PETITION OF:

SECTION 1. Section 38 of chapter 63 of General Laws, as appearing in the 2002 Official Edition, is hereby amended by striking out subsection (c) and inserting after subsection (b) the following:-

      (c) If a corporation, other than a manufacturing corporation as described in subsection (1) or a mutual fund service corporation to the extent of its mutual fund sales as described in subsection (in), has income from business activity which is taxable both within and without this commonwealth, its taxable net income, as determined under the provisions of subsection (a), shall be apportioned or allocated to this commonwealth as follows:

         (1) All taxable net income which is apportionable under the Constitution of the United States shall be apportioned by multiplying said taxable net income by a fraction, the numerator of which is the property factor plus the payroll factor plus twice times the sales factor, and the denominator of which is four.

         (2) All other taxable net income shall be allocated to this commonwealth.

SECTION 2. Said section 38 is further amended by striking out subsections

(k), (l), and (m) and inserting in place thereof the following:-

      (l)(1) As used in this section, the following words shall, unless the context otherwise requires, have the following meaning:-

""Manufacturing corporation", a domestic or foreign corporation that is engaged in manufacturing. In order to be engaged in manufacturing, the corporation must be engaged, in substantial part, in transforming raw or finished physical materials by hand or machinery, and through human skill and knowledge, into a new product possessing a new name, nature and adapted to a new use.

      A domestic or foreign manufacturing corporation's activities will be considered to be substantial if any one of the following five tests are met:

         1. twenty-five percent or more of its gross receipts are derived from the sale of manufactured goods that it manufactures;

         2. twenty-five percent or more of its payroll is paid to employees working in its manufacturing operations and fifteen percent or more of its gross receipts are derived from the sale of manufactured goods that it manufactures;

         3. twenty-five percent or more of its tangible property is used in its manufacturing operations and fifteen percent or more of its gross receipts are derived from the sale of manufactured goods that it manufactures;

         4. thirty-five percent or more of its tangible property is used in its manufacturing operations; or

         5. the corporation's manufacturing activities are deemed substantial under relevant regulations promulgated by the commissioner.

      In determining whether a process constitutes manufacturing, the commissioner will examine the facts and circumstances of each case.

      (2) If a manufacturing corporation, as defined in paragraph (1), has income from business activity which is taxable both within and without this commonwealth, its taxable net income, determined under the provisions of subsection (a), shall be apportioned or allocated to this commonwealth as follows:

         (1) All taxable net income which is apportionable under the Constitution of the United States shall be apportioned by multiplying said taxable net income by one hundred percent of the sales factor.

         (2) All other taxable net income shall be allocated to this commonwealth.

         (3) Each manufacturing corporation with more than twenty-five employees, apportioning its income in accordance with the provisions of this subsection, as part of its tax return for each year, shall submit a report, whose form and substance shall be determined by the commissioner of revenue, that describes for each taxable year as of the last day of such taxable year the following: (i) the number, nature, and wages of jobs added or lost in the commonwealth and worldwide from the previous taxable year; (ii) the nature and amount of any change in the property factor during the taxable year; (iii) the nature and amount of any change in the payroll factor in the taxable year; (iv) the dollar amount of revenue foregone by the increased weighting of the sales factor pursuant to this section as compared to the apportionment method in effect for the first taxable year beginning on or after January first, nineteen hundred and ninety-five; (v) volume of sales in the commonwealth and worldwide; (vi) taxable income in the commonwealth and worldwide; (vii) book value of plant, land and equipment in the commonwealth and worldwide; (viii) net capital investment in the commonwealth and worldwide; (ix) net assets; (x) capacity utilization; and (xi) debts, itemized by the following categories: (a) loans; and (b) mortgages.

