(1)
General.
(a)
Purpose. In general, 830 CMR
63.39.1 describes the
circumstances pursuant to which certain business corporations will be subject
to the tax jurisdiction of Massachusetts for purposes of the excise due under
M.G.L. c. 63.
(b)
Background. Whether a business corporation is subject
to the tax jurisdiction of Massachusetts is determined by the application of
state law, as may be limited by the provisions of the U.S. Constitution or
federal law. In general, except as otherwise provided under Massachusetts law,
see e.g., 830 CMR
63.39.1(4)(a) through (d), the Commissioner
will construe the state's tax jurisdiction to the fullest extent permitted by
the U.S. Constitution and federal law.
(c)
Outline of
Topics. 830 CMR
63.39.1 is organized as follows:
1. General;
2. Definitions;
3. General Business Corporation Tax
Jurisdiction; M.G.L. c. 63, § 39;
4. Exceptions to Jurisdiction Applicable
under M.G.L. c. 63, § 39;
5.
Financial Institution Tax Jurisdiction; M.G.L. c. 63, § 2 or §
2A;
6. Insurance Company Tax
Jurisdiction; M.G.L. c. 63, §§ 20 through 29; and
7. Corporate Partners.
(2)
Definitions.
Business Corporation. A business
corporation as defined under M.G.L. c. 63, § 30.
Code. The federal Internal Revenue
Code, as in effect for the taxable year.
Commissioner. The Commissioner of
Revenue or the Commissioner's duly authorized representative.
Employee. Any person who, under the
common law rules applicable to determine the employer-employee relationship,
has the status of an employee. Generally, a person will be presumed to be an
employee if such person is included by the taxpayer as an employee for purposes
of the payroll taxes imposed by the Federal Insurance Contributions Act.
Financial Institution. A business
corporation, as defined in M.G.L. c. 63, § 1, that may be subject to the
excise due under M.G.L. c. 63, §§ 2 or 2B.
General Business Corporation. A
business corporation as defined in M.G.L. c. 63, § 30 that may be subject
to the excise due under M.G.L. c. 63, § 39, as modified by M.G.L. c. 63,
§ 32D in the case of an S corporation, and by M.G.L. c. 63, § 38Y in
the case of an entity that qualifies under Code § 501.
Independent Contractor. A person who
performs services on behalf of a business corporation but who is not an
employee of such corporation, and who is not otherwise subject to the direction
or control of the corporation in the performance of such services. In general,
a person who performs services on behalf of a business corporation is treated
as an independent contractor with respect to the business corporation if the
person offers such services to the general public in the ordinary course of
business.
Insurance Company. A business
corporation that may be subject to the excise due under M.G.L. c. 63,
§§ 20 through 29E. Insurance Company also
refers to any other entity that may be subject to an insurance tax imposed
under state law, as referenced in 830 CMR 63.39.1(6).
Partner. A partner or member of an
entity that is classified for the taxable year as a partnership for federal
income tax purposes.
Partnership. An entity that is
classified for the taxable year as a partnership for federal income tax
purposes.
Person. An individual, estate, trust,
partnership, corporation or any other business entity.
Related Person. A "related member", as
defined in M.G.L. c. 63, § 31I.
Representative. An employee or
independent contractor of a business corporation or any other person, including
a related person, acting or operating on behalf of a business
corporation.
Tiered Partnership. A partnership
arrangement in which some or all of the interests in one partnership (the lower
tier partnership) are held by a second partnership (the upper tier
partnership). A tiered partnership arrangement may have two or more
tiers.
Unitary Business. A "unitary business"
as defined in M.G.L. c. 63, § 32B, and
830 CMR
63.32B.2, except that for purposes of 830 CMR
63.39.1 such definition shall apply with respect to all persons with which a
business corporation may be engaged in a unitary business, and not merely
corporate entities.
(3)
General Business Corporation Tax Jurisdiction; M.G.L. c. 63, §
39.
(a)
General
Rule. M.G.L. c. 63, § 39 imposes an excise on a general
business corporation that includes an income measure and a non-income measure
and a minimum excise that applies when those two measures combined are below a
certain dollar threshold for a particular taxable year. A general business
corporation is typically subject to the tax jurisdiction of Massachusetts
pursuant to M.G.L. c. 63, § 39 when it meets the statutory standards,
including the circumstance where the corporation owns or uses any part of its
plant or property in the state or is engaged in doing business in the state.
