Massachusetts 2023-2024 Regular Session

Massachusetts Senate Bill S1951 Compare Versions

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1	1	1 of 1
2	2	SENATE DOCKET, NO. 1304 FILED ON: 1/19/2023
3	3	SENATE . . . . . . . . . . . . . . No. 1951
4	4	The Commonwealth of Massachusetts
5	5	_________________
6	6	PRESENTED BY:
7	7	Bruce E. Tarr
8	8	_________________
9	9	To the Honorable Senate and House of Representatives of the Commonwealth of Massachusetts in General
10	10	Court assembled:
11	11	The undersigned legislators and/or citizens respectfully petition for the adoption of the accompanying bill:
12	12	An Act relative to single sales factor.
13	13	_______________
14	14	PETITION OF:
15	15	NAME:DISTRICT/ADDRESS :Bruce E. TarrFirst Essex and Middlesex 1 of 12
16	16	SENATE DOCKET, NO. 1304 FILED ON: 1/19/2023
17	17	SENATE . . . . . . . . . . . . . . No. 1951
18	18	By Mr. Tarr, a petition (accompanied by bill, Senate, No. 1951) of Bruce E. Tarr for legislation
19	19	relative to single sales factor. Revenue.
20	20	The Commonwealth of Massachusetts
21	21	_______________
22	22	In the One Hundred and Ninety-Third General Court
23	23	(2023-2024)
24	24	_______________
25	25	An Act relative to single sales factor.
26	26	Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority
27	27	of the same, as follows:
28	28	1 SECTION 1. Said section 2A of said chapter 63, as so appearing, is hereby amended by
29	29	2striking out subsections (b) and (c) and inserting in place thereof the following 2 subsections:-
30	30	3 (b) If the financial institution has income from business activity which is taxable both
31	31	4within and without this commonwealth, its net income shall be apportioned to this
32	32	5commonwealth by multiplying its net income by its receipts factor. If the receipts factor is
33	33	6missing, the whole of the financial institution’s net income shall be taxable under section 2. The
34	34	7receipts factor is missing if both its numerator and denominator are 0, but it is not missing
35	35	8merely because its numerator is 0.
36	36	9 (c) The receipts shall be computed according to the method of accounting, cash or accrual
37	37	10basis, used by the taxpayer for federal income tax purposes for the taxable year. 2 of 12
38	38	11 SECTION 2. Said section 2A of said chapter 63, as so appearing, is hereby amended by
39	39	12striking out subsections (d)(xii)(A) through (E) inserting in place thereof the following
40	40	13subsection:-
41	41	14 (xii)(A) The amount of Interest, dividends, net gains, but not less than zero, and other
42	42	15income from investment assets and activities and from trading assets and activities to be
43	43	16attributed the commonwealth and included in the numerator is determined by multiplying all
44	44	17such income from such assets and activities by a fraction, the numerator of which is the total
45	45	18receipts included in the numerator pursuant to subsections (i) through (x) and (xii) and the
46	46	19denominator of which is all total receipts of the taxpayer included in the denominator other than
47	47	20interest, dividends, net gains, but not less than zero, and other income from investment assets and
48	48	21activities and from trading assets and activities.”
49	49	22 SECTION 3. Said section 2A of said chapter 63, as so appearing, is hereby further
50	50	23amended by striking out subsections (e), (f) and (g) and inserting in place thereof the following
51	51	24subsection:-
52	52	25 (e) If the provisions of subsections (a) to (d), inclusive, are not reasonably adapted to
53	53	26approximate the net income derived from business carried on within the commonwealth, a
54	54	27financial institution may apply to the commissioner, or the commissioner may require the
55	55	28financial institution, to have its income derived from business carried on within this
56	56	29commonwealth determined by a method other than that set forth in subsections (a) to (d),
57	57	30inclusive. Such application shall be made by attaching to its duly-filed return a statement of the
58	58	31reasons why the financial institution believes that the provisions of this section are not
59	59	32reasonably adapted to approximate its net income derived from business carried on within this 3 of 12
60	60	33commonwealth and a description of the method sought by it. A financial institution which so
61	61	34applies shall, upon receipt of a request therefor from the commissioner, file with the
62	62	35commissioner, under oath of its treasurer, a statement of such additional information as the
63	63	36commissioner may require.