      The commissioner of revenue shall annually prepare a comprehensive report utilizing the information received in this paragraph and other sources describing and evaluating the impact, if any, of the utilization of the increased weighting of the sales factor upon the manufacturing industry. Said report shall contain only cumulative information for all manufacturing corporations submitting reports. Said report shall set forth for all manufacturing corporations submitting reports the cumulative totals worldwide and, where applicable, in the commonwealth of the items specified in clauses (i) to (xi) and the changes in such aggregate totals from the previous taxable year. The commissioner's report shall be filed not later than October first of each year with the clerk of the senate and the clerk of the house of representatives who shall forward the same to their respective committees on ways and means and to the joint committee on taxation. Said report of the commissioner shall be a public record subject to the provisions of section ten of chapter sixty-six.

      (m)(1) As used in this subsection and in subsections (c) and (1), the following words shall, unless the context otherwise requires, have the following meaning:

      "Administration services", include, but are not limited to, clerical, fund or shareholder accounting, participant record keeping, transfer agency, bookkeeping, data processing, custodial, internal auditing, legal and tax services performed for a regulated investment company, but only if the provider of such service or services during the taxable year in which such service or services are provided also provides or is affiliated with a person that provides management or distribution services to any regulated investment company.

      "Affiliate", the meaning as set forth in 15 USC section a-2(a)(3)(C), as may be amended from time to time.

      "Base period employment level", the number of qualified employees in this commonwealth of a mutual fund service corporation as of January first, nineteen hundred and ninety-six, or if the mutual fund service corporation is one of the mutual fund service corporations filing a combined return for the tax year ending as of December thirty-first, nineteen hundred and ninety-six, the aggregate number of all qualified employees as of January first, nineteen hundred and ninety-six of all of the mutual fund service corporations participating in such combined return. If a mutual fund service corporation was not engaged in business in the commonwealth on January first, nineteen hundred and ninety-six, the base period employment level shall be the average employment level for the first two taxable years during which it is engaged in business in the commonwealth. In the event of the acquisition of a business or line of business or any other corporate restructuring that increases the number of qualified employees of the mutual fund service corporation, the base period employment level to be applied in the taxable year in which the acquisition or restructuring occurs and in all subsequent taxable years shall be increased to reflect such an increase. In the event of a divestiture of a line of business or other corporate restructuring that decreases the number of qualified employees of the mutual fund service corporation, the base period employment level to be applied in the taxable year in which such divestiture or other corporate restructuring occurs and in all subsequent taxable years shall be recalculated to reflect such decrease only if the mutual fund service corporation can demonstrate that such divestiture or other corporate restructuring will not result in any reduction in the number of jobs in the commonwealth.

      "Distribution services", include, but are not limited to, the services of advertising, servicing, marketing or selling shares of a regulated investment company, but, in the case of advertising, servicing or marketing shares, only where such service is performed by a person who is, or in the case of a close end company, was, either engaged in the services of selling regulated investment company shares or affiliated with a person that is engaged in the service of selling regulated investment company shares. In the case of an open end company, such service of selling shares must be performed pursuant to a contract entered into pursuant to 15 USC section a-15(b), as from time to time amended.

      "Domicile", presumptively the shareholder's mailing address on the records of the regulated investment company. If, however, the regulated investment company or the mutual fund service corporation has actual knowledge that the shareholder's primary residence or principal place of business is different than the shareholder's mailing address said presumption shall not control. If the shareholder of record is a company which holds the shares of the regulated investment company as depositor for the benefit of a separate account, then the shareholder shall be the contract owners or policyholders of the contracts or policies supported by the separate account, and it shall be presumed that the domicile of said shareholder is the contract owner's or policyholder's mailing address to the extent that the company maintains such mailing addresses in the regular course of business. If the regulated investment company or the mutual fund service corporation has actual knowledge that the shareholder's principal place of business is different than the shareholder's mailing address said presumption shall not control.

      "Employment level", the number of qualified employees of the mutual fund service corporation in the taxable year, or if the mutual fund service corporation is one of the mutual fund service corporations filing a combined return for such taxable year, the sum of the number of qualified employees of all such mutual fund service corporations in this commonwealth for the taxable year.

