August 16, 1984

You state that you are a handicapped person currently employed on a full time basis by a corporation doing business in Massachusetts. You request information as to the Massachusetts excise treatment of the corporation as a result of your employment.

Subject to certain restrictions and limitations the credit for employment of certain new employees, ("targeted jobs tax credit") may be elected for federal income, tax purposes by employers who hire individuals who are members of certain targeted groups. The credit is computed with respect to wages paid the targeted group member employee. (Internal Revenue Code, Sections 44B, 51). Generally a deduction is available to an employer for ordinary, necessary and reasonable wages paid to employees. (I.R.C.- §§ 62, 162). The deduction for wages paid employees must be reduced by the amount of the targeted jobs tax credit. (I.R.C. § 28OC(b)).

Targeted groups are enumerated and detailed in Code Section 51(d). An individual is a targeted group member if such individual is handicapped and has been referred to the employer while receiving or upon completion of rehabilitative services. (I.R.C. § 51(d)).

The federal targeted jobs tax credit is not available to an employer for wages paid an individual who is a relative or dependent of the employer. If the employer is a corporation a credit is not available for wages paid to an individual who is a relative or dependent of anyone who owns directly or indirectly more than fifty percent in value of the outstanding stock of the corporation. (I.R.C. § 51(i)).

A Massachusetts corporation is liable for the corporate excise. (G. L. c. 63, § 32). The Massachusetts corporate excise is measured in part by net income. "Net income" is defined as gross income less the deductions but not credits, allowable under the provisions of the Internal Revenue Code.

The deduction available federally to an employer for wages paid to employees is available for Massachusetts corporate tax purposes. In computing the Massachusetts corporate excise a deduction is allowed for that portion of wages paid for the taxable year equal to the amount of the federal jobs tax credit allowable under Section 44B of the Code and otherwise disallowed as a deduction for federal income tax purposes. This deduction is made prior to apportionment. Certain federal deductions not here relevant are not allowed. (G.L. c. 63, § 30(5)(b)).

Applicable to taxable years ending on or after December 31, 1983 and before December ' 31, 1985, in determining net income subject to tax a domestic or foreign corporation may deduct an amount equal to the federal targeted jobs tax credit allowed under section 51 of the Code, with respect to wages deemed to be Massachusetts compensation under chapter 63, section 38(e). (G.L. c. 63, § 38I). The deduction allowed under Section 38I is made after income apportionment.

A corporation is allowed a deduction in an amount equal to the federal jobs tax credit allowable under the Code. (G.L. c. 63, § 30(5)(b)). Section 30(5)(b) merely gives the corporation the wage deduction otherwise disallowed as a result of the Massachusetts definition of net income, and the federal treatment of a portion of wages paid as a credit rather than a deduction.

In determining net income subject to tax a corporation is allowed to deduct after apportionment an amount equal to the federal jobs tax credit allowed under the Code. (G.L. c. 63, § 38I). This deduction acts as an incentive for employment of targeted group members.

Very truly yours,

Commissioner of Revenue

IAJ:SFR:mf

LR 84-60