Massachusetts law contains no provision permitting corporation to elect not to be subject to the Massachusetts corporate excise. Therefore, a corporation exercising its charter, or qualified to do business or actually doing business Massachusetts, or owning or using any part or all of its capital, plant or any other property in Massachusetts is subject to the corporate excise imposed by Massachusetts General Laws Chapter 63, whether or not the corporation elects to be taxed under Subchapter S of the Internal Revenue Code. (S corporations).
A corporation subject to tax under Chapter 63 pays a tax measured in part by its apportioned net income. "Net income" is defined as gross income less the deductions (with certain exceptions) but not the credits allowable under the Code. For Massachusetts corporate excise purposes an S corporation is allowed the deductions (with exceptions) allowable to the corporation federally determined as if the S corporations were a C corporation (corporation subject to tax under Subchapter C of the Code).
Massachusetts law disallows the federal deductions available for dividends received; state or local income, franchise or capital stock taxes; and in general the federal deduction for losses sustained in other taxable years. However, Massachusetts allows a corporation during its first five years to deduct ". . . so much of the loss as determined under section one hundred and seventy-two of the . . . code . . . as is represented by net operating loss carryovers for taxable years ending December thirty-first, nineteen hundred and seventy-three and thereafter . . . .: (G.L. c. 63, § 30(5)(b)(ii) (emphasis added).
For federal tax purposes an S corporation's taxable income is computed in the same manner as that of an individual except that items which a shareholder must separately state must be computed separately, and certain deductions are not allowed to an S corporation. An S corporation is not allowed the Code Section 172 net operating loss deduction. (I.R.C. §1363(b)).
Massachusetts law allows a corporation during its first five years to deduct so much of the loss as determined under Code Section 172. An S corporation has no loss as determined under Section 172 of the Code. Therefore, for purposes of the Massachusetts corporate excise, an S corporation is not allowed a deduction for losses sustained in other taxable years.
Corporations required to pay tax under Chapter 63 including those electing federal treatment as S corporations must file a Form 355A (Domestic Corporation) or a Form 355B (Foreign Corporation).
S corporation required to file a Massachusetts excise return must complete and attach a pro forma United States Corporation Income Tax Return Form 1120 and all schedules necessary to substantiate the Massachusetts excise. The corporation must also attach a copy of its 1120S plus all schedules filed for federal tax purposes.
Ira A. Jackson
Commissioner of Revenue
December 4, 1984