August 25, 1998

You represent the above referenced taxpayers ("the Partnerships"). You request a ruling on the eligibility of each Partnership to file a composite return on behalf of its electing non-resident partners for Massachusetts personal income tax purposes for the 1997 tax year.

Facts

The following is your representation of the facts upon which we base our letter ruling. Each Partnership is engaged in business in Massachusetts. To the extent each Partnership earns income in Massachusetts, the non-resident partners derive income from Massachusetts by virtue of their distributive shares of the Partnership's income. Each non-resident partner seeking to participate in the Partnerships' composite returns is an individual with the same taxable year. Each non-resident partner is a non-resident of Massachusetts for the entire taxable year. Each non-resident partner will sign a statement affirming his or her qualifications and election to file a composite return. Each non-resident partner agrees to waive the right to claim deductions, exemptions, and credits otherwise allowed to him or her. Each non-resident partner will not file a separate Massachusetts personal income tax return.

Each non-resident partner, including his or her spouse if filing a joint return, has no other Massachusetts source income except such other Massachusetts source income that would be reported on another composite return filed by one of more of the other above-referenced Partnerships. For example, non-resident partner "A" of Partnership One may have Massachusetts source income derived from his partnership interest in not only Partnership One, but also Partnership Three, Partnership Six, and Partnership Twelve. However, A has no other Massachusetts source income.

Discussion of Law

A partnership that does business in Massachusetts generally is required to file Form 3, Massachusetts Partnership Return of Income. Non-resident partners of such partnership are also required to file an individual return, Form 1-NR. However, for taxable years beginning on or after January 1, 1997, any partnership with two or more qualified electing non-resident partners may file a composite tax return as an agent for the qualified electing non-resident partners. See Massachusetts regulation, 830 CMR 62.5A.1(12)(f), Non-Resident Income Tax. If a composite return is filed, no individual returns are required to be filed.

A qualified electing non-resident partner is defined under 830 CMR 62.5A.1(12)(f)1 as a non-resident partner who meets all of the following criteria:

a. the partner must be an individual or the estate or trust of a deceased non-resident partner;

b. the partner must be a non-resident for the entire taxable year;

c. the partner must have no other Massachusetts source income nor may the partner's spouse have other Massachusetts source income, if they are filing jointly;

d. the partner must elect to be included in the composite return by signing the statement required under 830 CMR 62.5A.1(12)(f)2. A partner filing a separate return in Massachusetts cannot participate in the filing of a composite return; and

e. the partner must waive the right to claim deductions, exemptions, and credits allowable under G.L. c. 62, §§ 3, 5, and 6.

Based on the facts you present, there is no issue with respect to items a, b, d and e, listed above. With respect to item c, the issue for determination is the meaning of the phrase "no other Massachusetts source income." It is the Commissioner's position that the phrase "no other Massachusetts source income" as used in 830 CMR 62.5A.1(12)(f)1., means no Massachusetts source income other than income reported on one or more composite returns. Thus, a partner that is otherwise considered a qualified electing non-resident partner will not be disqualified from participating in the filing of a composite return merely because he or she is included in the composite return of another partnership. [1] Therefore, non-resident partner A of Partnership One would qualify for inclusion in Partnership One's composite return regardless of his interests in Partnership Three, Partnership Six, and Partnership Twelve, so long as those other Partnerships also file a composite return for the same taxable year and A participates in the composite returns of each Partnership.

Conclusion

Based on the above, we rule that the Partnerships and their electing non-resident partners meet the requirements of 830 CMR 62.5A.1(12)(f)1.c. Therefore, the Partnerships are not precluded from filing composite returns if they otherwise meet and comply with the provisions of 830 CMR 62.5A.1(12)(f)2-9.

Very truly yours,

/s/Mitchell Adams

Mitchell Adams
Commissioner of Revenue

MA:HMP:rmh

LR 98-13



[1] If the Commissioner determines for any taxable year that a non-resident partner has Massachusetts source income other than income reported on a composite return, the participation by the non-resident partner in the filing of a composite return will not satisfy the non-resident partner's obligation to file an individual Massachusetts income tax return for that taxable year.