July 2, 1981

Section 4986 of the Internal Revenue Code ("Code") imposes an excise ("windfall profit tax") on the production of domestic crude oil. Section 6429 allows individuals, estates and qualified family farm corporations ("qualified royalty owners") a credit or refund of up to $1,000 of the windfall profit tax liability attributable to their royalties on oil removed between March 1 and December 31, 1980. Section 164(a)(5) of the Code permits a taxpayer an income tax deduction for the amount of windfall profit tax paid or accrued by him in the taxable year. In determining the deduction, the amount of the tax must be reduced by the amount of the credit allowed by Section 6429.

You inquire whether qualified royalty owners may take a deduction under Massachusetts tax law for the amount of windfall profit tax paid or accrued and whether the deduction is reduced by the amount of the credit allowed by Section 6429.

Massachusetts General Laws Chapter 62 governs the taxation of income of individuals and estates. Section 1(c) of Chapter 62 indicates that the Internal Revenue Code in effect on November 6, 1978 provides the basis for Massachusetts tax determinations under Chapter 62 which are dependent on the Code.

Chapter 63 of the Massachusetts General Laws provides for an excise on corporations consisting of a tax measured by property plus a tax on net income apportioned to Massachusetts. "Net income" is defined as gross income less the deductions but not the credits allowable under the Code as amended and in effect for the taxable year. (M.G.L. c. 63, s. 30, clause 5(b)).

Based on the foregoing it is ruled that

1. A qualified royalty owner subject to taxation under Chapter 62 may not take an income tax deduction for the amount of windfall profit tax paid or accrued in the taxable year since Section 164(a)(5) of the Code, providing for an income tax deduction for the amount of windfall profit tax paid or accrued, was not in effect on November 6, 1978.

2. A qualified family farm corporation, taxable under Chapter 63, is permitted a deduction in determining its taxable net income for the amount of windfall profit tax paid or accrued by it to the extent it is deductible federally. The deduction is equal to the amount of the windfall profit tax reduced by the credit allowed by Section 6429.

Very truly yours,

/s/Daniel B. Breen

Daniel B. Breen

Acting Commissioner of Revenue

DBB:RSF:mf

LR 81-55