September 17, 2003

You requested a letter ruling regarding whether certain assets of *************** (the Company) are considered taxed locally or not taxed locally for purposes of calculating the non-income measure of the Massachusetts corporate excise.

Facts

The Company was incorporated in Delaware on January 29, 2001. The Company first did business in Massachusetts on May 1, 2001. The Company is in the business of processing fresh fish purchased directly from fishing vessels. This fish is washed, graded, boxed, racked and frozen. After the freezing process, the boxes are unracked and palletized for shipping. Sales of this product are made into the international seafood market.

The equipment purchased by the Company includes pumps that take the fish from the vessels, holding tanks used to keep the fish cold and fresh, conveyers, ice manufacturing equipment, racking equipment, freezer racks and equipment to unrack and palletize the frozen boxes.

The Company's operation is a certified project on the *************** an economic opportunity area, in *************** Massachusetts. The Company is eligible for the 5% economic opportunity area credit. In addition, the Company has been approved to receive a local property tax exemption commonly referred to as tax increment financing (a TIF exemption) for the parcel of real estate located in an area designated as a TIF zone by a municipality. See, G.L. c 23A, § 3E; G.L. c. 40, § 59. The TIF exemption is an exemption of a percentage of the increase in a parcel's value over its base value in the year before the exemption was granted. The exemption can last up to 20 years, and the percentage of the increased value that will be exempt can be up to 100%. Both the duration of the exemption and the percentage of the increased value that will be exempt are fixed by the municipal vote that adopts the TIF plan. Personal property situated on a parcel receiving a TIF exemption is also exempt from local property tax. G.L. c. 59, § 5, cl. 51.

Specifically, in 2001, the Town of *************** approved a TIF exemption for the parcel on which the Company's operation is located. The duration of the TIF exemption is eight years. One hundred percent of the increased value will be exempt in the first year of the TIF plan. That percentage will decrease by 12.5% each succeeding year until the real property is taxed at 100% of its full cash value at the end of the TIF period. In addition, personal property, e.g., machinery, will not be subjected to local tax during the entire TIF period. At the end of the TIF period, all of the qualified assets will be subject to the local property tax.

Ruling Requested

You requested a ruling that, even though the Company's machinery will not actually be subjected to local tax during the TIF period, the machinery is still considered taxed locally and therefore not included in its taxable tangible property for purposes of computing the non-income measure of the corporate excise. [1]

Discussion

The corporate excise applies to domestic and foreign corporations as defined under G.L. c. 63. The corporate excise contains both an income and a non-income measure. A domestic or foreign corporation that is subject to the excise is typically required to add the two measures together to compute its tax. In cases in which the income and property measures of the excise sum to an amount less than $456, the corporation is subject to a $456 minimum excise.

The non-income measure of the corporate excise for a foreign tangible property corporation [2] is prescribed by G.L. c. 63, § 39(a)(1). Currently, the applicable rate of the non-income measure of the excise is 0.26%. The non-income measure of the excise is levied on the value of a tangible property corporation's tangible property as determined to be taxable under G.L. c. 63, § 30(7). G.L. c. 63, § 39(a)(1). Under paragraph (7) it is stated that the value of a corporation's taxable tangible property "shall be the book value of such tangible property situated in the commonwealth on the last day of the taxable year as is not subject to local taxation nor taxable under section sixty-seven." [3]

In general, tangible property exempt from local taxation is included in the non-income measure of the corporate excise. See Springfield Sugar & Products Company v. State Tax Commission, 381 Mass. 587 (1980). A specific example of this is the treatment for the machinery of a manufacturing corporation. Such machinery is exempt from local taxation under G.L. c. 59, § 5, cl. 16(3). As a result, the value of the machinery is included in manufacturing corporation's taxable tangible property. Board of Assessors of Holyoke v. State Tax Commission, 355 Mass. 223, 234 (1969); Commissioner of Corporations and Taxation v. Assessors of Boston, 321 Mass. 90, 95 (1947). Moreover, property exempt from local tax under G.L. c. 59, § 5, cl. 16(2) as "stock in trade" is included in the property measure for computing the corporate excise. Springfield Sugar & Products Company v. State Tax Commission, 381 Mass. 587 (1980).

In this instance, tangible personal property, i. e., machinery, situated on a parcel of real estate receiving a TIF is exempt from local taxation pursuant to G.L. c. 59, § 5, cl. 51. As such, the machinery is not subject to local tax and the value of these assets must be included in the corporation's taxable tangible property upon which the non-income measure of the excise is levied.

For purposes of completing Schedule A of the Massachusetts Corporation Excise Return, the machinery is to be listed on line 1(e) of that Schedule as "Machinery not taxed locally," and not on line 1(d) as "Machinery taxed locally."

Ruling

The Company's machinery, which is exempt from local taxation under G.L. c. 59, § 5, cl. 51, is not taxed locally. Thus, that machinery is included in the Company's taxable tangible property for purposes of computing the non-income measure of the corporate excise. [4]

Very truly yours,

/s/Alan LeBovidge

Alan LeBovidge
Commissioner of Revenue

AL:LEM:lbr

LR 03-9



[1] The Company does not request a ruling regarding whether its real estate which is partially exempt from local taxation under the TIF plan is included in the non-income measure of the corporate excise. Accordingly, we do not rule herein regarding the real estate.

[2] The Company asserts it is classified as a tangible property corporation.

[3] G.L. c. 63, § 67 imposes an excise on certain ships or vessels.

[4] The Company argues that including the machinery in the Company's taxable tangible property will partially offset the benefit of the 5% economic opportunity area credit. This argument does not take into account the benefit that the company receives from having its machinery exempt from the local property tax, which is imposed at a rate roughly 16 times higher than the non-income measure of the corporate excise.