(a) General. An aggregated group is required to compute a single credit for the entire aggregated group in the manner required by 830 CMR 63.38M.2(9)(c) and must then allocate the amount of the credit among the members of the aggregated group that are corporations doing business in Massachusetts in the manner required by 830 CMR 63.38M.2(9)(g), The credit allowable to a corporation subject to this provision, 830 CMR 63.38M.2(9), is its share of the credit allowable to the entire aggregated group, determined under 830 CMR 63.38M.2(9)(c)-(f). In determining the amount of the credit for the aggregated group, all relevant expenses, payments, and receipts relating to transactions between members of an aggregated group shall be disregarded.
(b) Partnerships. All amounts relevant to the calculation of the credit that are paid or received by a partnership, whether or not a member of the aggregated group, shall be treated as paid or received, as the case may be, by the owners of the entity in proportion to their interests in the partnership.
(c) Computation of the Credit for an Aggregated Group. The credit for research expenses for the taxable year shall be an amount equal to the sum of the following amounts:
1. 10% of the excess, if any, of Massachusetts aggregated qualified research expenses for the taxable year, as determined under 830 CMR 63.38M.2(9)(d) over the Massachusetts aggregated qualified research base amount, as determined under 830 CMR 63.38M.2(9)(e) plus
2. 15% of Massachusetts aggregated basic research payments for the taxable year, as determined under 830 CMR 63.38M.2(9)(f).
(d) Aggregated Massachusetts Qualified Research Expenses. Aggregated Massachusetts qualified research expenses is the sum of the Massachusetts qualified research expenses, determined under 830 CMR 63.38M.2(5), of each member of the aggregated group that is not a partnership.
(e) Aggregated Massachusetts Qualified Research Base Amount. The aggregated Massachusetts qualified research base amount is determined under 830 CMR 63.38M.2(6) in the same manner as for a corporation that is not a member of an aggregated group, except as provided below:
1. Qualified research expenses. For all purposes relevant to the calculation, aggregated Massachusetts qualified research expenses, as determined for the entire group under 830 CMR 63.38M.2(9)(d) shall be substituted for Massachusetts qualified research expenses, as determined under 830 CMR 63.38M.2(5).
2. Gross receipts. Where the calculation involves gross receipts for a single taxable year, or for a period of taxable years, gross receipts for the relevant period shall be the sum of the gross receipts of all members of the aggregated group for that period, except gross receipts received by entities treated as partnerships and attributed to other members of the group under 830 CMR 63.38M.2(9)(b).
3. Inadequate records. If any member of an aggregated group is unable to compute its aggregate Massachusetts qualified research expenses or aggregate gross receipts for the applicable period due to inadequate accounts and records, the Massachusetts fixed-base ratio of the aggregated group is 16%.
(f) Aggregated Massachusetts Basic Research Payments. The aggregated Massachusetts basic research payment is determined under 830 CMR 63.38M.2(7)(c) in the same manner as for a corporation that is not a member of an aggregated group, except as provided below:
1. Basic research payments. Massachusetts basic research payments shall be the sum of the Massachusetts basic research payments, determined under 830 CMR 63.38M.2(7)(c) of each of the members of the aggregated group that is not treated as a partnership.
2. Base period amount. The Massachusetts base period amount is the sum of the minimum Massachusetts basic research amounts, determined under 830 CMR 63.38M.2(7)(d) and the Massachusetts maintenance-of-effort amounts, determined under 830 CMR 63.38M.2(7)(f) of each of the members of the aggregated group that is not treated as a partnership. For purposes of determining the sum of the members' Massachusetts maintenance-of-effort amounts under this provision, 830 CMR 63.38M.2(9)(f), the maintenance-of-effort amount for any member may be negative, but may not be used to reduce the minimum basic research amounts of the group or any member.
3. Floor amount. The floor amount provisions of 830 CMR 63.38M.2(7)(e)2. shall not apply to individual group members. However, where no member of the aggregated group, as comprised during the first taxable year for which the credit is claimed, both (i) existed for at least one taxable year (other than a short taxable year) during the base period, and (ii) made Massachusetts basic research payments, as determined under 830 CMR 63.38M.2(7)(c), during that base period taxable year, the minimum Massachusetts basic research amount for the aggregated group shall not be less than 50% of the Massachusetts basic research payments, as determined under 830 CMR 63.38M.2(7)(e)1. for the credit year.
4. Inadequate records. If any member of an aggregated group is unable to compute its minimum basic research amount due to inadequate accounts and records for the base period, the Massachusetts minimum basic research amount of the aggregated group is 50% of the group's aggregated Massachusetts basic research payments, determined under 830 CMR 63.38M.2(9)(f), for the taxable year for which the credit is being determined.
(g) Allocation of the Aggregated Group’s Credit. The aggregated group’s credit, as determined under 830 CMR 63.38M.2(9)(c), shall be allocated in the following manner to each member of the aggregated group that is a corporation doing business in Massachusetts to determine such member's credit for the taxable year. Each such member's allocated share of the credit is the aggregated credit, as determined under 830 CMR 63.38M.2(9)(c), multiplied by a fraction, the numerator of which is the sum of the member's Massachusetts qualified research expenses, as determined under 830 CMR 63.38M.2(5), and the member's Massachusetts basic research payments, as determined under 830 CMR 63.38M.2(7), and the denominator of which is the sum of all such members' Massachusetts qualified research expenses, as determined under 830 CMR 63.38M.2(5), and Massachusetts basic research payments as determined under 830 CMR 63.38M.2(7). The amount of any credit generated by the activity of an unincorporated entity or a corporation not doing business in Massachusetts and attributed to a corporation doing business in Massachusetts under this provision, 830 CMR 63.38M.2(9)(g), shall be deemed to be generated by the corporation doing business in Massachusetts for purposes of carrying the credit over to subsequent taxable years under 830 CMR 63.38M.2(12).
