830 CMR, § 63.39.1

Current through Register 1536, December 6, 2024

Section 63.39.1 - Corporate Nexus

(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. § 381et 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. § 381et 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.

830 CMR, § 63.39.1

Date of Promulgation: 1/1/93

Amended by Mass Register Issue S1277, eff. 1/2/2015.

Amended by Mass Register Issue 1402, eff. 10/18/2019.