Governor Deval Patrick's Budget Recommendation - House 2 Fiscal Year 2013

Governor's Budget Recommendation FY 2013

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2.001 -Small Business Corporations

Item DescriptionFY2011 FY2012 FY2013
2.001 Small Business Corporations
In general, corporations organized under, or subject to, Chapters 156, 156A, 156B, 156C, 156D, or 180 of Massachusetts General Laws (M.G.L.) or that have privileges, powers, rights or immunities not possessed by individuals or partnerships are subject to corporate excise. Certain corporations with no more than 100 shareholders may elect to be taxed, for both federal and state tax purposes, as "S corporations." The earnings of S corporations with total receipts of less than $6 million are not generally subject to taxation at the corporate level. As of 2012, S corporations with total receipts of $6 million or more are subject to a reduced corporate excise: 1.83%(*) for non-financial institutions and 2.5%(*) for financial institutions if receipts are $6 million or more but less than $9 million, and 2.75%(*) for non-financial institutions and 3.75%(*) for financial institutions if receipts are $9 million or more. In addition, S corporation net earnings (and losses) are attributed directly to shareholders (whether or not they are distributed as dividends) and are taxed at the individual shareholder level, generally at the applicable personal income tax rate (5.85% in tax year 2000, 5.6% in tax year 2001, 5.3% in tax years 2002 and 5.25% in tax year 2012). By contrast, ordinary corporate earnings are taxed twice: once when earned by the corporation at 8.0%(*) for non-financial institutions and 9.0%(*) for financial institutions, and once when distributed to shareholders in the form of dividends, which are generally taxable at the applicable personal income tax rate.

The difference between the manner in which income is taxed to an ordinary business corporation (including its shareholders) and an S corporation and its shareholders constitutes a tax expenditure. Massachusetts first adopted this treatment of corporations in 1986.

(*) See Appendix A for further details on corporate rate change.

Origin:  IRC, S. 1361-1363, M.G.L. c. 62, S. 17A, c. 63, S.32D, LR 99-17.
Estimate:  $71.0
72.2 71.3 71


IRCFederal Internal Revenue Code (26 U.S.C.)
M.G.L. Massachusetts General Laws
U.S.C United States Code
ESTIMATES All estimates are in $ millions.

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