64	64	37 If, after such application by the financial institution, or after the commissioner’s own
65	65	38review, the commissioner determines that the provisions of subsections (a) to (d), inclusive, are
66	66	39not reasonably adapted to approximate the financial institution’s net income derived from
67	67	40business carried on within the commonwealth, the commissioner shall by reasonable methods
68	68	41determine the amount of net income derived from business activity carried on within the
69	69	42commonwealth. The amount thus determined shall be the net income taxable under section two
70	70	43and the foregoing determination shall be in lieu of the determination required by subsections (a)
71	71	44to (d), inclusive. If an alternative method is used by the commissioner hereunder, the
72	72	45commissioner, in his discretion, with respect to the two next succeeding taxable years, may
73	73	46require similar information from such financial institution if it shall appear that the provisions of
74	74	47subsections (a) to (d), inclusive, are not reasonably adapted to approximate for the applicable
75	75	48year the financial institution’s net income derived from business carried on within this
76	76	49commonwealth and may again by reasonable methods determine such income.
77	77	50 SECTION 4. Said chapter 63, as so appearing, is hereby further amended by striking out
78	78	51section 38 and inserting in place thereof the following section:-
79	79	52 Section 38. The commissioner shall determine the part of the net income of a business
80	80	53corporation derived from business carried on within the commonwealth as follows: 4 of 12
81	81	54 (a) Net income as defined in section 30 adjusted as follows shall constitute taxable net
82	82	55income:
83	83	56 (1) 95 percent of dividends, exclusive of distributions in liquidation, included therein
84	84	57shall be deducted other than dividends from or on account of the ownership of:
85	85	58 (i) shares in a corporate trust, as defined in section 1 of chapter 62, to the extent such
86	86	59dividends represent tax-free earnings and profits, as defined in section 8 of chapter 62, as in
87	87	60effect on December 31, 2008,
88	88	61 (ii) deemed distributions and actual distributions, except actual distributions out of
89	89	62previously taxed income, from a DISC which is not a wholly owned DISC, or
90	90	63 (iii) any class of stock, if the corporation owns less than 15 per cent of the voting stock of
91	91	64the corporation paying such dividend.
92	92	65 (2) Long-term capital gains realized and long-term capital losses sustained from the sale
93	93	66or exchange of intangible property affected under the provisions of the Federal Internal Revenue
94	94	67Code, as amended, and in effect for taxable years ended on or before December 31, 1962, shall
95	95	68not be included in any part therein.
96	96	69 (b) If the corporation does not have income from business activity which is taxable in
97	97	70another state, the whole of its taxable net income, determined under the provisions of subsection
98	98	71(a), shall be allocated to this commonwealth. For purposes of this section, a corporation is
99	99	72taxable in another state if (1) in that state such corporation is subject to a net income tax, a
100	100	73franchise tax measured by net income, a franchise tax for the privilege of doing business, or a
101	101	74corporate stock tax, or (2) that state has jurisdiction to subject such corporation to a net income 5 of 12
102	102	75tax regardless of whether, in fact, the state does or does not. Notwithstanding any other provision
103	103	76of this section, the portion of the taxable net income of a corporation that a non-domiciliary state
104	104	77is prohibited from taxing under the Constitution of the United States shall be allocated in full to
105	105	78the commonwealth if the commercial domicile of the corporation is in the commonwealth.
106	106	79 (c) If a corporation has income from business activity which is taxable both within and
107	107	80without this commonwealth, its taxable net income, as determined under the provisions of
108	108	81subsection (a), shall be apportioned to this commonwealth by multiplying such taxable net
109	109	82income by the sales factor.
