April 12, 1983

You inquire about the income tax treatment of a dividend distribution to a nonresident shareholder from a Massachusetts corporation.

You state that you are a resident of Virginia and that in 1982 you received dividends as a shareholder of a Massachusetts corporation which has elected Subchapter S status for federal income tax purposes. You performed no services for this corporation.

For federal income tax purposes the earnings and losses of a Subchapter S corporation are included in its shareholders' gross income. However, the federal Subchapter S status of a corporation is disregarded for purposes of determining the Massachusetts gross income of its shareholders.

Massachusetts 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 the Commonwealth. Such items are those which are derived from or effectively connected with any trade or business carried on by the taxpayer in the Commonwealth or derived from the ownership of any interest in real or tangible personal property located in the Commonwealth. Dividend income from a Massachusetts corporation is income from intangible personal property and is not taxable to nonresidents.

Based on the foregoing it is ruled that dividends paid to a Virginia resident from a Massachusetts corporation which has elected Subchapter S status for federal income tax purposes are not subject to Massachusetts income taxation. If you have no income subject to Massachusetts taxation, you are not required to file a Massachusetts income tax return.

This ruling is not to be construed as a determination of your legal residence.

Very truly yours,

/s/Ira A. Jackson

Ira A. Jackson
Commissioner of Revenue

IAJ:MTD:mf

LR 83-23