Governor Deval Patrick's Budget Recommendation - House 1 Fiscal Year 2014

Exclusions from Gross Income


Fiscal Year 2014 Resource Summary (in Millions)
TAX EXPENDITURE FY2012 FY2013 FY2014
Exclusions from Gross Income 86.9 93.9 98.6

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item description amount
Exclusions from Gross Income 98.6
2.001 Small Business Corporations
In general, corporations organized under, or subject to, Chapters 156, 156A, 156B, 156C, 156D, or 180 of Massachusetts General Laws
(M.G.L.) or that have privileges, powers, rights or immunities not possessed by individuals or partnerships are subject to corporate excise. Certain corporations with no more than 100 shareholders may elect to be taxed, for both federal and state tax purposes, as "S corporations."

There are two categories of income that are taxable to an S corporation at the entity level: 1) Income that is taxable to the S corporation at the entity level for federal purposes. Generally, S corporations are not subject to an entity-level tax for federal purposes, but some categories of income are taxable. Those amounts are taxable to S corporations in Massachusetts at the regular corporate / financial institution rates; 2) Other income to the corporation is subject to the reduced corporate rates that apply only to S corporations.
         
More details about the tax on the second category of income are following. The earnings of S corporations with total receipts of less than $6 million are not generally subject to taxation at the corporate level. As of 2013, S corporations with total receipts of $6 million or more are subject to a reduced corporate excise: 1.83%(*) for non-financial institutions and 2.5%(*) for financial institutions if receipts are $6 million or more but less than $9 million, and 2.75%(*) for non-financial institutions and 3.75%(*) for financial institutions if receipts are $9 million or more. In addition, S corporation net earnings (and losses) are attributed directly to shareholders (whether or not they are distributed as dividends) and are taxed at the individual shareholder level, generally at the applicable personal income tax rate (5.25% since 2012).

The difference between the manner in which income is taxed to an ordinary business corporation (including its shareholders) and an S corporation and its shareholders constitutes a tax expenditure. Massachusetts first adopted this treatment of corporations in 1986.

(*) See Appendix A for further details on corporate rate change.

Origin:  IRC, S. 1361-1363, M.G.L. c. 62, S. 17A, c. 63, S.32D, LR 99-17.
Estimate:  $98.6
 
98.6
2.002 Exemption of Income from the Sale, Lease or Transfer of Certain Patents
Income from the sale, lease or other transfer of approved patents for energy conservation, and royalties and income from the sale, lease or other transfer of property subject to such patents are excluded from gross income for a period of five years.

Origin:  M.G.L. c. 63, S. 30.3
Estimate:  negligible
 
negligible

Key:

ORIGIN  
IRCFederal Internal Revenue Code (26 U.S.C.)
M.G.L. Massachusetts General Laws
U.S.C United States Code
ESTIMATES All estimates are in $ millions.


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