110	110	83 (d) The sales factor is a fraction, the numerator of which is the total sales of the
111	111	84corporation in the commonwealth during the taxable year, and the denominator of which is the
112	112	85total sales of the corporation everywhere during the taxable year.
113	113	86 As used in this subsection, unless specifically stated otherwise, ‘‘sales’’ shall mean all
114	114	87gross receipts of the corporation, including deemed receipts from transactions treated as sales or
115	115	88exchanges under the Code, except interest, dividends and gross receipts from the maturity,
116	116	89redemption, sale, exchange or other disposition of securities; provided, however, that ‘‘sales’’
117	117	90shall not include gross receipts from transactions or activities to the extent that a non-domiciliary
118	118	91state would be prohibited from taxing the income from such transactions or activities under the
119	119	92Constitution of the United States.
120	120	93 (e) Sales of tangible personal property are in the commonwealth for purposes of this
121	121	94section if:
122	122	95 (1) the property is delivered or shipped to a purchaser within the commonwealth
123	123	96regardless of the f.o.b. point or other conditions of the sale; or (2) the corporation is not taxable 6 of 12
124	124	97in the state of the purchaser and the property was not sold by an agent or agencies chiefly
125	125	98situated at, connected with or sent out from premises for the transaction of business owned or
126	126	99rented by the corporation outside the commonwealth. ‘‘Purchaser’’, as used in clauses (1) and (2)
127	127	100shall include the United States government.
128	128	101 (f) Sales, other than sales of tangible personal property, are in the commonwealth for
129	129	102purposes of this section if the corporation’s market for the sale is in the commonwealth. The
130	130	103corporation’s market for a sale is in the commonwealth and the sale is thus assigned to the
131	131	104commonwealth for the purpose of this section:
132	132	105 (1) in the case of sale, rental, lease or license of real property, if and to the extent the
133	133	106property is located in the commonwealth;
134	134	107 (2) in the case of rental, lease or license of tangible personal property, if and to the extent
135	135	108the property is located in the commonwealth;
136	136	109 (3) in the case of sale of a service, if and to the extent the service is delivered to a
137	137	110location in the commonwealth;
138	138	111 (4) in the case of lease or license of intangible property, including a sale or exchange of
139	139	112such property where the receipts from the sale or exchange derive from payments that are
140	140	113contingent on the productivity, use or disposition of the property, if and to the extent the
141	141	114intangible property is used in the commonwealth; and
142	142	115 (5) in the case of the sale of intangible property, other than as provided in clause (4),
143	143	116where the property sold is a contract right, government license or similar intangible property that
144	144	117authorizes the holder to conduct a business activity in a specific geographic area, if and to the 7 of 12
145	145	118extent that the intangible property is used in or otherwise associated with the commonwealth;
146	146	119provided, however, that any sale of intangible property, not otherwise described in this clause or
147	147	120clause (4), shall be excluded from the numerator and the denominator of the sales factor.
148	148	121 (g) If the numerator and denominator of the sales factor are zero or if the sales factor is
149	149	122otherwise determined to be insignificant in producing income, the taxpayer shall determine its
150	150	123sales factor by:
151	151	124 (1) adding to its sales any interest, dividends and gross receipts from the maturity,
152	152	125redemption, sale, exchange or other disposition of securities, and applying the sourcing
153	153	126provisions for receipts under section 2A to the total adjusted sales amount, as if the taxpayer
154	154	127were a financial institution for purposes of that section; or
155	155	128 (2) if, notwithstanding the adjustments in subsection (g)(1), the numerator and
156	156	129denominator of the sales factor remains zero or if the factor is otherwise determined to be
157	157	130insignificant in producing income, the whole of the taxpayer’s net income shall be taxable net
158	158	131income allocated to the commonwealth, provided that the alternative apportionment provisions
159	159	132of subsection (e) of section 2A shall be applicable, as if the taxpayer were a financial institution
160	160	133for purposes of that section.
