I. INTRODUCTION

Pursuant to Chapter 173 of the Acts of 2008, the Commonwealth has adopted combined reporting for corporations for taxable years beginning on or after January 1, 2009. G.L. c. 63, § 32B, as amended by St. 2008, c. 173, §§ 48, 101. This Technical Information Release addresses the requirements and interim procedures for business corporations that are subject to tax under G.L. c. 63 and participating in combined reporting under amended G.L. c. 63, § 32B to make payments of estimated tax pursuant to G.L. c. 63B for the first taxable year beginning on or after January 1, 2009. [1] The adoption of combined reporting in new G.L. c. 63, § 32B has not substantively changed either the statutory requirements for the payment of estimated tax under G.L. c. 63B or the regulatory provisions at 830 CMR 63B.2.2. Except to the extent reflected in the rules and requirements described herein, this TIR does not supersede or modify the existing rules in Regulation 830 CMR 63B.2.2. In addition, the rules for electronic filing, as provided in TIR 05-22 and TIR 04-30, also remain unchanged.

II. ESTIMATED PAYMENTS OVERVIEW

General Laws chapter 63B sets forth the requirements for the payment of estimated tax by corporations subject to the corporate excise imposed under G.L. c. 63. Under chapter 63B, every corporation that reasonably expects its tax in any taxable year to exceed $1,000 must make payments of estimated tax. G.L. c. 63B, § 2. The requirements for corporations to make payments of estimated tax are set forth in detail in the Department's regulation at 830 CMR 63B.2.2. Generally, a corporation is required to make four estimated tax payments of its required annual tax payment. Regulation 830 CMR 63B.2.2 details rules for determining a corporation's required annual tax payment, which amount is then used to calculate the four installment payments. These installment payments are not of equal amount and are front-weighted. See 830 CMR 63B.2.2(4).

Under chapter 63B, § 3, a corporation's required annual payment is ninety percent of the tax shown on the corporation's return for the taxable year or 100% of the tax shown on the return for the preceding taxable year. A corporation may not base its estimated payments on 100% of the tax for the preceding taxable year if it did not file a Massachusetts tax return for the preceding taxable year or if such taxable year was not a taxable year of twelve months. Moreover, a large corporation, as defined in IRC § 6655(g)(2), may not base its estimated payments on 100% of the tax for the preceding taxable year. Such a large corporation is allowed to base only its first installment payment on its tax from the preceding year. However, any reduction in such large corporation's first installment payment that results from using the tax from the preceding year as the basis for payment must be made up by increasing the amount of the next installment payment by the amount of the reduction. G.L. c. 63B, § 3(c); 830 CMR 63B.2.2(8)2.b.ii.

III. INTERIM RULES FOR COMBINED GROUP'S ESTIMATED PAYMENTS

Business corporations subject to tax under G.L. c. 63, and participating in combined reporting under G.L. c. 63, § 32B for taxable years beginning on or after January 1, 2009 are required to make payments of estimated tax pursuant to G.L. c. 63B. The applicable rules for doing so are discussed below.

A. Principal Reporting Corporation

Except as otherwise approved in writing by the Commissioner, the principal reporting corporation shall be the taxable member of the combined group that is either the combined group's common parent corporation or where there is no such common parent corporation or this parent corporation is not a taxable member of the combined group, the taxable member of the combined group that the group reasonably expects will have the largest amount of Massachusetts taxable net income on a recurring basis.

For the first taxable year beginning on or after January 1, 2009, the combined group's principal reporting corporation must make estimated payments of tax on behalf of the group based on the group's required annual payment, as calculated below. The combined group's required annual payment is to include the excise due from the group's taxable members on both their income and non-income measure under G.L. c. 63, § 39 despite the fact that the non-income measure is to be separately determined by the members of the combined group on a stand-alone, i.e., not combined, basis. For purposes of making estimated payments, the term "taxable member" includes any member of the combined group that is subject to the corporate excise on its non-income measure or, alternatively, is subject to the minimum excise even though the member may not be taxable under the income measure of the corporate excise. Unless otherwise specified, payments by the combined group's principal reporting corporation must be made in accordance with the requirements set forth in the Department's regulation at 830 CMR 63B.2.2, as discussed above. The principal reporting corporation shall be responsible for allocating any payments of estimated tax among the taxable group members upon filing its return using Schedule CG.

B. Standards for Calculating a Combined Group's Required Annual Payment

1. General Rule

The required annual payment for a combined group generally equals one of the following amounts:

a. ninety percent of the combined group's total corporation excise due for the current year, or

b. one hundred percent of the combined group's total corporation excise due for the preceding taxable year, with exceptions applicable to large corporations as set forth below.

