Introduction :

A domestic or foreign corporation frequently will dispose of all (or materially all) of its assets or formally liquidate on or before the usual close of its taxable year. This Directive restates the Department's longstanding position as to the manner of valuing a corporation's tangible property situated in the Commonwealth for purposes of the provisions in G.L. c. 63, § 30.7. This position was originally discussed in Corporate Excise Ruling 1958-4. This Directive also states the Department's position as to the manner of valuing a corporation's net worth for purposes of the provisions of G.L. c. 63, §§ 30.8 and 30.9. Finally, this directive states the Department's position as to the treatment of periods of less than a full calendar month for purposes of calculating taxable tangible property or net worth.

Issues:

(1) Where a corporation makes a final disposition of all (or materially all) of its assets, whether or not pursuant to a formal liquidation of the corporation, before the close of its taxable year, how and when will the value of its tangible property situated in the Commonwealth, in the case of a tangible property corporation, or its net worth in the case of an intangible property corporation, be calculated?

(2) How are periods of less than a full calendar month treated for purposes of calculating taxable tangible property or net worth?

Directives :

(1) When a corporation makes a final disposition of all (or materially all) of its assets or formally liquidates, thus terminating its taxable year, the value of its items of property for such end of year shall be the value of such items at the commencement of business on such day of final disposition or liquidation.

(2) In determining the fraction used to calculate the portion of tangible property or net worth that is taxable for taxable years of less than twelve months, a period of fifteen days or over but less than a full calendar month shall be treated as one calendar month; a period of less than fifteen days will not be treated as an additional calendar month, except that (a) if it is the only period in the taxable year it will be treated as one calendar month; and (b) if there are two partial months each having less than fifteen days and the total number of days in such partial months is fifteen or more, the aggregate of such two partial months will be treated as an additional calendar month.

Discussion of Law :

General Laws chapter 63, section 32 provides, in the case of a domestic corporation [1], for an excise equal to the greater of

A. The sum of

  1. [$2.60] [2] per thousand upon the value of: (i) its tangible property situated in the commonwealth on the last day of its taxable year as is not subject to local taxation nor taxable under G.L. c. 63, § 67 [3] if a tangible property corporation; or (ii) its net worth as defined in G.L. c. 63, § 30.8 or § 30.9 if an intangible property corporation; and

  2. [9.5%] [4] of its taxable net income, or

B. [$456] [5]

Substantially similar provisions appear in G.L. c. 63, § 39 with respect to foreign corporations.

A similar valuation issue with respect to property factor apportionment is addressed in the Department's Apportionment Regulation, 830 CMR 63.38.1(7)(e)3. This recently promulgated Regulation specifically and similarly provides that, for purposes of a rule requiring averaging of beginning and ending property values, when a corporation makes a final disposition of its assets or liquidates, thus terminating its taxable year (and the last month of such year), the value of its items of property for such end of year (and month) shall be the value of such items at the commencement of business on such day of final disposition or liquidation.

Where a corporation's taxable year is a period of less than twelve calendar months, G.L. c. 63, §§ 32, 39 provide that the portion of the excise determined in A.(1) or (2) above will be multiplied by a fraction whose numerator is the number of months included in the taxable year and whose denominator is twelve.

For this purpose, when a corporation's taxable year includes one or more full calendar months and has a partial month (i.e., less than a full calendar month) at the beginning or end of its year, each such partial month having fifteen or more days shall be treated as one calendar month. A partial month having less than fifteen days will not generally be treated as an additional calendar month. However:

  • (a) If such partial month is the only period within the taxpayer's taxable year then such period shall be treated as one calendar month. A taxpayer's taxable year thus must have a minimum of one month for purposes of this determination.

  • (b) If there are two partial months each having less than fifteen days and the total number of days in such partial months is fifteen or more, the aggregate of such two partial months will be treated as an additional calendar month. Example: Where a corporation's taxable year begins on January 20 and ends on December 10 of the same calendar year, because there are twelve days in January and ten days in December, those twenty-two days will be rounded to one full month so that the taxable year is treated as having a total of eleven months.

/s/Henry Dormitzer
Henry Dormitzer
Commissioner of Revenue

HD:MTF:ds

September 11, 2007

DD 07-8



[1]The taxation of an insurance mutual holding company established pursuant to G.L. c. 175, § 19 varies from this formula somewhat. See G.L. c. 63, § 32.

[2]By operation of statute and legislative amendments, the property measure of the corporate excise is actually imposed at a reduced rate of $2.60 per $1,000 of either taxable Massachusetts tangible personal property or net worth rather than at the $7.00 per-thousand rate stated in G.L. c. 63, s. 32. See G.L. c. 63, § 31B.

[3]G.L. c. 63, § 67 pertains to interests in a ship or vessel which has been engaged in interstate or foreign carrying trade or engaged exclusively in fishing.

[4]As a consequence of an additional surtax of 14% imposed pursuant to St. 1969, c. 546, § 18, Massachusetts taxable income is actually taxed at a rate of 9.5%, rather than the 8.33% rate stated in G.L. c. 63, § 32.

[5]The minimum corporate excise is actually $456 as a consequence of the additional 14% surtax rather than the $400 amount stated in G.L. c. 63, § 32. See footnote 4 above.