Current through Register 1531, September 27, 2024
(1)
Scope of Regulation; Outline
of Topics; Effective Date.
(a)
Scope of Regulation.
1. If a corporation believes that the
allocation and apportionment provisions of M.G.L. c. 63, § 38 are not
reasonably adapted to approximate the net income derived from business carried
on by the corporation within Massachusetts, the corporation may apply to the
Commissioner to have its Massachusetts income determined by a method other than
that provided in M.G.L. c. 63, §§ 38 and 42.
2. If a corporation subject to a regulation
issued under M.G.L. c. 63, § 38(j) believes that the provisions of such
regulation are not reasonably adapted to approximate the net income derived
from business carried on within Massachusetts by the corporation, that
corporation may apply to the Commissioner to have its Massachusetts income
determined by a method other than that provided in the applicable regulation
issued under M.G.L. c. 63, § 38(j).
3.830 CMR 63.42.1 does not apply to financial
institutions subject to the allocation and apportionment provisions of M.G.L.
c. 63, § 2A. Such entities are entitled to apply the alternative
apportionment provisions of M.G.L. c. 63, § 2A(g) and are otherwise
subject to the rules therein.
(b)
Outline of
Topics. 830 CMR 63.42.1 is organized as follows:
1. Scope of Regulation; Outline of Topics;
Effective Date.
2.
Definitions.
3. Application
Process.
4. Alternative
Apportionment Method.
5.
Commissioner's Review and Determination.
6. Penalties.
7. Abatement.
8. Taxpayer Corporation Filing as Member of a
Massachusetts Combined Group.
(c)
Effective Date.
830 CMR 63.42.1 is effective for applications for alternative apportionment
submitted on or after October 6, 2017.
(2)
Definitions. For
the purposes of 830 CMR 63.42.1, the following terms have the following
meanings:
Alternative Apportionment. A method,
other than that provided in M.G.L. c. 63, § 38 and
830 CMR
63.38.1, or a regulation issued under M.G.L.
c. 63, § 38(j), to determine a corporation's net income derived from
business carried on within Massachusetts.
Applicant. A corporation, as defined
in 830 CMR 63.42.1, applying for permission to use alternative apportionment
under M.G.L. c. 63, § 42 and 830 CMR 63.42.1.
Application. An application for
alternative apportionment pursuant to M.G.L. c. 63, § 42 submitted on Form
AA-1, Application for Section 42 Method of Apportionment, or such other form as
may be prescribed by the Commissioner.
Commissioner. The Commissioner of
Revenue or the Commissioner's representative duly authorized to perform the
duties of the Commissioner relating to alternative apportionment.
Corporation. A business corporation
subject to tax under M.G.L. c. 63, § 39.
Duly-filed Return. A return required
by M.G.L. c. 62C that is filed on or before the due date or within any
extension granted by the Commissioner under M.G.L. c. 62C, § 19. A
duly-filed return for purposes of M.G.L. c. 63, § 42, refers to the
taxpayers's orginally filed return for the taxable period and does not include
an amended return.
Statutory Apportionment. The method of
determining net income derived from business carried on within Massachusetts as
provided in M.G.L. c. 63, § 38 and
830 CMR
63.38.1, or a regulation issued under M.G.L.
c. 63, § 38(j).
(3)
Application Process. If a corporation believes that
the allocation and apportionment provisions of M.G.L. c. 63, § 38, or,
where applicable, a regulation issued under M.G.L. c. 63, § 38(j), are not
reasonably adapted to approximate its net income derived from business carried
on in Massachusetts, the corporation may apply to the Commissioner to have its
Massachusetts income determined by an alternative apportionment method. An
applicant seeking alternative apportionment must submit Form AA-1, or such
other form as may be prescribed by the Commissioner, with its duly-filed
return. An application will not be considered if it is received by the
Commissioner after the due date or, where applicable, the due date as validly
extended, for the applicant's corporation excise return.
(a)
Contents of
Application. An application must contain a statement of the
reasons, supported by detailed facts, why the applicant believes that the
allocation and apportionment provisions of M.G.L. c. 63, § 38, or, where
applicable, a regulation issued under M.G.L. c. 63, § 38(j), are not
reasonably adapted to approximate its net income derived from business carried
on within Massachusetts. The applicant must show by clear and cogent evidence
that the income attributed to Massachusetts using statutory apportionment does
not fairly represent the extent of the applicant's business activity in
Massachusetts. An application must also contain a detailed description of the
applicant's proposed alternative apportionment method. The applicant must
provide a written explanation of the proposed alternative method, attaching
sufficient documentation to support the overall result reached. The
Commissioner may request additional information from the applicant.
(b)
Return; Tax Due.
An application must be submitted with a duly-filed tax return showing
computation of tax using both statutory apportionment and the applicant's
proposed alternative apportionment method. The amount of tax due with the
return must be computed using statutory apportionment.
(4)
Alternative Apportionment
Method. The applicant's proposed alternative method may include,
with respect to all or any part of the applicant's business activity, one or
more of the following:
(a) the exclusion of
one or more factors;
(b) the
inclusion of one or more additional factors;
(c) the allocation of particular items of
income, gain, deduction or loss; or
(d) the employment of other adjustments or
methodology.
(5)
Commissioner's Review and Determination.
