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Guide Corporate Excise Tax

Generally, all corporations operating in Massachusetts, both foreign and domestic, need to pay corporate excise tax. This guide has information about corporate excise tax, from calculating the tax, to credits and deductions, to apportioning income. It provides general information about Massachusetts tax laws and Department of Revenue policies and procedures.

This guide is not designed to address all questions which may arise nor to address complex issues in detail. Nothing contained herein supersedes, alters or otherwise changes any provision of the Massachusetts General Laws, Massachusetts Department of Revenue Regulations, Department rulings or any other sources of the law.

Filing Requirements

Generally, all corporations operating in Massachusetts, both foreign and domestic, need to pay corporate excise tax. The tax is due on the 15th day of the third (for S corporations) or fourth (for C corporations) month after the end of the corporation’s taxable year, calendar or fiscal.

As of January 2018, business return due dates have changed.

While only businesses that:

  • Receive gross receipts and sales greater than $100,000 annually, and
  • Generate all their net taxable income in Massachusetts

Are required to file electronically, we encourage all corporations to file online. Any business entity that pays federal taxes as a corporation is also taxable in Massachusetts as a corporation. Unincorporated businesses can choose to pay their taxes either as a corporation or an individual.

What to file

Type of Massachusetts corporation

State form to file

Federal form to file

Small business corporation

Form 355SBC

Form 1120

Domestic or foreign corporation

Form 355

Form 1120

Domestic or foreign corporation (part of a MA combined group)

Form 355U

Form 1120

S corporation

Form 355S

Form 1120S

Quarterly estimated payments

Form 355-ES
EFT

Form 8109 or EFTPS
(consult the IRS)

File Form 355 if you're:

  • A business incorporated under Massachusetts laws
  • A business doing business in Massachusetts but incorporated elsewhere

File Form 355SBC (small business corporation) if you're a corporation organized in Massachusetts that meets all of the following criteria:

  1. Gross receipts (or sales) and total income are under $100,000
  2. All net income is taxable in Massachusetts and not subject to corporate tax in another state
  3. Not:
    • A domestic international sales corporation (DISC)
    • S corporation, or
    • A security corporation
  4. No claims are being made for credits, special deductions or adjustments against your Massachusetts corporate excise
  5. The corporation:
    • Does not own 50% or more of the voting stock of another corporation, and
    • Does not have 50% or more of its voting stock owned by another corporation

File Form 355U if you're a:

  • Combined filing corporation incorporated under Massachusetts laws
  • Corporation doing business in Massachusetts but incorporated elsewhere. File and report your taxes as a member of the combined group reporting its tax on Form 355U.

File Form 355S if you're an:

  • S corporation incorporated under Massachusetts laws
  • S corporation doing business in Massachusetts but incorporated elsewhere

Electronic funds transfer (EFT)

We offer 2 methods for corporations that have to or want to make electronic payments:

  • ACH credit
  • ACH debit

See electronic payment options for more information.

Some corporations have to take part in the Electronic Federal Tax Payment System (EFTPS). Visit the IRS to learn more.

Additional Resources for Filing Requirements

Exemptions

Generally, a corporation is exempt from paying the Massachusetts corporate excise tax if it is:

  • Exempt from being federally taxed under Section 501 of the Internal Revenue Code (and has received the 501 exemption from the IRS), or
  • Organized under M.G.L. Ch. 157, sec. 10

Examples of section 501 corporations are corporations organized for:

  • Nonprofit religious purposes
  • Charitable purposes
  • Scientific purposes
  • Educational purposes

Examples of corporations organized under section 10 include:

  • Agricultural corporations
  • Horticultural corporations, and
  • Other cooperative corporations

The corporate excise does not apply to:

  • Banking and financial institutions
  • Insurance companies
  • Safe deposit companies
  • Certain other corporations having the right of eminent domain or that exercise a franchise in public ways

These organizations are subject to other forms of taxation, such as net income, franchise or gross premium tax.

