December 29, 1983

In your letter of October 12, 1983 you requested information relative to the Massachusetts tax liability of a corporation doing business in Massachusetts and its nonresident shareholders. The corporation has elected to be treated as an S corporation for federal tax purposes.

Massachusetts has not adopted the federal treatment of S corporations and their shareholders.

Massachusetts law contains no provision permitting corporations to elect not to be subject to Massachusetts corporation excise. A foreign corporation doing business in Massachusetts is required to file a corporation excise return and pay the tax imposed by Massachusetts General Laws Chapter 63.

For federal income tax purposes items of income, loss, deduction or credit of an S corporation are included in the shareholders' gross income. Federal S corporation status is disregarded for purposes of determining the Massachusetts gross income of S corporation shareholders. Therefore, items of income, loss, deduction or credit of the S corporation included in shareholders' federal gross income are excluded for purposes of determining Massachusetts gross income. Actual distributions from earnings by an S corporation are included in Massachusetts gross income of the shareholders. (G.L. c. 62, §§ 2(a)(1)(E) and 2(a)(2)(B)).

General Laws Chapter 62, Section 5A, provides that the Massachusetts gross income of a nonresident is determined solely with respect to items of gross income from sources within Massachusetts. Such items are those which are derived from or effectively connected with any trade or business, including any employment carried on by the taxpayer in Massachusetts; the participation in any lottery or wagering transaction within Massachusetts; or the ownership of any interest in real or tangible personal property located in Massachusetts.

Distributions received by a nonresident individual from a foreign corporation doing business in Massachusetts, whether or not it has elected S corporation status for federal tax purposes, are not subject to Massachusetts taxation.

A nonresident individual with no income subject to Massachusetts taxation is not required to file a Massachusetts personal income tax return.

Very truly yours

/s/Ira A. Jackson

Ira A. Jackson

Commissioner Revenue

IAJ:SFR:mf

LR 83-100