TIR 91-9: Ordering of the Corporate Excise Deductions for Net Operating Loss and Dividends Received

This Technical Information Release (TIR) explains the order in which corporations that are entitled to both the Massachusetts net operating loss (NOL) carry over deduction and the Massachusetts dividends received deduction must claim the two deductions in determining Massachusetts taxable net income. The TIR applies to both the general NOL deduction allowed by the first paragraph of General Laws Chapter 63, Section 30.5(b)(ii) and the new corporation NOL deduction allowed by the second paragraph of Section 30.5(b)(ii). The NOL deduction and the dividends received deduction apply only to the corporate excise imposed by Chapter 63 of the General Laws.

Discussion

Under Chapter 63, the computation of Massachusetts net income required by Section 30.5(b), is an intermediate step in computing Massachusetts taxable net income, upon which the income measure of the corporate excise is based. Section 30.5(b)(ii) allows corporations to deduct Massachusetts NOL carry over in determining Massachusetts net income for a taxable year. Once net income is computed, Section 38(a) allows corporations to deduct 95 percent of certain dividends received in determining Massachusetts taxable net income. Thus, under Chapter 63, corporations are required to apply the Massachusetts NOL carry over deduction before using the Massachusetts dividends received deduction.

Massachusetts corporate excise Schedule E, the Taxable Income section of the various Massachusetts corporate excise forms, condenses the computation of Massachusetts net income and Massachusetts taxable net income into a single computation of "Income taxable in Mass." (Item 18 of Schedule E). In so doing, Schedule E lists the dividends received deduction (Item 10) before the NOL carry over deduction (Item 11). Notwithstanding the order in which the two deductions are listed on Schedule E, corporations must apply the NOL carry over deduction before applying the dividends received deduction when determining Massachusetts taxable net income for any taxable year.

/s/Mitchell Adams
Mitchell Adams
Commissioner of Revenue

TIR 91-9

January 22, 1991