2. Exceptions Applicable to All Corporations

The general rule in section B.1.b above does not apply if:

a. the preceding taxable year for any member of the combined group was not a taxable year of twelve months, or

b. any taxable member of the combined group did not file a Massachusetts tax return for the preceding taxable year.

3. Exceptions Applicable to Large Corporations Only

The general rule in section B.1.b., above, does not apply to a combined group that includes a large corporation as a taxable member. Such group may use the rule in B.1.b. only with regard to its first installment payment of tax, as long as any reduction in the first estimated payment caused by the use of this exception is made up by increasing the amount of the next installment payment by the amount of the reduction. Otherwise, the rule in section B.1.b., above, is not applicable to large corporations.

For purposes of payments of estimated tax, a large corporation is generally defined as a corporation with $1,000,000 or more of federal taxable income during the "testing period" as described in IRC § 6655(g)(2)(B). G.L. c. 63B, § 3, citing IRC § 6655(g)(2). In the case of a controlled group of corporations, the determination as to the existence of a large corporation requires an aggregation of the federal taxable income of the members of such group. See IRC § 6655(g)(2)(B); Treas. Reg. § 1.6655-4(d). Accordingly, many corporations participating in combined reporting under amended G.L. c. 63, § 32B will be considered large corporations for purposes of making payments of estimated tax.

C. The Combined Group's Total Corporation Excise Due

1. For Current Taxable Year

The combined group's total corporation excise due is determined by adding together the excise due from each taxable member of the combined group. The excise due from a taxable member of a combined group for the current taxable year is the excise attributable to the taxable member's net income derived from the activities of the combined group, as calculated pursuant to newly-enacted G.L. c. 63, § 32B and the regulation promulgated pursuant thereto; plus the excise attributable to the taxable member's other income apportionable or allocable to Massachusetts; plus the excise attributable to the taxable member's non-income measure or the minimum excise under G.L. c. 63, § 39.

2. For Preceding Taxable Year Beginning before 1/1/2009

The corporation excise due for the preceding taxable year of a taxable member of a combined group is the total excise shown on the taxable member's return for the preceding taxable year if the taxable member did not participate in a "Massachusetts nexus combination" return pursuant to G.L. c. 63, § 32B, prior to amendment by St. 2008, c. 173, §§ 48, 101 [2]. If for the preceding taxable year, the taxable member of the combined group participated in a "Massachusetts nexus combination" return, the member's excise for the preceding taxable year is the excise on its non-income measure return for the preceding taxable year plus a portion (as described in footnote below [3]) of the excise on the "nexus combination" return for the preceding taxable year attributable to its net income. The combined group's total corporation excise due for the preceding taxable year is determined by adding together the excise due for the preceding year from each taxable member of the combined group.

D. Addition to Tax for Underpayment of Estimated Taxes by a Combined Group

If a combined group fails to make estimated tax payments of its required annual payment, as set forth above, the Commissioner will impose an addition to tax upon the amount of the underpayment for the period of the underpayment.

/s/Navjeet K. Bal
Navjeet K. Bal
Commissioner of Revenue

NKB:MTF:lbr

March 6, 2009

TIR 09-5



[1] Businesses whose entity classification for tax years beginning on or after January 1, 2009 has changed from a classification used during a prior taxable year should refer to regulation 830 CMR 63.30.3 for additional details concerning their corporate estimated tax payment requirements. See footnote 2, below with respect to the specific application of 830 CMR 63.30.3(5)(b)3.

[2] In the case of an entity which formerly was subject to taxation under M.G.L. c. 62 and is now subject to taxation under M.G.L. c. 63, as amended by St. 2008, c. 173, e.g., Massachusetts corporate trust, to the extent the required annual payment is based on the tax due in the preceding taxable year, under 830 CMR 63B.2.2(8)(b), the entity must calculate its tax liability for the preceding taxable year as if the entity had been subject to tax under M.G.L. c. 63 for the preceding year. 830 CMR 63.30.3(5)(b)3.

[3] A member's portion of the of the excise on the "nexus combination" return for the preceding taxable year attributable to its net income shall be determined by multiplying the prior year group's income-measure excise by a fraction, the numerator of which is the member's separately determined taxable net income apportioned to Massachusetts for the prior year and the denominator of which is the sum of the separately determined taxable net incomes apportioned to Massachusetts of all members of such group whose separately determined taxable net incomes apportioned to Massachusetts were positive numbers.