October 21, 1987

You have asked for guidance on how the Massachusetts-bank excise reporting requirements will apply to the merger of a Rhode island savings bank and a Massachusetts savings bank The facts as set out in your request are as follow.

Facts

The ("Rhode Island Bank"), a Rhode Island-chartered mutual savings bank, plans to merge with the ("Massachusetts Bank"), a Massachusetts-chartered mutual savings bank. The banks have scheduled the merger to be consummated on or about November 1, 1987. The merged entity ("Merged Bank") will be headquartered in Rhode Island but will conduct business in both Rhode Island and Massachusetts.

Rhode Island Bank, before the merger, has had no contacts with Massachusetts and therefore has not been required to file a Massachusetts tax return. Rhode island Bank files its federal and Rhode Island tax returns based on a calendar taxable year. Currently, Massachusetts Bank is taxed pursuant to G.L. c. 63, § 2, and has an October fiscal year end.

The transaction has been structured so that Rhode Island Bank will be merged into Massachusetts Bank. For legal and regulatory purposes, Massachusetts Bank will be the surviving entity and Rhode Island Bank will cease to exist. Rhode island Bank's deposits, however, are bigger than those of Massachusetts Bank, and as a result, Rhode Island Bank's depositors will own more than 50% of the combined entity. For federal tax purposes, the merger will be treated as a reverse acquisition, with Rhode island Bank as the surviving entity. Massachusetts Bank will file a final federal return.'for its short tax year ending on the date of the merger. Merged Bank will file its federal return based upon a calendar year as Rhode Island Bank did. In the year in which the merger occurs, this federal return will reflect Rhode Island Bank's income and deductions for the first ten months of the year and Merged Bank's income and deductions for the final two months.

Discussion

Massachusetts imposes a tax on any bank doing business within the commonwealth on account of each taxable year, measured by the bank's net income. G.L. c. 63, §§ 1, 2. The statute defines net income as the bank~'s gross income from all sources, without exclusion, less the deductions (except for an enumerated few), but not the credits, allowed under the Internal Revenue Code. G.L. c. 63, § 1. Unlike the net income definition (which is not based on a bank's federal gross income), the "taxable year" definition of the bank excise is linked to what the bank does for federal tax purposes. It provides that the taxable year for Massachusetts purposes is "[any fiscal or calendar year or period for which the bank is required to make a return to the federal government." Id.

Because Massachusetts Bank will be required to file a federal return based on a taxable year ending on the date of the merger, Massachusetts Bank will also be required to file a Massachusetts return based on this taxable year. Merged Bank, which for federal tax purposes continues Rhode Island Bank's practice of filing on a calendar year basis, will file its Massachusetts returns based on a calendar year. In the year of the merger, for Massachusetts tax purposes Merged Bank should report its income for the shortened taxable year from the date of the merger through December 31, 1987. This letter ruling addresses only the issue of taxable year reporting requirements for Massachusetts purposes and should not be construed as commenting in any way on the issue of what income Merged Bank must report in Massachusetts.

Very truly yours,
Stephen W. Kidder
Commissioner of Revenue
October 21, 1987
LR 87-15