      "Jobs commitment level", except as provided in subparagraph (b) of paragraph (4), for taxable years beginning on or after January first, nineteen hundred and ninety~seven, but before January first, nineteen hundred and ninety-eight, an employment level of one hundred and five percent of the base period employment level; for taxable years beginning on or after January first, nineteen hundred and ninety-eight, but before January first, nineteen hundred and ninety-nine, an employment level of one hundred and ten percent of the base period employment level; for taxable years beginning on or after January first, nineteen hundred and ninety-nine, but before January first, two thousand, an employment level of one hundred and fifteen percent of the base period employment level; for taxable years beginning on or after January first, two thousand, but before January first, two thousand and one, an employment level of one hundred and twenty percent of the base period employment level; for taxable years beginning on or after January first, two thousand and one, but before January first, two thousand and two, an employment level of one hundred and twenty-five percent of the base period employment level; for taxable years beginning on or after January first, two thousand and two, but before January first, two thousand and three, an employment level of one hundred and twenty-five percent of the base period employment level. If a mutual fund service corporation was not engaged in business in the commonwealth on January first, nineteen hundred and ninety-six, for all taxable years beginning before January first, two thousand and three, the jobs commitment level shall be the base period employment level increased by five percent of the base period employment level for every year after which the base period employment level is established.

      "Management services", include, but are not necessarily limited to, the rendering of investment advice directly or indirectly to a regulated investment company, making determinations as to when sales and purchases of securities are to be made on behalf of the regulated investment company, or the selling or purchasing of securities constituting assets of a regulated investment company, and related activities, but only where such activity or activities are performed: (i) pursuant to a contract with the regulated investment company entered into pursuant to 15 USC section a-15(a), as from time to time amended; (ii) for a person that has entered into such contract with the regulated investment company; or (iii) for a person that is affiliated with a person that has entered into such contract with a regulated investment company.

      "Mutual fund sales", taxable net income derived within the taxable year directly or indirectly from the rendering of management, distribution or administration services to a regulated investment company, including net income received directly or indirectly from trustees, sponsors and participants of employee benefit plans which have accounts in a regulated investment company.

      "Mutual fund service corporation", any corporation doing business in the commonwealth which derives more than fifty percent of its gross income from the provision directly or indirectly of management, distribution or administration services to or on behalf of a regulated investment company and from trustees, sponsors and participants of employee benefit plans which have accounts in a regulated investment company.

      "Number of qualified employees", the number of qualified employees who are employed by a mutual fund service corporation in the commonwealth as of the last day of a given taxable year.

      "Number of qualified employees worldwide", the total number of qualified employees worldwide who were employed by the mutual fund service corporation on a specified date.

      "Qualified employee in this commonwealth", an individual who: (i) is employed by a mutual fund service corporation; (ii) works on a full-time basis with a normal work week of thirty or more hours; (iii) at the inception of the employment relationship does not have a termination date which is either a date certain or determined with reference to the completion of some specified scope of work; (iv) is eligible to receive employee benefits including, but not limited to, paid holidays, vacation and unemployment benefits; and (v) is subject to Massachusetts income tax withholding. Three or fewer individuals who collectively fulfill the requirement of clause (ii) and who each meet the requirements of clauses (i), (iii), (iv) and (v) shall be counted as one qualified employee for purposes of this section.

      "Qualified employee worldwide", an individual who meets the criteria in subsections (i) to (iv), inclusive, of the definition of ""Qualified employee in this commonwealth." Three or fewer individuals who collectively fulfill the requirement of clause (ii) of said definition of ""Qualified employee in this commonwealth" and who each meet the requirements of clauses (i), (iii) and

(iv) of said definition of ""Qualified employee in this commonwealth" shall be counted as one qualified employee for purposes of this section.

      ""Regulated investment company", the meaning as set forth in section 851 of the Internal Revenue Code as amended and in effect for the taxable year.

      (2) Notwithstanding any other provision of the General Laws, any mutual fund service corporation having income from mutual fund sales to one or more regulated investment companies with shareholders domiciled within and without this commonwealth shall apportion or allocate such income pursuant to the provisions of subsection (c).

