Own credit used | Shared from X | Shared from N | Excise post credits | Carry forward credit |
| X | $5,000 | $5,000 | $2,500 | n/a | n/a | $2,500 | - |
| Y | $10,000 | n/a | n/a | $2,500 | n/a | $7,500 | - |
| N | $5,000 | $10,000 | $2,500 | n/a | n/a | $2,500 | $2,500 |
| O | $10,000 | n/a | n/a | n/a | $5,000 | $5,000 | - |
Example 8. X, Y and Z are taxpayer corporations engaged in a unitary business in tax year 2009. X is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A. Y and Z are a research and development corporation and manufacturing corporation, respectively, within the meaning of M.G.L. c. 63, § 31A that would be entitled to ITC if they made a qualified acquisition thereunder. Midway through tax year 2009, on July 1st, X purchases one piece of equipment with a five year life to be used in the XYZ unitary business that generates $15,000 of ITC. During tax year 2010, X transfers the qualified equipment that generated the ITC to Z. No recapture is required on this transfer of the equipment from X to Z as Z is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A that would be entitled to ITC if it made a qualified acquisition, etc., thereunder. In tax years 2009 and 2010, corporations X, Y and Z each use annually $2,500 of the ITC belonging to X consistent with the requirements for claiming ITC, such that all of the $15,000 of ITC has been claimed. On June 30, 2011, Z sells the equipment that generated the ITC to an unrelated corporation. X is required to recapture 3/5's of the ITC previously taken by X, Y and Z, or $9,000.
Example 9. X, Y and Z are taxpayer corporations engaged in a unitary business in tax year 2009. X is a manufacturing corporation within the meaning of M.G.L. c. 63, § 31A. Y and Z are a research and development corporation and manufacturing corporation, respectively, within the meaning of M.G.L. c. 63, § 31A that would be entitled to ITC if they made a qualified acquisition thereunder. Midway through tax year 2009, on July 1st, X purchases one piece of equipment with a five year life to be used in the XYZ unitary business that generates $15,000 of ITC. In tax year 2009, corporations X, Y and Z use $7,500 of the ITC generated by X, leaving X with a $7,500 credit carry forward. On January 1, 2010, all of the shares of X are acquired by an unrelated corporation, N, and therefore X is no longer engaged in a unitary business with X and Y. Corporation X is not permitted to share its ITC carry forward with the acquiring corporation N, but nonetheless uses the remaining $7,500 of this carry forward itself in 2010. On June 30, 2011, X sells the equipment that generated the ITC to N. X is required to recapture 3/5's of the ITC previously taken by X, Y and Z, or $9,000.
Upon making the election, the Massachusetts affiliated group shall calculate the combined group's taxable income and the respective taxable income of the taxable members of the group in accordance with 830 CMR 63.32B.2(6) and (7), provided that, if any group member is taxable on its income from business activity in another state in a particular tax year during the period of the election, all income of all group members for such year shall be treated as apportionable income, irrespective as to whether, for example, such income would be allocable to a particular state in the absence of the election. An affiliated group election can only be made if the Massachusetts affiliated group to which the election is to apply in the first year of application includes one or more federal affiliated groups filing a consolidated federal income tax return.
Also, the Massachusetts affiliated group shall be determined by including all corporations that are related by common ownership applying the common ownership test described herein (i.e., direct or indirect ownership of more than 50% of voting control), rather than applying the standard applicable for federal consolidated return purposes that looks to 80% control of certain stock by vote and value. Further, control of members of the Massachusetts affiliated group may be direct or indirect, and a common owner or owners may be corporate or non-corporate. For example, two or more federal consolidated groups would be combined in one Massachusetts affiliated group filing if both consolidated groups were commonly owned by a non-US corporation.
830 CMR, § 63.32B.2
REGULATORY AUTHORITY
830 CMR 63.32B.2: M.G.L. c. 14, § 6(1); M.G.L. c. 62C, § 3; M.G.L. c. 63, § 32B
REGULATORY HISTORY
Date of Promulgation: 5/29/09
Date of Emergency: 12/22/09
Date of Emergency: 3/19/10
Date of Amendment: 6/11/10