(a)
In General. The
Commissioner will consider each proper and timely-filed application for
alternative apportionment, and make a determination as set forth in 830 CMR
63.42.1(5)(b). An application for alternative apportionment may be withdrawn at
any time before the applicant has been notified of the Commissioner's
determination.
(b)
Commissioner's Determination.
1. If in the Commissioner's judgment the
allocation and apportionment provisions of M.G.L. c. 63, § 38 or, where
applicable, a regulation promulgated under M.G.L. c. 63, 38(j), are reasonably
adapted to approximate the applicant's net income derived from business carried
on within Massachusetts, the application will be denied, and the applicant's
net income derived from business carried on within Massachusetts will be
determined using statutory apportionment. The Commissioner shall notify the
applicant of the determination to deny the application.
2. If in the Commissioner's judgment it
appears that the allocation and apportionment provisions of M.G.L. c. 63,
§ 38 or, where applicable, a regulation promulgated under M.G.L. c. 63,
38(j), are not reasonably adapted to approximate the applicant's net income
from business carried on within Massachusetts, the Commissioner will determine
the amount of the applicant's net income derived from business activity carried
on within Massachusetts, either by adopting the applicant's proposed method or
by a reasonable alternative. The Commissioner shall notify the applicant of the
method the Commissioner proposes to apply.
a.
Applicant's Opportunity to Object to Proposed Method.
Upon receipt of notification of the Commissioner's intent to apply a proposed
alternative method, the applicant has 60 days, or such longer period as the
Commissioner may expressly allow, to advise the Commissioner in writing of any
objections to the Commissioner's proposed method. The Commissioner may further
discuss with the applicant the Commissioner's proposed method, and as a result
the Commissioner may in his discretion revise his proposed method.
b.
Determination of Alternative
Method. After consideration of any objections submitted pursuant
to 830 CMR 63.42.1(5)(b)2.a., or if no objections are submitted within the
period described in such subsection, the Commissioner shall notify the
applicant of the Commissioner's determination as to the alternative method to
be applied. The alternative apportionment method so determined by the
Commissioner shall be considered the method of apportionment applicable to the
taxpayer under M.G.L. c. 63.
c.
Amended Return; Refund. The applicant must submit an
amended return showing computation of the tax using the alternative
apportionment method determined by the Commissioner. Where applicable, a refund
of an overpayment, with any applicable interest, will be made pursuant to
M.G.L. c. 62C, § 36.
3. If the Commissioner does not act upon an
application for alternative apportionment before the expiration of nine months
from the date the application was properly filed, the application is deemed
denied. The Commissioner and the applicant may consent in writing to extend the
time for the decision on the application.
(c)
Determination May Be
Effective for Three Years. An alternative apportionment method
determined by the Commissioner shall be effective for up to three tax years as
provided in the Commissioner's determination of alternative method, absent any
material change in the applicable facts and law. The applicant shall indicate
its use of the alternative apportionment method on each duly-filed tax return
in the manner prescribed by the Commissioner.
(6)
Penalties. If an
applicant files a return reporting its tax using any method of allocation and
apportionment other than statutory apportionment without first complying with
the provisions of 830 CMR 63.42.1, or if after so complying an applicant files
an amended return using a method of allocation and apportionment that is
contrary to the method determined under 830 CMR 63.42.1(5)(b)1. or 2., as
applicable, the return filed will be considered incorrect or insufficient
within the meaning of M.G.L. c. 62C, § 28. If a taxpayer that has been
notified by the Commissioner that it has filed an incorrect or insufficient
return refuses or neglects within 30 days after the date of the notification to
file a proper return, or if a taxpayer files a false or fraudulent return, the
Commissioner may determine the tax due and assess the tax at not more than
double the amount so determined under M.G.L. c. 62C, § 28. The
Commissioner may also impose a penalty under M.G.L. c. 62C, § 35A, in
addition to any other penalties established by law.
(7)
Abatement. An
applicant aggrieved by the denial of its application or aggrieved by the
Commissioner's determination of an alternative apportionment method may file an
application for abatement pursuant to M.G.L. c. 62C, § 37, in such form as
the Commissioner may require. No tax will be abated on the ground that an
alternative apportionment method should have been used unless the corporation
has properly applied for alternative apportionment under M.G.L. c. 63, §
42 and 830 CMR 63.42.1.
(8)
Taxpayer Corporation Filing as Member of a Massachusetts Combined
Group. A taxpayer corporation that files a Massachusetts corporate
excise return as a member of a combined group (i.e., that
files a Massachusetts combined report under M.G.L. c. 63, § 32B) may apply
for alternative apportionment if it believes that the allocation and
apportionment provisions of M.G.L. c. 63, § 38, or where applicable, a
regulation under M.G.L. c. 63, § 38(j), are not reasonably adapted to
approximate its net income derived from business activity carried on within
Massachusetts. The application must be submitted by the principal reporting
corporation on behalf of the member that is requesting alternative
apportionment. In the review of such an application, the Commissioner will
consider the business activities of all of the members of the combined group
members and the Massachusetts apportionment percentages of all such taxable
members in determining whether the combined group's taxable income attributed
to Massachusetts reasonably reflects the business activity of the combined
group carried on within Massachusetts. The alternative apportionment request of
the taxable member of the combined group will be granted only if the
Commissioner concludes that the combined group's taxable income attributed to
Massachusetts does not reasonably reflect the business activity of the combined
group in Massachusetts.
