2023 Massachusetts General Laws › Part I - Administration of the Government › Title IX - Taxation › Chapter 63 - Taxation of Corporations › Section 42b - Manufacturing and Research and Development Corporations

Section 42B. (a) Every business corporation subject to taxation under section 39 that has a usual place of business in the commonwealth, and is engaged in manufacturing in the commonwealth, or engaged in the commonwealth in research and development shall, for the purposes of this chapter, be considered to be a manufacturing corporation or a research and development corporation. Every manufacturing corporation shall be taxed in the same manner and shall have the same duties under this chapter and chapter 62C as other business corporations subject to taxation under section 39, except insofar as the determination of the excise under this chapter may be affected by reason of the exemption from local taxation of the machinery of a manufacturing corporation.
(b) A research and development corporation for the purposes of this section is a business corporation subject to tax under section 39 whose principal activity herein is research and development and which, during the taxable year, derives more than 2/3 of its receipts attributable to the commonwealth from the activity or incurs more than 2/3 of its expenditures attributable to the commonwealth allocable to the activity, but a corporation that qualifies as a research and development corporation only by reason of its expenditures shall not be entitled to the credit provided in section 31A of chapter 63 by virtue of its qualification as a research and development corporation. A corporation that is engaged in research and development and that conducts manufacturing activities shall exclude expenditures related to manufacturing from total expenditures for the purpose of assessing whether 2/3 of expenditures are allocable to research and development, whether or not the manufacturing activities of the corporation are substantial. Receipts from research and development shall include receipts from the provision of research and development services and from royalties or fees derived from the licensing of patents, know-how or other technology developed from research and development. For purposes of this section, research and development is experimental or laboratory activity having as its ultimate goal the development of new products, the improvement of existing products, the development of new uses for existing products, or the development or improvement of methods for producing products; and does not include testing or inspection for quality control purposes, efficiency surveys, management studies, consumer surveys or other market research, advertising or promotional activities, or research in connection with literacy, historical or similar projects. Nothing in this section shall be construed to provide for an exemption from local taxation of the machinery of a corporation considered to be a research and development corporation which is not considered to be a manufacturing corporation.
(c) For purposes of this section and section 38, the development and sale of standardized computer software shall be considered a manufacturing activity, without regard to the manner of delivery of the software to the customer.
[ Second paragraph of subsection (c) effective until December 31, 2028. Repealed by 2008, 130, Sec. 33. See 2008, 130, Sec. 54 as amended by 2011, 9, Sec. 25; 2013, 46, Sec. 57; and 2018, 112, Sec. 10. See also 2011, 9, Sec. 56 and 2013, 46, Sec. 87 as amended by 2018, 273, Sec. 26.]
To the extent authorized pursuant to the life sciences tax incentive program established by section 5 of chapter 23
I
, a certified life sciences company may be deemed a research and development corporation for purposes of exemptions under chapters 64H and 64
I
.
(d) For the purposes of this section, a limited partnership that is not a business corporation but that would otherwise qualify as a research and development corporation under this section may be considered a research and development corporation when all partners are corporations solely for purposes of claiming the exemptions available to research and development corporations under chapters 64H and 64
I
.
[ Subsection (e) added by 2023, 50, Sec. 35 effective January 1, 2025 for tax years beginning on or after January 1, 2023. See 2023, 50 Secs. 47 and 49.]
(e) For the purposes of this section, a "manufacturing corporation'' shall be a corporation that is engaged in manufacturing; provided, however, that in order to be engaged in manufacturing, the corporation shall be engaged, in substantial part, in transforming raw or finished physical materials by hand or machinery, and through human skill and knowledge, into a new product possessing a new name, nature and adapted to a new use.
Any operation manufacturing, in substantial part, value-added agricultural products shall be considered a manufacturing corporation.
A manufacturing corporation's activities will be considered to be substantial if any 1 of the following 5 tests are met:
(1) 25 per cent or more of its gross receipts are derived from the sale of manufactured goods that it manufactures;
(2) 25 per cent or more of its payroll is paid to employees working in its manufacturing operations and 15 per cent or more of its gross receipts are derived from the sale of manufactured goods that it manufactures;
(3) 25 per cent or more of its tangible property is used in its manufacturing operations and 15 per cent or more of its gross receipts are derived from the sale of manufactured goods that it manufactures;
(4) 35 per cent or more of its tangible property is used in its manufacturing operations; or
(5) the corporation's manufacturing activities are deemed substantial under relevant regulations promulgated by the commissioner.
In determining whether a process constitutes manufacturing, the commissioner will examine the facts and circumstances of each case.