Code of Massachusetts Regulations › 830 CMR - DEPARTMENT OF REVENUE › Title 830 CMR 63.00 - Taxation of corporations › Section 63.38.1 - Apportionment of Income

Current through Register 1525, July 5, 2024
(1)
Purpose, General Rule, Sham Transactions, and Outline
.
(a)
Purpose
. The
			 purpose of 830 CMR 63.38.1 is to explain the allocation and apportionment of
			 income of business corporations, as provided in M.G.L. c. 63, § 38. 830
			 CMR 63.38.1 also governs the calculation of an apportionment percentage by
			 other taxable entities when such entities are permitted or required to use the
			 income apportionment method set out in M.G.L. c. 63, § 38. For example,
			 830 CMR 63.38.1 applies to manufacturing corporations; to S corporations and
			 their shareholders, as described under M.G.L. c. 63, § 32D and M.G.L. c.
			 62, § 17A; and to nonresident individuals when permitted or required by
			 830 CMR
			 62.5A.1. However, except as expressly stated,
			 830 CMR 63.38.1 does not apply to income derived from mutual fund sales
			 received by mutual fund service corporations within the meaning of M.G.L. c.
			 63, § 38(m).
See
830 CMR
			 63.38.7. 830 CMR 63.38.1 also applies to
			 corporations that are subject to combined reporting within the meaning of
			 M.G.L. c. 63, § 32B, provided, however, that additional apportionment
			 rules that apply in that context are set forth in
			 830 CMR
			 63.32B.2. Also, 830 CMR 63.38.1 applies to
			 determine the apportionment percentage to be used to calculate, on a separate
			 company basis, a corporation's non-income measure excise.
(b)
General Rule
.
			 All of a taxpayer's taxable net income is allocated to Massachusetts if the
			 taxpayer does not have income from business activity which is taxable in
			 another state. If a taxpayer has income from business activity which is taxable
			 both in Massachusetts and in another state, then the part of its net income
			 derived from business carried on in Massachusetts is determined by multiplying
			 all of its taxable net income by the three factor apportionment percentage as
			 provided in M.G.L. c. 63, § 38(c) through (g) and 830 CMR 63.38.1. If a
			 taxpayer with a Massachusetts commercial domicile has income from business
			 activity which is taxable both in Massachusetts and in another state but also
			 has an income stream that is prohibited from being taxed in another
			 non-domiciliary state by reason of the U.S. Constitution, that income stream
			 shall be allocated in full to Massachusetts.
(c)
Exceptions to the General
			 Rule
. Notwithstanding the general rule set forth in 830 CMR
			 63.38.1(1)(b), the following taxpayers shall determine the part of their net
			 income derived from business carried on in Massachusetts in the following
			 manner:
1.
Section 38
			 Manufacturers
. If a section 38 manufacturer has income from
			 business activity which is taxable both in Massachusetts and in another state,
			 then the part of its net income derived from business carried on in
			 Massachusetts is determined by multiplying all of its taxable net income, other
			 than taxable net income derived from mutual fund sales received by a mutual
			 fund service corporation, by the apportionment percentage provided in M.G.L. c.
			 63, § 38(l) and 830 CMR 63.38.1(10).
2.
Mutual Fund Service
			 Corporations
. Regardless of whether it has income from business
			 activity which is taxable both in Massachusetts and in another jurisdiction, a
			 mutual fund service corporation shall apportion its taxable net income derived
			 from mutual fund sales as provided in M.G.L. c. 63, § 38(m). Where a
			 mutual fund service corporation has both taxable net income derived from mutual
			 fund sales and other taxable net income, then the mutual fund service
			 corporation shall allocate or apportion such other taxable net income as
			 provided in 830 CMR 63.38.1 provided that the mutual fund service corporation
			 shall determine such other taxable net income by taking into account only those
			 deductions that are attributable to income from sources other than mutual fund
			 sales.
(d)
Sham Transactions
. All transactions that determine a
			 taxpayer's ability to apportion or determine the composition of a taxpayer's
			 apportionment percentage are subject to the sham transaction doctrine and the
			 related tax doctrines as set forth in M.G.L. c. 62C, § 3A.
(e)
Outline
. 830 CMR
			 63.38.1, is organized as follows:
1. Purpose,
			 General Rule, Sham Transactions, and Outline
2. Definitions
3. Income Subject to Apportionment
4. Related Business Activities
5. Taxpayer and Taxpayer's Income Taxable in
			 Another State
6. Consistent
			 Accounting Method
7. Property
			 Factor
8. Payroll Factor
9. Sales Factor
10. Section 38 Manufacturers
11. One or More Factors
			 Inapplicable
12. Corporate
			 Partners
13. Alternative
			 Apportionment Methods
14. Effective
			 Date