(h) Example. This example illustrates the aggregation of the Massachusetts qualified research credit for the XYZ Group. The XYZ Group is an aggregated group consisting of the following five entities: (1) Corporation X, which is doing business in Massachusetts; (2) Corporation Y, which is also doing business in Massachusetts; (3) Corporation Z, which is not doing business in Massachusetts; (4) Partnership A, which is 50% owned by Corporation X and 25% owned by Corporation Y; and (5) Massachusetts Business Trust B. No member of the Group made any basic research payments during the taxable year. The relevant Massachusetts qualified research expenses (MA QRE) and gross receipts are provided in the following chart:
ENTITY |
MA QRE |
AVG QUALIFIED
RESEARCH EXP
FOR 3RD & 4TH
TAXABLE YRS
PRECEDING THE
CREDIT YR |
ANNUAL AVG
GROSS RECEIPTS
FOR 3RD & 4TH
TAXABLE YRS
PRECEDING
THE CREDIT YR |
AVG ANNUAL
GROSS RECEIPTS
OVER 4 PRECEDING
RECEIPTS TAXABLE
YRS |
X |
$25 |
$1,000 |
$15,000 |
$40,000 |
Y |
500 |
100 |
10,000 |
5,000 |
Z |
- |
100 |
10,000 |
20,000 |
A |
4,000 |
- |
- |
1,000 |
B |
50 |
- |
3,000 |
7,500 |
The aggregated qualified research credit for the XYZ Group is computed using the following steps:
Flow-Through. Because A is a partnership owned by members of the Group, its expenses and gross receipts are attributed to X and Y according to their interest in A. Thus, $2,000 of A's Massachusetts qualified research expense flows through to X, and $1,000 of A's expense flows through to Y. Similarly, $500 of A's average annual gross receipts for the previous four years flow through to X, and $250 of A's receipts flow through to Y.
Aggregated Massachusetts Qualified Research Expenses. The Group's aggregated Massachusetts qualified research expenses are $3,575, determined by adding the $575 of Massachusetts qualified research expense incurred directly by X, Y, Z, and B, the $2,000 share of A's Massachusetts qualified research expenses attributed to X, and the $1,000 share of A's Massachusetts qualified research expenses attributed to Y.
Massachusetts Qualified Research Expenses for the 3rd and 4th taxable year preceding the credit year. Massachusetts qualified research expenses are $1,200, determined by adding the separately determined Massachusetts qualified research expenses incurred directly by X, Y, Z, and B. Note that if A had Massachusetts qualified research expenses, those expenses would be attributed to X and Y in the same manner as Massachusetts qualified research expenses and average annual gross receipts.
Gross Receipts for 3rd and 4th taxable years preceding the credit year. Gross receipts are $38,000, determined by adding the separately determined gross receipts of all members. Again, if A had gross receipts they would be attributed to X and Y in the same manner as Massachusetts qualified research expenses and average annual gross receipts.
Average Annual Gross Receipts. Average annual gross receipts for the four previous taxable years are $73,250, determined by adding the $72,500 of average annual gross receipts received directly by X, Y, Z, and B, the $500 share of A's average annual gross receipts attributed to X, and the $250 share of A's average annual gross receipts attributed to Y.
Massachusetts Fixed-Base Ratio. The Group's Massachusetts fixed-base ratio is 3.16%, determined by dividing aggregated Massachusetts qualified research expenses of $1,200 by aggregate gross receipts of $38,000.
Aggregated Group’s Massachusetts Qualified Research Base Amount. The aggregated group’s Massachusetts qualified research base amount is $2,314.70, determined by multiplying the $73,250 of average annual gross receipts for the four previous years by the fixed-base ratio of 3.16%.
Aggregated Group’s Massachusetts Qualified Research Credit. The aggregated group’s Massachusetts qualified research credit is $126.03, determined by reducing Massachusetts aggregated qualified research expenses of $3,575, by the $2,314.70 aggregated qualified research base amount, and multiplying the resulting amount by 10%.
Allocation of the Credit. The $126.03 qualified research credit must be allocated to X and Y, the members of the group that are subject to the corporate excise. The allocation is based on each corporation's qualified research expenses and basic research payments for the taxable year. Since neither corporation made any basic research payments, X has a qualified research credit of $72.40, determined by multiplying the aggregated qualified research credit of $126.03, by a fraction the numerator of which is X's qualified research expenses of $2,025 (including amounts that flow through from A) and the denominator of which is the total of X and Y's qualified research expenses of $3,525 (including amounts that flow through from A), and basic research payments of $0. Y's qualified research credit is $53.63, determined by multiplying the aggregated qualified research credit of $126.03, by a fraction the numerator of which is Y's qualified research expenses of $1,500 (including amounts that flow through from A) and the denominator of which is the total of X and Y's qualified research expenses of $3,525 (including amounts that flow through from A), and basic research payments of $0.
(i) Calculating the aggregated group’s credit using the alternative simplified method. In lieu of calculating the credit under the provisions of 830 CMR 63.38M.2(9)(c), an aggregated group may calculate the credit using the alternative simplified method set forth in 830 CMR 63.38M.2(8). In such case, all members of the aggregated group must calculate the credit using the alternative simplified method. The aggregated group shall calculate its credit for the taxable year in the same manner and subject to the same limitations as a corporation that is not a member of an aggregated group, except that the aggregated group’s Massachusetts qualified research expenses for the taxable year are the sum of each member’s qualified research expenses for the taxable year, and the aggregated group’s average qualified research expenses for the three years preceding the credit year is the sum of each member’s average qualified research expenses for the three years preceding the credit year.