Key Actions for Exemptions

Calculating the Corporate Excise Tax

Calculate Massachusetts corporate excise tax by adding 2 different tax measures together:

  • The net income measure (calculated at a rate of 8% of the corporation's taxable net income apportioned to Massachusetts), and
  • Either: 
    • A property measure (for tangible property corporations), or
    • A net worth measure (for intangible property corporations)

The property measure is imposed at a rate of $2.60 per $1,000 of either a corporation's:

  • Taxable Massachusetts tangible property, or
  • Its taxable net worth

A corporation's total excise is the greater of:

  • The total of combining the net income measure and the property/net worth measures, or
  • The minimum corporate excise tax that corporations must pay

Key Actions for Calculating the Corporate Excise Tax

Estimated Tax

All corporations that expect to pay more than $1,000 for the corporate excise tax have to make estimated tax payments to Massachusetts. It needs to pay, in 4 installments, the least of:

  • 90% of the tax shown on the return
  • 100% of the tax shown on the return for the previous taxable year (as long as the corporation filed a full year return for the previous taxable year), or
  • 90% of the tax for the current year (using the income apportionment percentage), if any, for the previous taxable year

We encourage all corporations to pay electronically. Corporations not required to pay electronically may use Form 355-ES.

Payment schedule

Estimated taxes must either be:

  • Paid in full on or before the 15th day of the third month of the corporation's taxable year, or
  • Paid in 4 installments, according to the schedule(s) below

Corporate estimated tax installments are due as follows:

Installment % of Estimated tax due Due date from start of taxable year
1st 40% 15th day of 3rd month
2nd 25% 15th day of 6th month
3rd 25% 15th day of 9th month
4th 10% 15th day of 12th month

For new corporations in their first full taxable year which have less than 10 employees:

Installment % of Estimated tax due Due date from start of taxable year
1st 30% 15th day of 3rd month
2nd 25% 15th day of 6th month
3rd 25% 15th day of 9th month
4th 20% 15th day of 12th month

Documents to submit with abatement/amended tax return

Additional Resources for Estimated Tax

Tangible or Intangible Property Corporation

A corporation is considered a tangible property corporation if 10% or more of its total assets (not locally taxed) is tangible property located in Massachusetts that is also not locally taxed.

If less than 10% of the corporation's total assets (not locally taxed) is this type of asset, then the corporation is considered an intangible property corporation.

Use Schedule B on Form 355 - Massachusetts Business or Manufacturing Corporation Excise Return to figure out if a corporation is a tangible or intangible property corporation.

Calculating net worth

When determining tax liability, foreign and domestic corporations need to employ different formulas in different situations. Specifically, these situations are:

  1. Determining a corporation's status as a tangible or intangible property corporation, and
  2. Calculating net worth for intangible property corporations

For tax years beginning on or after January 1, 1999:

  • Corporations may elect on their returns to use:
    • The statutory formula for domestic corporations, or
    • The statutory formula for foreign corporations to determine its classification as a tangible or intangible property corporation
  • Domestic and foreign intangible property corporations can choose between either of the 2 net worth formulas: 
    • Domestic, or
    • Foreign

Documents to submit with abatement/amended tax return:

  • A corrected Form 355 - Massachusetts Business or Manufacturing Corporation Excise Return

Key Actions for Tangible or Intangible Property Corporation

Apportioning Income

Generally, if a corporation doesn't have income from business activity that's taxable in another state, all of its taxable net income is assigned, or apportioned, to Massachusetts.

If a corporation has income from business activity which is taxable both in Massachusetts and in another state, then determine its net income from business carried on in Massachusetts by multiplying all of its taxable net income by the 3 factor apportionment percentage.

The 3 factor apportionment percentage helps determine how much taxable income (taxable both in and outside of Massachusetts) is apportioned to Massachusetts.

  • Property factor: 
    The average value of the taxpayer's real and tangible personal property owned and/or rented and used in Massachusetts during the taxable year, divided by the average value of all of its real and tangible personal property owned and/or rented and used during the taxable year.
  • Payroll factor: 
    The total amount the corporation paid for compensation in Massachusetts during the taxable year, divided by the total amount the corporation paid for compensation everywhere during the taxable year.
  • Sales factor: 
    The corporation's total sales in Massachusetts during the taxable year, divided by the corporation's total sales everywhere during the taxable year. A corporation's total sales are its gross receipts, except for:
    • Interest
    • Dividends
    • Gross receipts from the maturity, redemption, sale, exchange or other disposition of securities

To calculate apportioned Massachusetts income, multiply the taxable net income by a fraction:

  • The numerator is the property factor, plus the payroll factor, plus 2 times the sales factor
  • The denominator is 4
  Calculating apportionment
  Taxable net income
x Property factor + payroll factor + (2 x sales factor)
÷ 4
= Amount of income apportioned to Massachusetts

If a taxpayer is:

  • A nonresident
  • A partner in a partnership, or
  • A certain utility corporation

The fraction's numerator is the property factor plus the payroll factor plus the sales factor, and the denominator is 3.

