Mass. Gen. Laws ch. 63 § 38M

Current through Chapter 244 of the 2024 Legislative Session

Section 63:38M - Credit against amount of excise due; research expenses

(a)

(1) A business corporation shall be allowed a credit against its excise due under this chapter equal to the sum of 10 per cent of the excess, if any, of the qualified research expenses for the taxable year over the base amount and 15 per cent of the basic research payments determined under subsection (e)(1)(A) of section 41 of the federal Internal Revenue Code.

(2) Other than as provided in paragraph (3), "qualified research expenses", "basic research payment", "credit year" and any other term affecting the calculation of the credit shall, unless the context otherwise requires, have the same meanings as under said section 41 of said Code as amended and in effect on August 12, 1991; provided, however, that the terms shall only apply to expenditures for research conducted in the commonwealth.

(2) [(3)] For the purposes of this subsection, the "base amount" shall be the product of:

(i) the average annual gross receipts of the taxpayer for the 4 taxable years preceding the credit year; and

(ii) a fixed-base ratio and the "fixed base ratio" shall be the percentage which the average aggregate qualified research expenses for the taxpayer for the third and fourth taxable years preceding the credit year is of the annual average gross receipts for those years; provided, however, that the fixed base ratio shall not exceed 16 per cent.

In determining the amount of the credit allowable under this section, the commissioner of revenue may aggregate the activities of all corporations that are members of a controlled group of corporations as defined by subsection (f)(1)(A) of said section 41 of said Code. The commissioner also may aggregate the activities of all entities, whether or not incorporated, that are under common control as defined by subsection (f)(1)(B) of said section 41 of said Code.

(b) A business corporation may choose to have the credit determined under this subsection rather than under subsection (a). At the election of the taxpayer for calendar years 2015, 2016 and 2017, the amount of the taxpayer's credit shall be equal to 5 per cent of the taxpayer's qualified research expenses for the taxable year that exceeds 50 per cent of the taxpayer's average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined. At the election of the taxpayer for calendar years 2018, 2019 and 2020, the amount of the taxpayer's credit shall be equal to 7.5 per cent of the taxpayer's qualified research expenses for the taxable year that exceeds 50 per cent of the taxpayer's average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined. Beginning in calendar year 2021, at the election of the taxpayer, the amount of the taxpayer's credit shall be equal to 10 per cent of the taxpayer's qualified research expenses for the taxable year that exceeds 50 per cent of the taxpayer's average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined. If the taxpayer did not have qualified research expenses in any 1 of the 3 taxable years preceding the taxable year for which the credit is being determined, the amount of the credit is equal to 5 per cent of the taxpayer's qualified research expense for the taxable year. Under this subsection, "qualified research expenses" and any other terms affecting the calculation of the credit shall, unless the context otherwise requires, have the same meanings as under said section 41 of said Code as amended and in effect on January 1, 2014; provided, however, that the terms shall only apply to expenditures for research conducted in the commonwealth.

(c) For the purposes of section 30, the deduction from gross income that may be taken with respect to any expenditures qualifying for a credit under said section 41 of said Code as amended and in effect on August 12, 1991 shall be based upon its cost less the credit allowable under this section; provided, however, that subsection (c) of section 280C of said Code shall not apply.

(d) The credit allowed under this section for any taxable year shall not reduce the excise to less than the amount due under subsection (b) of section 39, section 67 and under any act in addition thereto.

(e) The credit allowed under this section shall be limited to 100 per cent of a corporation's first $25,000 of excise, as determined before the allowance of any credits, plus 75 per cent of the corporation's excise, as so determined in excess of $25,000. The commissioner shall promulgate regulations similar to those authorized under subsection (c)(2)(B) of section 38 of said Code for the purposes of apportioning the $25,000 amount among members of a controlled group. Nothing in this section shall alter section 32C as it affects other credits under this chapter.

(f) For a corporation filing a combined return of income under section 32B, a credit generated by an individual member corporation under this section shall first be applied against the excise attributable to the corporation under section 39 subject to the limitations of subsections (d) and (e). An member corporation with an excess research and development credit may apply its excess credit against the excise of another group member to the extent that the other member corporation may use additional credits under the limitations of said subsections (d) and (e). Unused and unexpired credits generated by a member corporation shall be carried over from year to year by the individual corporation that generated the credit. Nothing in this section shall alter paragraph (h) of section 31A.