161	161	134 (h) For the purposes of this section:
162	162	135 (1) in the case of sales, other than sales of tangible personal property, if the state or states
163	163	136to which sales should be assigned cannot be determined, it shall be reasonably approximated;
164	164	137 (2) in the case of sales other than sales of tangible personal property if the taxpayer is not
165	165	138taxable in a state to which a sale is assigned, or if the state or states to which such sales should be 8 of 12
166	166	139assigned cannot be determined or reasonably approximated, such sale shall be excluded from the
167	167	140numerator and denominator of the sales factor;
168	168	141 (3) the corporation shall be considered to be taxable in the state of the purchaser if
169	169	142tangible personal property is delivered or shipped to a purchaser in a foreign country;
170	170	143 (4) sales of tangible personal property to the United States government or any agency or
171	171	144instrumentality thereof for purposes of resale to a foreign government or any agency or
172	172	145instrumentality thereof are not sales made in the commonwealth;
173	173	146 (5) in the case of sale, exchange or other disposition of a capital asset, as defined in
174	174	147paragraph (m) of section 1 of chapter 62, used in a taxpayer’s trade or business, including a
175	175	148deemed sale or exchange of such asset, ‘‘sales’’ shall be measured by the gain from the
176	176	149transaction;
177	177	150 (6) ‘‘security’’ shall mean any interest or instrument commonly treated as a security as
178	178	151well as other instruments which are customarily sold in the open market or on a recognized
179	179	152exchange, including, but not limited to, transferable shares of a beneficial interest in any
180	180	153corporation or other entity, bonds, debentures, notes and other evidences of indebtedness,
181	181	154accounts receivable and notes receivable, cash and cash equivalents including foreign currencies
182	182	155and repurchase and futures contracts;
183	183	156 (7) in the case of a sale or deemed sale of a business, the term ‘‘sales’’ shall not include
184	184	157receipts from the sale of the business ‘‘goodwill’’ or similar intangible value, including, without
185	185	158limitation, ‘‘going concern value’’ and ‘‘workforce in place’’; and 9 of 12
186	186	159 (8) in the case of a business deriving receipts from operating a gaming establishment or
187	187	160otherwise deriving receipts from conducting a wagering business or activity, income-producing
188	188	161activity shall be considered to be performed in the commonwealth to the extent that the location
189	189	162of wagering transactions or activities that generated the receipts is in the commonwealth.
190	190	163 (i) (1) As used in this subsection, the following words shall, unless the context requires
191	191	164otherwise, have the following meaning:
192	192	165 ‘‘Administration services’’, include, but are not limited to, clerical, fund or shareholder
193	193	166accounting, participant record keeping, transfer agency, bookkeeping, data processing, custodial,
194	194	167internal auditing, legal and tax services performed for a regulated investment company, but only
195	195	168if the provider of such service or services during the taxable year in which such service or
196	196	169services are provided also provides or is affiliated with a person that provides management or
197	197	170distribution services to any regulated investment company.
198	198	171 ‘‘Affiliate’’, the meaning as set forth in 15 USC section a-2(a)(3)(C), as may be amended
199	199	172from time to time.
200	200	173 ‘‘Distribution services’’, include, but are not limited to, the services of advertising,
201	201	174servicing, marketing or selling shares of a regulated investment company, but, in the case of
202	202	175advertising, servicing or marketing shares, only where such service is performed by a person
203	203	176who is, or in the case of a close end company, was, either engaged in the services of selling
204	204	177regulated investment company shares or affiliated with a person that is engaged in the service of
205	205	178selling regulated investment company shares. In the case of an open end company, such service
206	206	179of selling shares must be performed pursuant to a contract entered into pursuant to 15 USC
207	207	180section a-15(b), as from time to time amended. 10 of 12
208	208	181 ‘‘Domicile’’, presumptively the shareholder’s mailing address on the records of the
209	209	182regulated investment company. If, however, the regulated investment company or the mutual
210	210	183fund service corporation has actual knowledge that the shareholder’s primary residence or
211	211	184principal place of business is different than the shareholder’s mailing address said presumption
212	212	185shall not control. If the shareholder of record is a company which holds the shares of the
213	213	186regulated investment company as depositor for the benefit of a separate account, then the
214	214	187shareholder shall be the contract owners or policyholders of the contracts or policies supported
215	215	188by the separate account, and it shall be presumed that the domicile of said shareholder is the
216	216	189contract owner’s or policyholder’s mailing address to the extent that the company maintains such
217	217	190mailing addresses in the regular course of business. If the regulated investment company or the
218	218	191mutual fund service corporation has actual knowledge that the shareholder’s principal place of
219	219	192business is different than the shareholder’s mailing address said presumption shall not control.