      Furthermore, any such mutual fund service corporation whose employment level in the current taxable year is equal to or greater than its jobs commitment level for such taxable year and who satisfies the requirements of paragraphs (3) and (4), or any such mutual fund service corporation for which the jobs commitment level requirement no longer applies shall apportion or allocate such income to this commonwealth as follows:

         (i) All taxable net income which is apportionable under the

Constitution of the United States shall be apportioned by multiplying said taxable net income by one hundred percent of the sales factor.

         (ii) All other taxable net income shall be allocated to this commonwealth.

      (3) Notwithstanding a mutual fund service corporation's failure to achieve its jobs commitment level in the taxable year, the percentage set forth in clause (i) of paragraph (2) of subsection (in) may be applied, where the failure to achieve the jobs commitment level for any taxable year is demonstrated by the mutual fund service corporation to be a direct result of adverse economic conditions in that taxable year.

      (a) Adverse economic conditions can affect only one taxable year except as set forth in subparagraph (b) and (c). Adverse economic conditions shall exist only where during any twelve month period ending during the taxable year, either: (A) the Standard & Poor's Stock Index decreases ten percent or more compared to its level at the beginning of such twelve month period or (B) the average daily trading volume on the New York Stock Exchange decreases fifteen percent or more compared to the average over the preceding twelve months; or (C) at any time during the taxable year, the total assets under management of the mutual funds served by the mutual fund service corporation decreases twelve and one-half percent or more compared to such total assets under management twelve months earlier.

      (b) If a mutual fund service corporation demonstrates that failure to achieve the jobs commitment level for one taxable year was the direct result of an adverse economic condition, such corporation may decrease its jobs commitment level by five percent of the base period employment level for all subsequent taxable years prior to the first taxable year beginning on or after January first, two thousand and two.

      (c) If a mutual fund service corporation demonstrates that failure to achieve the jobs commitment level for more than one taxable year was the direct result of an adverse economic condition, such corporation may decrease its jobs commitment level by five percent of the base period employment level for each taxable year in which an adverse economic condition was established for all subsequent taxable years prior to the first taxable year beginning on or after January one, two thousand and two. However, for each taxable year beginning on or after January first, two thousand and two, but prior to the first taxable year beginning on or after January first, two thousand and four, the jobs commitment level shall be an employment level equal to the sum of: (i) the jobs commitment level for the most recent taxable year immediately prior to such year for which an adverse economic condition was not established; and (ii) five percent of the base period employment level.

      (4) For the purposes of determining compliance with the provisions of this subsection, each mutual fund service corporation that seeks to rely on the provisions of this subsection for the taxable year in question shall submit, as part of its tax return, a report, with such supporting documentation as the commissioner may require, containing the following:

         (i) the number, nature, and aggregate wages of the qualified employees in this commonwealth and qualified employees worldwide as of the end of the taxable year and the number of jobs added or lost as compared to the previous taxable year;

         (ii) the number of the qualified employees in this commonwealth as of the last day of the taxable year sorted by place of employment;

         (iii) the base period employment level;

         (iv) the volume of sales attributable to this commonwealth and worldwide;

         (v) the taxable income in this commonwealth;

         (vi) net assets under management in this commonwealth and worldwide; and

         (vii) the median income of all of qualified employees in the commonwealth and of all of its qualified employees worldwide.

      The information provided by each individual mutual fund service corporation shall be treated as confidential under the provisions of section twenty-one of chapter sixty-two C. Said information shall be used by the commissioner of revenue to prepare a comprehensive annual report setting forth the changes in-the aggregate from the previous taxable year for each of the items listed above. The commissioner's report shall 'also set forth any recommendations the commissioner may have for any amendments to the provisions of this section, and the reasons for any such recommendations. The commissioners report shall be filed by October first of each year with the clerk of the senate and the clerk of the house of representatives who shall forward the same to the respective, committees on ways and means and the joint committee on taxation.

      (5) The commissioner of revenue shall promulgate regulations implementing the provisions of this subsection.