(g) Any corporation entitled to a credit under this section for any taxable year may carry over and apply to its excise for any 1 or more of the next succeeding 15 taxable years the portion, as reduced from year to year, of its credit which exceeds its excise for the taxable year. Any corporation may carry over and apply to its excise for any subsequent taxable year the portion of those credits, as reduced from year to year, which were not allowed by subsection (e).

(h) The commissioner shall promulgate regulations as necessary to implement this section.

(i) This section shall apply to expenditures incurred on or after January 1, 1991; provided, however, that, in the case of any taxable year which begins before January 1, 1991 and ends before December 31, 1991, the base amount and the qualified organization base period amount with respect to the taxable year shall be the amount that bears the same ratio to the base amount and the qualified organization base period amount for the year, determined without regard to this paragraph, as the number of days in the taxable year on or after January 1, 1991 bears to the total number of days in that taxable year.

(j)

(1) The credit allowed by this section, at the election of the taxpayer in accordance with regulations promulgated by the commissioner, may be applied separately with respect to the:

(i) qualified research expenses and gross receipts of the taxpayer attributable to defense-related activities; and

(ii) qualified research expenses and gross receipts of the taxpayer attributable to other activities.

(2) For the purposes of this subsection, "defense-related activities" shall mean any activity carried out in the commonwealth that relates to the business of researching, developing and producing for sale, pursuant to a contract or subcontract thereof:

(i) any arm, ammunition or implement of war designated in the munitions list published pursuant to section 38 of the federal Arms Export Act, 22 U.S.C. § 2778 to the extent that the property shall be specifically designed, modified or equipped for military purposes;

(ii) equipment for the federal National Aeronautics and Space Administration; and

(iii) medical countermeasures, including, but not limited to:

(A) medicines and medical supplies that can be used to diagnose, prevent or treat diseases related to chemical, biological, radiological or nuclear threats;

(B) biologic products, vaccines, blood products and antibodies; and

(C) antimicrobial or antiviral drugs, diagnostic tests to identify threat agents and personal protective equipment.

(3) This paragraph shall apply to taxable years beginning on or after January 1, 1995.

(k)[Repealed Effective 12/31/2028]

(1) As used in this section, the following words shall have the following meanings unless the context clearly requires otherwise:

"Climatetech", as defined in section 1 of chapter 23J.

"Climatetech company", as defined in section 1 of chapter 23J.

"Life sciences", advanced and applied sciences that expand the understanding of human physiology and have the potential to lead to medical advances or therapeutic applications, including, but not limited to, agricultural biotechnology, biogenerics, bioinformatics, biomedical engineering, biopharmaceuticals, biotechnology, biosecurity, life sciences related artificial intelligence, chemical synthesis, chemistry technology, diagnostics, genomics, image analysis, marine biology, marine technology, medical technology, medical devices, nanotechnology, natural product pharmaceuticals, proteomics, regenerative and preventative medicine, RNA interference, stem cell research and veterinary science.

"Person", a natural person, corporation, association, partnership or other legal entity.

"Taxpayer", a person, certified life sciences company or certified climatetech company subject to the taxes imposed by this chapter or chapters 62, 64H or 64I.

(2) If a credit claimed under this section by a taxpayer exceeds the amount that may otherwise be allowed under this section for a taxable year, 90 per cent of the balance of that credit may, at the option of the taxpayer and to the extent authorized pursuant to the life sciences tax incentive program established in subsection (d) of section 5 of chapter 23I or the climatetech tax incentive program established in subsection (d) of section 16 of chapter 23J, be refundable to the taxpayer for the taxable year. If the credit balance is refunded to the taxpayer, the credit carryover provisions of paragraph (f) shall not apply.

Mass. Gen. Laws ch. 63, § 63:38M

Amended by Acts 2024, c. 238,§ 199, eff. 11/20/2024.

Amended by Acts 2024, c. 238,§ 198, eff. 11/20/2024.

Amended by Acts 2024, c. 238,§ 197, eff. 11/20/2024.

Amended by Acts 2024, c. 238,§ 196, eff. 11/20/2024.

Amended by Acts 2018 , c. 112, § 10, eff. 6/15/2018.

Amended by Acts 2014 , c. 359, § 20, eff. 10/31/2014.

Amended by Acts 2014 , c. 287, § 54, effective 8/13/2014 and applicable for tax years beginning on or after 1/1/2015.

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Amended by Acts 2008 , c. 173, § 76, eff. 1/1/2009.

Amended by Acts 2008 , c. 130, Sec.§ 28, eff. 1/1/2009 and § 29 eff. 12/31/2018.