This Technical Information Release articulates the Department of Revenue's long-standing position that the interest earned from obligations of the United States or any state, including Massachusetts, is included in the income measure of the Massachusetts corporate excises.

The Massachusetts corporate excises imposed on business corporations, banks, domestic insurance companies, public utilities and urban redevelopment corporations use either gross or net income to measure the corporation's tax liability. Massachusetts General Laws, Chapter 63, Section 32(a)(2). For such corporations, net income is defined as federal gross income plus the interest from bonds, notes and evidences of indebtedness of any state, including Massachusetts, less allowable federal deductions. G.L. c. 63, § 30(5)(b). Banks must also pay an excise measured by net income. G.L. c. 63, § 2. For banks, net income is defined as gross income from all sources, less the allowable federal deductions. G.L. c. 63, § 1.

Domestic insurance companies pay a tax measured by either total gross investment income or net investment income. G.L. c. 63, § 22A or § 22B. A public utility corporation pays a tax upon its corporate franchise measured by net income, defined as gross income from all sources, without exclusion (other than certain utility corporation dividends), less the allowable federal deductions. G.L. c. 63, § 52A(1)(b). Finally, an urban redevelopment corporation pays an excise on its corporate existence based in part on gross income from all sources. G.L. c. 121A, § 10.

Federal law prohibits any state from taxing the interest earned on United States obligations. 31 U.S.C. § 3124(a). This prohibition, however, does not apply to nondiscriminatory franchise taxes imposed on a corporation. Id. § 3124(a)(1). Each of the Massachusetts corporation excises is a nondiscriminatory franchise tax. See Commissioner of Revenue v. Massachusetts Mutual Life Insurance Co., 384 Mass. 607 (1981). Therefore, the interest earned from United States Government obligations may be included in the income measure for the purposes of each excise.

Interest earned from obligations of any state, or any agency, instrumentality or political subdivision thereof, including Massachusetts, is also included in income under the definition of gross or net income for each of the Massachusetts corporate excises. The interest from certain bonds issued by Massachusetts agencies or instrumentalities may be exempt from all direct taxation by the enabling legislation for those bonds. This interest, however, is not excluded from the computation of the Massachusetts corporate excises because these excises are franchise taxes in which income is used only as a measure of the tax.

Ira A. Jackson
Commissioner of Revenue

August 14, 1985

TIR 85-6