September 10, 1984

You inquire as to the Massachusetts tax treatment of voluntary employees' beneficiary associations ("VEBA").

Voluntary employees' beneficiary associations providing for the payment of life, sick, accident, or other benefits to the members of such association or their dependents or designated beneficiaries are exempt from federal income taxation, if no part of the net earnings of such association inures (other than through such payments) to the benefit of any private shareholder or individual. (I.R.C. 501(c)(9)).

A VEBA is an entity, such as a corporation or trust established under applicable local law, having an existence independent of the member-employees or their employer and which is controlled by its membership, by independent trustees, or by fiduciaries designated. by -the membership. (U.S. Treas. Reg. § 1501(c)(9)-2(c)).

For individual income tax purposes, Massachusetts gross income is federal gross income as defined under the Internal Revenue Code as amended on February 1, 1983 and in effect for the taxable year, with certain modifications not relevant here. (G.L. c. 62, § 2). If amounts contributed by an employer to a VEBA are not included in the employees' federal gross income, such amounts will not be included in the employees' Massachusetts gross income. The Massachusetts corporate excise tax is based, in part, on a corporation I s net income. (G.L. c. 63, § 32). Net income is gross income as defined under the Code less the deductions, but not credits, allowable under the Code. (G.L. c. 63, § 30(5)(a) and (b)). If the amount contributed by an employer to a VEBA is a deduction allowable under the Code, then the employer is allowed such a deduction for Massachusetts corporate excise purposes.

For Massachusetts corporate excise tax purposes, the term "domestic corporation" does not apply to corporations exempt from taxation under federal Internal Revenue Code Section 501. (G.L. c. 63, § 30(1)). Therefore, a VEBA which is a corporation does not have to file a Massachusetts corporate tax return. Such a corporation is not subject to the Massachusetts corporate excise on any income earned on an employer's contributions.

A VEBA which is an association or trust is subject to individual income taxation under Massachusetts General Laws Chapter 62. For purposes of Chapter 62, Massachusetts gross income is federal -gross income with certain modifications. (G.L. c. 62, § 2). If the VEBA has no federal gross income, it will have no Massachusetts gross income, unless its income includes one of the items to be added to federal gross income under Section 2(a)(1) of Chapter 62. Therefore, any income earned on an employer's contributions. to a VEBA would not be subject to Massachusetts income taxation, unless such income consisted of any of the items under Section 2 (a) (1) of Massachusetts General Laws Chapter 62.

Very truly yours,

Commissioner of Revenue

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LR 84-72