July 27, 2012
You have requested a letter ruling explaining the proper corporate income tax filing requirement for ****************************************************** (“Taxpayer”). In particular, you ask whether Taxpayer is required to be included in a Massachusetts combined group and is to file a combined report under M.G.L. c. 63, § 32B.
The following is your representation of the facts, upon which we base this ruling.
Taxpayer is 100% directly owned by ******************************************* (“Owner”) which is a wholly owned subsidiary of ********************** (“Group”). Group, a wholly owned subsidiary of ************************ (“Parent”), was created to help Parent enter the health care market for individuals and small-group employers. Taxpayer is a member of Parent’s unitary business. In 2009, Massachusetts awarded Taxpayer a contract to serve as a health plan under the ************************************ (“Program”). Program is a state-subsidized health insurance program for individuals who had been eligible for and enrolled in [a Massachusetts health care] program prior to August 31, 2009. Massachusetts, through its contract with Taxpayer, provides Taxpayer a fixed fee payment in exchange for the agreement by Taxpayer to provide medical treatment to subscribers in the Program. Program is administered by Taxpayer. Taxpayer is [a] provider under this Program that provides state-subsidized health insurance to individuals in Massachusetts.
Taxpayer is organized under M.G.L. c. 156D. Taxpayer holds a “Company License” from the Massachusetts’s Division of Insurance which certifies that Taxpayer is recognized as a Health Maintenance Organization (“HMO”) under the authority of M.G.L. c. 176G.
Parent files a consolidated federal income tax return (Form 1120), which includes multiple entities. Parent is the direct or indirect owner of all of the stock of the entities that are included in its consolidated return, including Taxpayer. All members of the consolidated return share a common calendar year-end tax year. Parent and its affiliates provide administrative, health care management and pharmacy benefit services to help states manage the fulfillment of state provided health care services. Parent and its affiliates are engaged in a unitary business and meet the common ownership requirements of a unitary group. For the taxable year ending December 31, 2009, Taxpayer filed Massachusetts Form 355 and did not participate in the combined report filed by Parent for Massachusetts purposes on behalf of its combined group. For the taxable year ending December 31, 2010, Taxpayer seeks to be a part of the combined report filed by Parent on behalf of its combined group.
II. Discussion of Law
A. Requirements for Filing a Combined Report
For taxable years beginning on or after January 1, 2009, Massachusetts requires certain corporations to file a corporate excise return as a member of a combined group. M. G.L. c. 63, § 32B. A corporation is subject to this combined reporting requirement when it is engaged in a unitary business with one or more other corporations under common control and it is subject to tax or would be subject to tax if doing business in the commonwealth, under M.G.L. c. 63,§ 2, 2B, 32D, 39 or 52A. Id. The Department has promulgated rules that apply under M.G.L. c. 63, § 32B in the Combined Reporting regulation, 830 CMR 63.32B.2.
Common ownership for the purposes of M.G.L. c. 63, § 32B generally means that more than 50% of the voting control of each member of the group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether or not the owner or owners are members of the combined group. 830 CMR 63.32B.2(2). A unitary business exists for the purposes of M.G.L. c. 63, § 32B when the activities of a group of two or more corporations under common ownership are sufficiently interdependent, integrated or interrelated through their activities so as to provide mutual benefit and produce a significant sharing or exchange of value among them or a significant flow of value between the separate parts. 830 CMR 63.32B.2(2).
Several types of corporations are excluded from the combined reporting requirement. For example, as potentially relevant to this ruling, a corporation is excluded from a combined report where it is an entity described in M.G.L. c. 63, §§ 20-29E (i.e., provisions that apply to companies engaged in insurance activity), inclusive, where the corporation is further treated as either a life insurance company as defined in Internal Revenue Code (“Code”) § 816 or an insurance company subject to tax imposed by Code § 831. 830 CMR 63.32B.2(4)(b).
A. Taxpayer is Subject to Tax Under M.G.L. c. 63, § 39
Taxpayer is organized as a business corporation under M.G.L. Chapter 156D and is subject to tax under M.G.L. c. 63, § 39. Further, according to your represented facts, Taxpayer is commonly owned and otherwise engaged in a unitary business with Parent and its affiliates. Therefore, Taxpayer must be included in Parent’s combined report, unless Taxpayer is to be excluded from such report, e.g., as an entity described in M.G.L. c. 63, §§ 20-29E that is further referenced in Code § 816 or § 831.
B. Taxpayer Is Not An Entity Described In M.G.L. c. 63, §§ 20-29E
Taxpayer is not an entity described in M.G.L. c. 63, §§ 20-29E and therefore cannot be excluded from the combined report on the basis that it is such an entity as further referenced in Code § 816 or § 831. We address the various sections set forth in M.G.L. c. 63, §§ 20-29E in turn. General Laws, Chapter 63, §§ 20-21, 22B-22D, and 29C pertain to life insurance companies; § 24A pertains to retaliatory taxes; §§ 26 and 28-29 are largely administrative provisions; § 29A applies to fire and marine companies, and § 29B deals with reciprocal and inter-insurance exchange agents. None of these sections appear to describe or apply to Taxpayer, and you have further affirmatively represented that these sections do not apply to Taxpayer.
The remaining sections in Chapter 63, §§ 22,22A, 23-24, and 29D-29E each pertain to insurance companies other than life insurance companies. In examining whether these sections describe Taxpayer, §§ 22 and 23 are apparently the most pertinent. Sections 22 and 23 impose an excise on gross premiums on domestic and foreign insurance companies, other than life insurance companies, coming within the scope of the definition of a domestic company and foreign company in M.G.L. c. 175, § 1. The term “company” is defined as all corporations, associations, partnerships or individuals engaged as principals in the business of insurance. M.G.L. c. 175, § 1. However, Taxpayer is not an insurance company within the provisions of M.G.L. c. 175. It is an HMO under M.G.L. c. 176G. Section 2 of Chapter 176G specifically provides that the provisions of Chapter 175 do not apply to HMOs. Therefore, we conclude, consistent with your representation, that none of the sections included in M.G.L. c. 63, §§ 20-29E as cited in this paragraph, pertaining to insurance companies other than life insurance companies, describe or apply to Taxpayer.
Because Taxpayer is not an entity described in M.G.L. c. 63, §§ 20-29E and for the other reasons set forth in this ruling, we rule that Taxpayer is required to file a corporate return in Massachusetts as a member of Parent’s combined group for its 2010 tax year. Taxpayer is also required to amend its 2009 Massachusetts corporate filing and file such amended return as a member of Parent’s 2009 combined group. Parent is required to file a combined report that includes Taxpayer for tax year 2009 and thereafter, unless there is a change to the facts as presented herein.
Very truly yours,
Commissioner of Revenue
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