| Date: | 10/26/2004 |
|---|---|
| Organization: | Massachusetts Department of Revenue |
| Referenced Sources: | Massachusetts General Laws |
Corporate Excise
I. Introduction
This Technical Information Release announces changes made in St. 2004, c. 262, signed into law August 9, 2004, concerning the calculation of the non-income measure of the corporate excise, and a change with respect to the declaration of estimated tax by corporations.
II. Statutory Changes
A. The corporate non-income measure calculation.
1. Overview and Prior Law.
Calculating tax liability for corporations is a two-step process with respect to the non-income measure of the corporate excise. The corporation must first determine whether it is a tangible or intangible property corporation. A tangible property corporation pays an excise measured by the value of its tangible property; an intangible property corporation must perform a further calculation to determine its net worth. Under prior law, the corporate excise statutes provided separate net worth formulas for domestic corporations and foreign corporations. In response to a constitutional challenge to this statutory scheme, the Department of Revenue has permitted corporations to choose either of the statutory formulas in calculating their excise, their place of incorporation notwithstanding. See Perini Corp. v. Commissioner of Revenue, 419 Mass. 763 (1995), cert. denied, 516 U.S. 822 (1995); Textron Inc. v. Commissioner of Revenue, 435 Mass. 297 (2001), cert. denied 535 U.S. 986 (2002); DD 99-1. The new statute creates a single formula for determining whether a corporation is a tangible property corporation or an intangible property corporation, and provides a single formula for determining the net worth of an intangible property corporation.
2. Determining whether a corporation is a tangible property corporation or an intangible property corporation.
The new statute provides the following revised definitions of tangible and intangible property corporations at G.L. c. 63, § 30:
10. "Tangible property corporation", a corporation whose tangible property situated in the commonwealth on the last day of the taxable year and not subject to local taxation is 10 per cent or more of such portion of its total assets on the last day of the taxable year less those assets as are situated in the commonwealth on the last day of the taxable year and are subject to local taxation, less its investment on that date in subsidiary corporations which represent 80 per cent or more of the voting stock of those corporations, as shall be found by multiplying that amount by the corporation's income apportionment percentage, as determined under section 38, or a corporation which, in the judgment of the commissioner, should be so classified. For the purposes of this paragraph, the assets of the corporation shall be valued at their book value.
11. "Intangible property corporation", a corporation whose tangible property situated in the commonwealth on the last day of the taxable year and not subject to local taxation is less than 10 per cent of such portion of its total assets on the last day of the taxable year less those assets as are situated in the commonwealth on the last day of the taxable year and are subject to local taxation, less its investment on that date in subsidiary corporations which represent 80 per cent or more of the voting stock of those corporations, as shall be found by multiplying that amount by the corporation's income apportionment percentage, as determined under section 38, or a corporation which, in the judgment of the commissioner, should be so classified. For the purposes of this paragraph, the assets of the corporation shall be valued at their book value.
St. 2004, c. 262, § 39.
Corporations will no longer have the option of applying either of the former statutory formulas, as permitted by DD 99-1, but instead will apply the single formula now applicable to both domestic and foreign corporations.
3. Calculating the net worth of an intangible property corporation.
The new statute also deletes the former G.L. c. 63, § 30.9, the net worth calculation that applied to foreign intangible property corporations. St. 2004, c. 262, § 38. The distinction made between the net worth calculations of domestic corporations and of foreign corporations was invalidated by Perini. In accordance with the holding in Perini, the Department revised its forms and instructions to permit corporations to choose either statutory net worth formula. See DD 99-1. The recent legislation revises G.L. c. 63, § 30.8, making it applicable to both domestic and foreign intangible property corporations, and has removed the language that was invalidated by Perini. St. 2004, c. 262, §§ 36 - 38. The following is the revised statute:
8. The net worth of a domestic business corporation taxable under clause (1) of subsection (a) of section 32 or of a foreign corporation taxable under clause (1) of subsection (a) of section 39 shall be such portion of the book value of its total assets on the last day of the taxable year, less the sum of (1) its liabilities on said date, (2) the book value of its tangible property situated in the commonwealth on said date and subject to local taxation, less the interest of any mortgagee therein, and (3) the book value on said date of its investment in subsidiary corporations which represent eighty per cent or more of the voting stock of said corporations, as shall be found by multiplying said amount by such corporation's income apportionment percentage, as determined under the provisions of section thirty-eight. In determining the book value of any asset, the commissioner may disallow any reserve, in whole or in part, established with respect thereto which, in his
judgment, is not reasonable and proper.
G.L. c. 63, § 30.8, as amended by St. 2004, c. 262, §§ 36-37.
4. Effective date.
The provisions in St. 2004, c. 262, §§ 36 - 39 are effective August 9, 2004, and apply to all corporate tax years ending on or after that date. This TIR supersedes Directive 99-1.
B. The change of law with respect to the declaration of estimated tax by corporations.
Every corporation that can reasonably expect to owe more than $1000 in taxes is required to make estimated tax payments, generally in four payments that are based on a percentage of the "required annual payment." The required annual payment is the lesser of three statutory options. The third option, at G.L. c. 63B, § 3(c)(iii), has been broken into two subsections and revised to read:
(iii) 90 per cent of the tax for the taxable year, or
(iv) 90 per cent of the tax that would be required to be shown on the return for the taxable year if the tax were determined by using the income apportionment percentage determined for the preceding taxable year under chapter 63.
St. 2004, c. 262, § 47.
This language has the effect of allowing all corporations, regardless of whether they filed a return for the taxable year, to determine the required annual payment under option (iv) of G.L. c. 63B, § 3(c), as amended, by using their apportionment percentage from the preceding year.
/s/Alan LeBovidge
Alan LeBovidge,
Commissioner of Revenue
AL:LEM:dt
181077
October 26, 2004
TIR 04-29