830 CMR: DEPARTMENT OF REVENUE
830 CMR 63.00: TAXATION OF CORPORATIONS
830 CMR 63.00 is amended by adding the following section:
830 CMR 63.38.2: Apportionment of Income of Airline Corporations

(1) General. If an airline has income derived from business carried on both within and outside Massachusetts, the Commissioner shall determine the amount of the airline's income derived from business carried on within Massachusetts pursuant to M.G.L. c. 63, § 38, and applicable regulations, except to the extent that the rules of that section are modified pursuant to this regulation. This regulation, 830 CMR 63.38.2, has been issued pursuant to the commissioner's authority under M.G.L. c. 63, § 38(j).

(2) Definitions. The following definitions shall apply in determining the income of an airline derived from business carried on within Massachusetts:

(a) Property factor.

1. The denominator of the property factor shall be the average value of all of the airline's real and tangible personal property owned or rented and used during the taxable year. (All property values are determined according to the normal rules of M.G.L. c. 63, § 38.) The numerator of the property factor shall be the sum of the following two amounts: (i) the average value of the real and tangible personal property of the airline, other than aircraft ready for flight, situated in Massachusetts; and (ii) the average value of the aircraft ready for flight owned or rented and used by the airline in Massachusetts. The average value of the aircraft ready for flight owned or rented and used by the airline in Massachusetts shall be computed separately for each type of aircraft operated by the airline. For each type of aircraft, the value shall consist of the total average value of that type of aircraft ready for flight owned by the airline, multiplied by the percentage of departures of the airline, of that aircraft type, taking place within Massachusetts.

2. Property in the possession of an airline under the terms of a lease, which is treated as a lease for federal income tax purposes by operation of provisions contained or previously contained in section 168 of the Internal Revenue Code, shall be treated as owned, not rented, by the airline.

The following example illustrates the provisions of 830 CMR 63.38.2(2)(a):

Example 1: During the taxable year, Wingit Airways owned real and tangible personal property, other than aircraft ready for flight, with an average value of $20,000,000. Of this property, a portion with an average value of $10,000,000 was located in Massachusetts. Wingit also owned 10 Boeing 727-200s and 5 Lockheed L1011-500s. The average value of the 727-200s ready for flight was $9,000,000 and the average value of the L1011-500s ready for flight was $30,000,000. Wingit's 727-200s made 2,000 departures during the taxable year, of which 1,000 occurred in Massachusetts, and Wingit's L1011-500s made 1200 departures during the taxable year, of which 800 occurred in Massachusetts. The numerator of Wingit's property factor consists of $10,000,000 (the average value of the airline's real and tangible personal property other than aircraft ready for flight located in Massachusetts) plus $45,000,000 (the total average value of Wingit's 727-200s ready for flight, multiplied by the proportion of the airline's departures of that aircraft type occurring in Massachusetts) plus $100,000,000 (the total average value of Wingit's L1011-500s ready for flight, multiplied by the proportion of the airline's departures of that aircraft type occurring in Massachusetts). The denominator of the property factor is $260,000,000-the total value of Wingit's real and tangible personal property, including aircraft ready for flight. Thus, Wingit's property factor equals:

$10,000,000 + $45,000,000 + $100,000,000,
$260,000,000

or .5962.

(b) Payroll factor. An airline's payroll factor shall be a fraction, the denominator of which is the total compensation paid by the airline during the taxable year. The numerator of the payroll factor shall be the sum of the following two amounts: (i) the compensation paid in Massachusetts to nonflight personnel during the taxable year, and (ii) the compensation paid in Massachusetts to flight personnel during the taxable year. The compensation paid in Massachusetts to flight personnel shall be computed by multiplying the airline's total payroll for flight personnel by the percentage of the airline's aircraft departures occurring in Massachusetts weighted, in a manner similar to that described in paragraph (a) of this subsection, by the values of the aircraft types operated by the airline.

The following example illustrates the provisions of 830 CMR 63.38.2(2)(b):

Example 2: Wingit Airways, the airline described in Example 1 of this subsection, had a total payroll for nonflight personnel during the taxable year of $25,000,000, of which $10,000,000 was paid to nonflight personnel based in Massachusetts. The airline had a total payroll for flight personnel of $20,000,000. Based on the aircraft values and departure figures set forth in Example 1, 60.42 percent of Wingit's payroll for flight personnel, or $12,083,333, was paid in Massachusetts. Specifically:

90,000,000 x 1,000 + 150,000,000 x 800 = 0.6042.
240,000,000 2,000 240,000,000 1,200

Thus, Wingit's payroll factor equals:

$10,000,000 + $12,083,333
$25,000,000 + $20,000,000

or .4907.

(c) Sales factor. An airline's sales factor shall be a fraction, the denominator of which is the airline's total sales revenue during the taxable year. The numerator of the sales factor shall be the sum of the following two amounts: (i) the airline's nonflight revenues, if any, derived from business carried on within Massachusetts; and (ii) the airline's flight revenues derived from business carried on within Massachusetts. The airline's flight revenues derived from business carried on within Massachusetts shall be computed by multiplying the airline's total flight revenues by the percentage of the airline's aircraft departures occurring in Massachusetts weighted, in a manner similar to that described in paragraph (a) of this subsection, by the values of the aircraft types operated by the airline.

The following example illustrates the provisions of 830 CMR 63.38.2(2)(c):

Example 3: Wingit Airways, the airline described in Example 1 of this subsection, had no nonflight revenues. It had flight revenues during the taxable year of $75,000,000. Based on the aircraft values and departure figures set forth in Example 1, 60.42 percent of these flight revenues, or $45,315,000, were derived from business carried on within Massachusetts. Because all of Wingit's revenues were flight revenues, its sales factor is .6042.

(d) Aircraft ready for flight. "Aircraft ready for flight" means aircraft in the possession of the airline that are available for service on its routes.

(e) Airline. An "airline" is any business entity that, for compensation, transports passengers or freight by air.

(f) Departure. A departure consists of a take-off by an aircraft with passengers or freight.

(g) Flight personnel. Flight personnel comprise the air crew aboard an aircraft assisting in the operations of the aircraft or the welfare of passengers while in the air.

(h) Nonflight personnel. Nonflight personnel comprise all employees other than flight personnel.

(i) Sales. Sales consist of all gross receipts except interest, dividends, and gross receipts from the maturity, redemption, sale, exchange or other disposition of securities. Sales include gross receipts from transportation of mail and other freight as well as passengers.

(3) Sample Computation. Assuming the same facts as in Examples 1-3 of this subsection, Wingit's Massachusetts apportionment factor is --

.5962 + .4907 + (2 x .6042),
4

or .5738.

(4) Corporations Serving as Airlines and Courier or Package Delivery Services. A single company may be both an airline and a courier or package delivery service (as that term is defined in 830 CMR 63.38.4(2)(f)), and if so its sales revenue from its activities as a courier or package delivery service shall be apportioned as provided in 830 CMR 63.38.4.

(5) Effective date. This regulation, 830 CMR 63.38.2, applies to taxable years commencing on or after its effective date.

REGULATORY HISTORY
Date of Promulgation: 9/15/89