______ ("Corporation"), is a foreign corporation engaged in diverse enterprises, including the manufacture and sale of candy. You ask whether the Corporation will be subject to the Massachusetts corporate excise under the following circumstances.
The Corporation formerly owned and operated a retail store in Massachusetts but has sold or will sell it. We assume, for the purposes of this ruling, that the Corporation maintains no offices or retail outlets in the Commonwealth.
The Corporation employs three full-time sales people who live in Massachusetts and who solicit sales in Massachusetts and other New England states. These employees operate out of their homes. Their sales are approved at the Corporation's home office outside of Massachusetts, and the goods they sell are delivered from locations outside of Massachusetts.
The Corporation has provided its Massachusetts sales people with automobiles owned by the Corporation. Because these employees are Massachusetts residents, we assume that the vehicles that they have been given are registered, garaged, and principally used in the Commonwealth. You state that in the future the Corporation may give these employees a transportation allowance for use of their own vehicles instead of providing them with company cars.
Under G.L. c. 63, § 39, an excise is levied on foreign corporations on any one or all of the following incidents:
- The qualification to carry on or do business in this state or the actual doing of business within the commonwealth in a corporate form. The term "doing business" as used herein shall mean and include each and every act, power, right, privilege, or immunity exercised or enjoyed in the commonwealth, as an incident to or by virtue of the powers and privileges acquired by the nature of such organizations, as well as, the buying, selling or procuring of services or property.
- The exercising of a corporation's charter or the continuance of its charter within the commonwealth.
- The owning or using any part or all of its capital, plant or other property in the commonwealth in a corporate capacity.
Public Law 86-272, codified at 15 U.S.C. § 381 and also known as the Interstate Income Tax Act of 1959, provides immunity from state net income-based taxation for interstate activities constituting mere solicitation of sales. P.L. 86-272 provides in part as follows:
a. No State, or political subdivision thereof, shall have power to impose, for any taxable year ending after the date of the enactment of this Act, a net income tax on the income derived within such State by any person from interstate commerce if the only business activities within such State by or on behalf of such person during such taxable year are either, or both, of the following:
- the solicitation of orders by such person, or his representative, in such State for sales of tangible personal property, which orders are sent outside the State for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State; and
- the solicitation of orders by such person, or his representative, in such State in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitation are orders described in paragraph (1) .
The effect of G.L. c. 63, § 39, and P.L. 86-272, taken together, is that a corporation's ownership or use of corporate property in the Commonwealth will subject the corporation to the Massachusetts corporate excise tax, but only if the activities of the corporation in the Commonwealth, including but not limited to the activities in which the property is used, exceed mere "solicitation," as that term is used in P.L. 86-272. It is clear from the language of G.L. c. 63 § 39 that the "solicitation" which is protected by P.L. 86-272 should be limited to its most narrow sense.
In Letter Ruling 1986-10, we considered the activities of a foreign corporation whose sole contact with the Commonwealth was a non-resident salesperson who drove in Massachusetts a car leased by the corporation, and who carried and stored in the car samples of the corporation's products, which he used solely for demonstration purposes. Under these facts, we ruled that the corporation's activities in Massachusetts fell within the realm of solicitation. We specifically stated that a solicitor's means of transportation does not change the character of the solicitor's promotional activities.
Under the facts here, we conclude that the activities of your Corporation in the Commonwealth are also limited to solicitation and are therefore exempt from the corporate excise. Letter Ruling 1984-1, which ruled to the contrary, is hereby revoked. The ownership or use of certain 1 corporate property in Massachusetts does not, in and of itself, subject a corporation to Massachusetts excise tax, provided that the property is used exclusively for solicitation within the meaning of P.L. 86-272. To the extent that Letter Ruling 1986-10 implies that a foreign corporation necessarily subjects itself to Massachusetts corporate excise tax by providing its sales people with company cars that are principally garaged, leased, registered, or used in Massachusetts, even though the cars are used solely for solicitation, it is modified to remove any such implication.
Very truly yours,
Stephen W. Kidder,
Commissioner of Revenue
April 15, 1988
1 The Corporation owns three company cars located in Massachusetts. This ruling does not consider or extend to the use of a significantly larger number of vehicles. Nevertheless, we note that as a general rule, solicitation is not a capital-intensive activity. The location of a large number of vehicles or other corporate property in the Commonwealth, while not necessarily inconsistent with solicitation, may raise a serious factual question about whether the Corporation's activities are strictly limited to protected solicitation under P.L. 86-272.
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