The state's assertion of jurisdiction may be limited by the provisions of the
U.S. Constitution or federal law; however, the Commissioner will generally
construe M.G.L. c. 63, § 39 as asserting the tax jurisdiction of the state
to the fullest extent permitted by the U.S. Constitution and federal
law.
(b)
Examples of
Tax Jurisdiction. Examples of contacts or other incidents that
will typically subject a general business corporation to tax jurisdiction under
M.G.L. c. 63, § 39, taking into account the principles that apply under
the U.S. Constitution include, without limitation, the circumstances where such
corporation:
1. is incorporated or organized
in the state;
2. is headquartered
or commercially domiciled in the state;
3. owns real or tangible personal property in
the state, including property that is possessed, held or used by another person
pursuant to a lease, license, consignment or other arrangement;
4. uses real or tangible personal property
that it does not own in the state, including property that it possesses or
holds pursuant to a lease, license, consignment or other arrangement;
5. has a full or part-time employee acting on
its behalf in the state, irrespective of the nature of the employment,
see830 CMR
63.39.1(3)(c);
6. has an independent contractor or other
non-employee representative acting or operating on its behalf in the state for
the purpose of selling, delivering, installing, assembling, maintaining or
repairing the corporation's products, or taking orders for or otherwise
establishing or maintaining a market for the corporation's products and/or
services in the state,
see830 CMR
63.39.1(3)(c);
7. owns or uses intangible property in the
state where:
a. the intangible property
generates or is otherwise a source of gross receipts within the state for the
corporation, including through a license, sublicense or franchise;
and
b. the activity through which
the corporation obtains such gross receipts from the intangible property is
purposeful (e.g., a contract, license or sublicense);
or
8. does not have the
contacts or other incidents with the state as referenced in 830 CMR
63.39.1(3)(b)1. through 7., but has considerable in-state sales derived through
either economic or virtual contacts.
See830 CMR
63.39.1(3)(d).
See also South Dakota
v. Wayfair, Inc., 138
S. Ct. 2080 (2018).
The list above represents examples of contacts or other
incidents that will typically subject a general business corporation to tax
jurisdiction under M.G.L. c. 63, § 39, taking into account the principles
that apply under the U.S. Constitution. Other contacts or incidents may subject
a general business corporation to such tax jurisdiction depending upon the
specific facts.
(c)
Employee or Representative
Visits. For purposes of the examples referenced in 830 CMR
63.39.1(3)(b)5. and 6.,
supra, in any instance in which a
general business corporation's contacts with the state are limited to visits by
an employee and/or one or more other representative(s) from a location outside
the state, such contacts will generally subject the corporation to the tax
jurisdiction of Massachusetts under M.G.L. c. 63, § 39 where the visits
are lengthy, continuous, regular or systematic. Also, for purposes of the
example referenced in 830 CMR
63.39.1(3)(b)5.,
supra,
jurisdiction will generally be established where the in-state visit or visits
of the employee of such corporation provide management or technical oversight
or other business assistance with respect to a related person's in-state
business activities when the corporation and the related person are engaged in
a unitary business. These circumstances represent examples of when a visit or
visits by an employee or other representative(s) of a general business
corporation will establish jurisdiction on the part of the corporation and do
not necessarily describe all circumstances in which such a visit or visits will
establish this jurisdiction. In general, in making a determination as to when
the visit or visits of an employee or other representative will establish nexus
on the part of a general business corporation, the Commissioner will consider
the nature of the employee or representative visit(s), including the benefits
that inure from such visit(s) to the corporation's business. A general business
corporation that is subject to the tax jurisdiction of the state because its
activities are described in 830 CMR
63.39.1(3)(b)5. or 6.,
supra, may nonetheless be exempt from the income measure of
the corporate excise, though not the non-income measure or minimum excise, by
reason of federal law, Public Law
86-272 (
15 U.S.C. §
381
et seq).
See830 CMR
63.39.1(4)(e).
