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