Technical Information Release  TIR 25-3: State Street Corporation v. Commissioner of Revenue: Financial Institution Eligibility to Claim Research Tax Credit

Date:	05/09/2025
Referenced Sources:	Massachusetts General Laws

I. Introduction

On August 15, 2024, the Appellate Tax Board (“Board) issued a decision in favor of the taxpayer in State Street Corporation v. Commissioner of Revenue, A.T.B. Docket No. C344139. At issue was whether financial institutions, such as the taxpayer, are entitled to claim the Massachusetts research tax credit under M.G.L. c. 63, § 38M.  The Board held that financial institutions can claim the credit.  This Technical Information Release (“TIR”) explains the position of the Department of Revenue (“Department”) regarding the Board’s decision.

II. Discussion

A.  Legal Background

Massachusetts taxes “business corporations” and “financial institutions” under M.G.L. c. 63, §§ 39 and 2, respectively.  As set forth in M.G.L. c. 63, § 39, the excise for business corporations is calculated as: (1) eight percent of net income, plus (2) $2.60 per $1,000 of either the value of tangible property (if a “tangible property corporation”) or “net worth” (if an “intangible property corporation”). Financial institutions, subject to tax under M.G.L. c. 63, § 2, calculate the excise as nine percent of net income. Both excises cannot be less than $456. M.G.L. c. 63, §§ 2(b) and 39(b).

Massachusetts law provides a research tax credit under M.G.L. c. 63, § 38M for certain expenditures for research conducted in Massachusetts.  The law states that, “[a] business corporation shall be allowed a credit against its excise due under this chapter . . . .” M.G.L. c. 63, § 38M(a)(1).  The term “business corporation” is defined as “any corporation, or any ‘other entity’ as defined in section 1.40 of chapter 156D,^[1] whether the corporation or other entity may be formed, organized, or operated in or under the laws of the Commonwealth or any other jurisdiction, and whether organized for business or for non-profit purposes, that is classified for the taxable year as a corporation for federal income tax purposes.” M.G.L. c. 63, § 30(1).  The Department’s regulation addressing the research credit, 830 CMR 63.38M.1, states that the credit “is available to all domestic corporations subject to tax under M.G.L. c. 63, § 32, and all foreign corporations subject to tax under M.G.L. c. 63, § 39.”^[2]

B.  Factual Background

The taxpayer was a financial institution subject to the Massachusetts excise pursuant to M.G.L. c. 63, § 2.  For the tax year ending on December 31, 2018, the taxpayer claimed the Massachusetts research credit against this excise.^[3]

The Commissioner assessed tax, penalties, and interest against the taxpayer based on a determination that the taxpayer was not entitled to claim the research credits because the credit is only available to business corporations subject to tax under M.G.L. c. 63, § 39.  In particular, the Commissioner claimed that a financial institution, such as the taxpayer, was not a business corporation subject to tax under M.G.L. c. 63, § 39.  The taxpayer applied for an abatement, which the Commissioner denied.  The taxpayer appealed to the Board, arguing that the M.G.L. c. 63, § 38M credit is available to all “business corporations” that are subject to tax under M.G.L. c. 63, including financial institutions.

The taxpayer filed a Motion for Summary Judgment, to which the Commissioner filed an Opposition and a Cross-Motion for Summary Judgement.

C.  The Board’s Decision

The Board granted the taxpayer’s motion for summary judgment, holding that the taxpayer was entitled to claim the Massachusetts research credit under M.G.L. c. 63, § 38M, reasoning that M.G.L. c. 63, §§ 30(1) and 38M(a)(1) do not limit the credit to business corporations taxed under M.G.L. c. 63, § 39. The taxpayer was therefore granted a full abatement.

III. Application of the State Street Decision

Pursuant to State Street, all business corporations subject to an excise under M.G.L. c. 63 are allowed to claim the M.G.L. c. 63, § 38M research credit.  This includes all financial institutions that are subject to the excise under M.G.L. c. 63, § 2.  The Department recognizes that the Board’s decision may prompt financial institutions to file amended returns to claim the M.G.L. c. 63, § 38M research credit. Proposed 830 CMR 63.38M.2(8)(a) states that a corporation computing its credit using the alternative simplified method under 830 CMR 63.38M.2(8) for a taxable year must indicate its use of such method when filing the original return for the taxable year and not on an amended return or an abatement application. The Department will not enforce that rule as stated and will allow the use of the alternative simplified method on an amended return or an abatement application.

The Department intends to repropose 830 CMR 63.38M.2 to render it consistent with the Board’s decision and this TIR.
 

                                                                                    /s/Geoffrey E. Snyder
                                                                                    Geoffrey E. Snyder
                                                                                    Commissioner of Revenue
 

GES:RHF:rvd

May 9, 2025

TIR 25-3

[1] “Other entity” is defined as, “any association or entity other than a domestic or foreign business corporation, a domestic or foreign nonprofit corporation or a governmental or quasi–governmental organization. The term includes, without limitation, limited partnerships, general partnerships, limited liability partnerships, limited liability companies, joint ventures, joint stock companies, business trusts and profit and not–for–profit unincorporated associations.”  M.G.L. c. 156D, § 1.40.

[2] The term “business corporation” was added to M.G.L. c. 63, § 38M in 2008. St. c. 173, § 76.  Prior to 2008, the law stated that the credit was available to a “domestic or foreign” corporation.”  The regulation, promulgated in 1992 and amended in 1998, uses the “domestic or foreign” wording from the law as it existed prior to 2008.

[3] The taxpayer generated the research credits in 2016, 2017, and 2018, but claimed the credits from all three years in 2018 because the taxpayer had losses in 2016 and 2017 and, accordingly, carried the credits generated in those tax years forward.