|April 21, 1981|
|********** ("Company A") does business in Massachusetts and New Hampshire. It employs Massachusetts and New Hampshire residents for work in either state. ********** ("Company B"), located in Massachusetts, issues payroll checks to Company A's employees.|
|Company A maintains a federal security participation daily interest account ("Account") with the ********** ("Bank"), a Massachusetts bank. The Account earns interest daily, calculated by reference to the Bank's yield on certain federal securities, less 0.25%. The Bank does not classify the Account as a deposit.|
|Company A employees may participate in the Company A Account through payroll deductions. An employee may withdraw any portion of his funds or the interest attributable thereto by notifying Company B. Company B adds the amount of the withdrawal to the employee's next paycheck.|
|You ask whether interest received by Company A employees on amounts paid into Company A's Account is subject to Massachusetts income taxation, and, if so, at what rate.|
|Interest, other than interest on Massachusetts savings deposits, is taxed at the rate of 10%, plus surtax. (M.G.L. c. 62, s. 4).|
|Non-residents of Massachusetts are subject to Massachusetts income taxation on their Massachusetts gross income which is|
|"…gross income derived from or effectively connected with any trade or business, including employment carried on by the taxpayer in the [C]ommonwealth or derived from the ownership of any interest in real or tangible personal property located in the [C]ommonwealth." (M.G.L. c. 62, s. 5A).|
|Based on the foregoing, it is ruled that:|
|(1) Interest earned on amounts contributed to the Account by Company A employees who are Massachusetts residents is subject to Massachusetts income taxation at the rate of 10%, plus surtax.|
|(2) Interest earned on amounts contributed to the Account by Company A employees who are New Hampshire residents is not subject to Massachusetts income taxation.|
|Nothing in this ruling is to be construed as exempting employees who are New Hampshire residents from Massachusetts income taxation on their Massachusetts earnings.|
|Very truly yours,|
|/s/L. Joyce Hampers|
|L. Joyce Hampers|
|Commissioner of Revenue|
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