(d)
Economic and Virtual
Contacts. For purposes of 830 CMR
63.39.1, including the examples
referenced in 830 CMR
63.39.1(3)(b)8.,
supra, the Commissioner
will presume that a general business corporation's virtual and economic
contacts subject the corporation to the tax jurisdiction of Massachusetts under
M.G.L. c. 63, § 39, where the volume of the corporation's Massachusetts
sales for the taxable year exceeds $500,000. Massachusetts sales for purposes
of 830 CMR
63.39.1(3)(d) are sales that are attributed to Massachusetts
pursuant to M.G.L. c. 63, § 38. A general business corporation that is
subject to the tax jurisdiction of the state because its activities are
described in 830 CMR
63.39.1(3)(b)8.,
supra, may nonetheless
be exempt from the income measure of the corporate excise, though not the
non-income measure or minimum excise, by reason of the federal law, Public Law
86-272 (
15 U.S.C. §
381 et seq).
See830 CMR
63.39.1(4)(e). In applying the presumption set forth in 830 CMR
63.39.1(3)(d),
the Commissioner will include, with respect to any corporation that has
Massachusetts sales, the Massachusetts sales of a related person engaged in a
unitary business with such corporation if absent this inclusion no corporation
engaged in the unitary business would be subject to the excise due under M.G.L.
c. 63.
(4)
Exceptions to Jurisdiction Applicable under M.G.L. c. 63, §
39. In certain circumstances where a general business corporation
would otherwise be subject to the tax jurisdiction of Massachusetts pursuant to
M.G.L. c. 63, § 39, as described in 830 CMR
63.39.1(3), an exception may
apply, as further set forth in 830 CMR
63.39.1(4)(a) through (e).
(a)
Property in a Licensed Public
Warehouse. A general business corporation is not subject to the
corporate excise under M.G.L. c. 63, § 39 solely because of its ownership
of tangible personal property stored in a licensed public warehouse in
Massachusetts. See M.G.L. c. 63, § 39; M.G.L. c. 105,
§ 1. This exception from tax jurisdiction for the ownership of goods
stored in a licensed public warehouse applies even where such goods are shipped
by common or contract carrier from the public warehouse to locations within or
outside of Massachusetts, provided however, that the exception does not extend
to the common or contract carrier whose vehicles enter or depart from
Massachusetts.
(b)
Property in Transit. A general business corporation is
not subject to the corporate excise under M.G.L. c. 63, § 39, solely
because of its ownership of tangible personal property in actual transit
through Massachusetts in the possession and control of a common or contract
carrier, provided however, that 830 CMR
63.39.1(4)(b) shall not preclude the
exercise of jurisdiction over the common or contract carrier whose vehicles
enter or depart from Massachusetts.
(c)
Ownership of
Shares. A general business corporation is not subject to the
corporate excise under M.G.L. c. 63, § 39, solely because of ownership of
shares of stock in a corporation that does business in Massachusetts.
(d)
Maintenance of
Accounts. A general business corporation is not subject to the
corporate excise under M.G.L. c. 63, § 39, solely because of its
depositing of funds or maintenance of securities brokerage accounts with
financial institutions, unrelated to the corporation, that do business in
Massachusetts.
(e)
Public Law 86-272; Certain Out-of-state Vendors of Tangible
Personal Property.
1.
Massachusetts is generally precluded from subjecting a general business
corporation to the income measure of the corporate excise under M.G.L. c. 63,
§ 39 when such corporation is protected by the statutory standards set
forth in federal law, Public Law
86-272 (
15 U.S.C. §
381
et seq.). The
Commissioner will generally construe M.G.L. c. 63, § 39 as asserting the
tax jurisdiction of Massachusetts to the fullest extent permitted by such
federal law.
2. In general, the
Public Law
86-272 statutory standards are met with respect to the income
measure of the corporate excise for a particular year when the exclusive
business activity by or on behalf of such corporation in Massachusetts is the
solicitation of orders of tangible personal property, provided that all such
orders are sent outside the state for approval or rejection, and provided that
the orders are filled by shipment or delivery from a location outside the
state. Public Law
86-272 does not preclude subjecting a corporation to the
income measure of the corporate excise when the corporation sells services or
licenses intangible property in the state. Also, the statutory standard is not
met if the in-state business activity by or on behalf of a corporation, however
conducted, includes activity that is not entirely ancillary to the solicitation
of orders of tangible personal property.
See Wisconsin Dept.
of Revenue
v. William Wrigley, Jr., Co., 505 US 214 (1992).