  Calculating apportionment for other taxpayers
  Taxable net income
x Property factor + payroll factor + sales factor
÷ 3
= Amount of income apportioned to Massachusetts

Corporations that don't use this formula and must apportion using some other formula:

Corporations that use a modified formula:

  • Airlines
  • Motor carriers
  • Courier and package delivery services

Key Actions for Apportioning Income

Gross Income

For the income part of the corporate excise tax, "gross income" means gross income as defined by the Internal Revenue Code, which includes interest from:

  • Federal bonds
  • Federal notes
  • Evidences of indebtedness of the federal government
  • Bonds and notes issued by any state, including Massachusetts

Interest from certain bonds issued by Massachusetts agencies or instrumentalities may be directly tax-exempt. However, this interest is not excluded when calculating Massachusetts corporate excises.

Additional Resources for Gross Income

Credits

You may also qualify for certain business tax credits, which can reduce the amount of tax you owe.

Credit Description
Brownfields Tax Credit (BTC) For cleaning up contaminated property.
Certified Housing Development Tax Credit (CHDC) For investing in housing development projects in Massachusetts.
Community Investment Tax Credit (CITC) For taxpayers and businesses that contribute cash to investment projects.
Conservation Land Tax Credit (CLTC) For donating land to a conservation agency in Massachusetts.
Dairy farmer tax credit Available to Massachusetts dairy farmers.
Economic Development Incentive Program Credit (EDIPC) Tax incentive credit to create and stimulate business in Massachusetts.
Economic Opportunity Area Credit (EOAC) Businesses can receive a credit for certified projects.
Employer Wellness Program Credit (EWPC) For employers that implement a “certified wellness program” for employees.
Farming and fisheries tax credit For individuals engaged in agriculture, farming, or commercial fishing.
Harbor maintenance tax credit For taxpayers who paid the federal harbor maintenance tax (HMT).
Historic rehabilitation tax credit For rehabilitating a historic structure.
Investment tax credit For corporations that buy or lease qualifying tangible property.
Life sciences Tax credits and incentives available to certified life science companies.
Low Income Housing Tax Credit (LIHTC) For individual taxpayers, partnerships, and corporations that invest in qualified low-income housing projects in Massachusetts.
Film Incentive Tax credit For motion pictures produced in Massachusetts.
Medical device credit Medical device credit that is equal to 100% of the user fees paid.
Research credit For your corporation, if you incurred research expenses.
Vanpool credit For your corporation, if you incurred expenses related to your vehicle.

Key Actions for Credits

Deductions

Deductions decrease your taxable income, which means you owe less taxes. Corporations are allowed the following deductions:

Deduction Description
Abandoned building renovation deduction A deduction equal to 10% of the costs incurred in renovating qualifying abandoned buildings located in an Economic Opportunity Area (EOA).
Federal bonus depreciation deduction

Massachusetts allows corporations to expense certain depreciable business assets instead of treating them as capital expenditures. Taxpayers are allowed a I.R.C. §179 deduction in the same amount as allowed federally.

Dividend deduction

Massachusetts does not allow the dividends received deduction that's allowed under the Internal Revenue Code. However, a Massachusetts deduction is allowed for 95% of the value of all dividends received, except for:

  • Dividends from owning shares in a corporate trust engaged in business in Massachusetts
  • Dividends from the deemed or actual distributions (except actual distributions of previously taxed income) from a DISC which is not wholly-owned, or
  • Dividends from any class of stock if the corporation owns less than 15% of the payer corporation's voting stock
Net operating loss deduction

Massachusetts only allows a deduction for:

  • Carrying over net operating loss in the first 5 years of a business, starting from the date the corporation was organized, or
  • Losses sustained in taxable year prior to January 1, 2010: Net operating losses sustained in any taxable year can be carried forward for no more than 5 years, and can't be carried back.
  • Losses generated during a taxable year beginning January 1, 2010 or later: Net operating losses sustained can be carried forward for no more than 20 years, and can't be carried back.
Solar and wind power deduction

When figuring out net income, a domestic or foreign business corporation may deduct expenses paid during the taxable year for installing:

  • Any solar or wind-powered climate control
  • Water heating units or systems

Key Actions for Deductions

Image credits:  Open office workers (Shutterstock)

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