220	220	193 ‘‘Management services’’, include, but are not necessarily limited to, the rendering of
221	221	194investment advice directly or indirectly to a regulated investment company, making
222	222	195determinations as to when sales and purchases of securities are to be made on behalf of the
223	223	196regulated investment company, or the selling or purchasing of securities constituting assets of a
224	224	197regulated investment company, and related activities, but only where such activity or activities
225	225	198are performed: (i) pursuant to a contract with the regulated investment company entered into
226	226	199pursuant to 15 USC section a-15(a), as from time to time amended; (ii) for a person that has
227	227	200entered into such contract with the regulated investment company; or (iii) for a person that is
228	228	201affiliated with a person that has entered into such contract with a regulated investment company.
229	229	202 ‘‘Mutual fund sales’’, taxable net income derived within the taxable year directly or
230	230	203indirectly from the rendering of management, distribution or administration services to a 11 of 12
231	231	204regulated investment company, including net income received directly or indirectly from
232	232	205trustees, sponsors and participants of employee benefit plans which have accounts in a regulated
233	233	206investment company.
234	234	207 ‘‘Regulated investment company’’, the meaning as set forth in section 851 of the Internal
235	235	208Revenue Code as amended and in effect for the taxable year.
236	236	209 (2) Notwithstanding the foregoing, mutual fund sales, other than the sale of tangible
237	237	210personal property, shall be assigned to the commonwealth to the extent that shareholders of the
238	238	211regulated investment company are domiciled in the commonwealth as follows:
239	239	212 (a) by multiplying the taxpayer’s total dollar amount of sales of such services on behalf
240	240	213of each regulated investment company by a fraction, the numerator of which shall be the average
241	241	214of the number of shares owned by the regulated investment company’s shareholders domiciled in
242	242	215the commonwealth at the beginning of and at the end of the regulated investment company’s
243	243	216taxable year that ends with or within the taxpayer’s taxable year and the denominator of which
244	244	217shall be the average of the number of shares owned by the regulated investment company
245	245	218shareholders everywhere at the beginning of and at the end of the regulated investment
246	246	219company’s taxable year that ends with or within the taxpayer’s taxable year.
247	247	220 (b) A separate computation shall be made to determine the sale for each regulated
248	248	221investment company, the sum of which shall equal the total sales assigned to the commonwealth.
249	249	222 The commissioner shall adopt regulations to implement subsections (d) to (i), inclusive.
250	250	223Nothing in this subsection shall limit the commissioner’s authority under subsection (k). 12 of 12
251	251	224 (j) If a corporation maintains an office, warehouse or other place of business in a state
252	252	225other than this commonwealth for the purpose of reducing its tax under this chapter, the
253	253	226commissioner shall, in determining the amount of taxable net income apportionable to this
254	254	227commonwealth, adjust any factor to properly reflect the amount which the factor ought
255	255	228reasonably to assign to this commonwealth.
256	256	229 (k) If the apportionment provisions of this section are not reasonably adapted to
257	257	230approximate the net income derived from business carried on within this commonwealth by any
258	258	231type of industry group, the commissioner may, by regulation, adopt alternative apportionment
259	259	232provisions to be applied to such an industry group in lieu of the foregoing provisions.
260	260	233 (l) In any case in which a purchasing corporation makes an election under section 338 of
261	261	234the Code, the target corporation shall be treated as having sold its assets for purposes of this
262	262	235section.