Activities that take place after a sale will ordinarily not be considered
entirely ancillary to the solicitation of such sale.
Id.
3. The
statutory exception set forth in Public Law
86-272 applies only to the income
measure of the corporate excise and not to the non-income measure or the
minimum excise.
(5)
Financial Institution Tax
Jurisdiction; M.G.L. c. 63, § 2 or 2A.
(a)
General Rule.
M.G.L. c. 63, §§ 2 and 2B impose an excise on a financial institution
that consists of an income measure and a minimum excise that applies when the
income measure is below a certain dollar threshold for a particular taxable
year. A financial institution is generally subject to the tax jurisdiction of
Massachusetts pursuant to M.G.L. c. 63, § 1 when such entity meets the
statutory standards, including the circumstance where the entity is engaged in
doing business in the state. The Commissioner will generally construe M.G.L. c.
63, § 1, as asserting the tax jurisdiction of Massachusetts to the fullest
extent permitted by the U.S. Constitution and federal law.
(b)
Examples of Tax
Jurisdiction. The contacts or other incidents that will generally
subject a financial institution to tax jurisdiction under M.G.L. c. 63, §
1, taking into account the principles that apply under the U.S. Constitution
include, without limitation, the circumstances where such financial
institution:
1. is incorporated or organized
in the state;
2. has a business
location in the state;
3. has
employees, representatives or independent contractors conducting business
activities on its behalf in the state;
4. maintains, rents or owns any tangible or
real property in the state;
5.
regularly performs services in the state;
6. regularly engages in transactions with
customers in the commonwealth that involve intangible property and result in
income flowing to the taxpayer from residents of the state;
7. regularly receives interest income from
loans secured by tangible personal or real property located in the state;
or
8. regularly solicits and
receives deposits from customers in the state.
With respect to the activities described in 830 CMR
63.39.1(5)(b)5. through 8., the Commissioner will presume that one or more such
activities are conducted on a regular basis within the state, if, with respect
to a taxable year,
a. any of such
activities are conducted with one hundred or more residents of the
state;
b. the taxpayer has
$10,000,000 or more of assets attributable to sources within the state;
or
c. the taxpayer has in excess of
$500,000 in receipts attributable to sources within the state.
In any case in which this presumption applies, the taxpayer is
required to file a return on the basis that it is subject to Massachusetts tax
jurisdiction. However, the taxpayer may seek to rebut the presumption in a
manner as prescribed by the Commissioner.
(6)
Insurance Company Tax Jurisdiction; M.G.L. c. 63, §§ 20
through 29. M.G.L. c. 63, §§ 20 through 29, impose a
premiums-based excise on an insurance company when such entity meets the
statutory jurisdiction standard set forth in such section or sections, as
relevant. The Commissioner will generally construe the jurisdictional standards
set forth in M.G.L. c. 63, §§ 20 through 29, as asserting the tax
jurisdiction of Massachusetts to the fullest extent permitted by the U.S.
Constitution and federal law.
See,
e.g.,
15 U.S.C. §§
1011 through
1015.
The Commissioner will similarly apply this broad jurisdictional standard to all
insurance taxes imposed under state law, including the taxes that apply under
M.G.L. c. 175 and 176I.
(7)
Corporate Partners.
(a)
General Rule; Partnership
Activities Attributed to Partners. Except as provided by 830 CMR
63.39.1(7)(b),
infra, a business corporation is subject to the
excise under M.G.L. c. 63, §§ 2, 2A or 39, if the corporation is a
general or limited partner in a partnership whose activities, if conducted
directly by the business corporation, would subject that corporation to the
corporate excise under the provisions of M.G.L. c. 63, §§ 2, 2A or
39. In the case of a tiered partnership arrangement the activities of the
partnership(s) occupying the lower tier(s) are imputed to all partners holding
interests in partnership(s) occupying higher tier(s). In applying this
provision, the Commissioner will consider whether the assertion of jurisdiction
is limited by the provisions of the U.S Constitution or federal law.
(b)
Exception for Publicly Traded
Partnerships. A business corporation that merely holds a limited
partnership interest in a publicly traded partnership, as defined in Code
§ 7704, that conducts business activity in Massachusetts, is not subject
to the excise under M.G.L. c. 63, §§ 2, 2A or 39, unless the other
activities of that corporation establish nexus with Massachusetts.