2.200
2.200 Deductions from Gross Income
Tax Expenditure Name
Tax Expenditure Number
FY2020
FY2021
FY2022
FY2023
FY2024
Deductions from Gross Income
2.200
204.5
257.4
296.2
309.5
320.9
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Tax Item
Description
Origin
FY2024
2.201
Charitable Contributions and Gifts Deduction
Charitable Contributions and Gifts Deduction
The tax expenditure allows corporations (and will allow individuals) to deduct charitable contributions in determining taxable income. The deduction for individuals and the deduction for corporations are based on separate provisions of Massachusetts law, but both deductions derive from Internal Revenue Code ("Code") § 170. Code § 170 allows both individuals and corporations a federal deduction for charitable contributions to § 501(c)(3) organizations.
The Massachusetts corporate excise deduction for charitable contributions results from the general allowance of federal deductions in the determination of net income. Thus, Massachusetts allows the deduction in the same amount as the federal deduction. All federal requirements and limits pertaining to the deduction apply for Massachusetts purposes. The most important of these limits is that the deduction cannot exceed 10% of a corporation's taxable income. The federal limit was temporarily increased to 25% for certain corporate contributions made in 2020 and 2021. Massachusetts followed those temporary increases.
The corporate excise revenue lost as a result of the deduction for charitable contributions is a Massachusetts tax expenditure.
The Massachusetts corporate excise deduction for charitable contributions results from the general allowance of federal deductions in the determination of net income. Thus, Massachusetts allows the deduction in the same amount as the federal deduction. All federal requirements and limits pertaining to the deduction apply for Massachusetts purposes. The most important of these limits is that the deduction cannot exceed 10% of a corporation's taxable income. The federal limit was temporarily increased to 25% for certain corporate contributions made in 2020 and 2021. Massachusetts followed those temporary increases.
The corporate excise revenue lost as a result of the deduction for charitable contributions is a Massachusetts tax expenditure.
M.G.L. c. 63, §30.4; IRC §170
71.4
2.203
Net Operating Loss Carryover
Net Operating Loss Carryover
The net operating loss (NOL) deduction is a current-year deduction for losses sustained in prior years. Losses incurred in years a corporation is not subject to the corporate excise in Massachusetts (for example, where the corporation does no business in Massachusetts) are not allowed to be carried forward. While the Internal Revenue Code provides a federal deduction for NOLs, Massachusetts does not conform to those rules; rather the General Laws provide for a specific Massachusetts deduction. The deduction was enacted in 1988. Prior to 2010, NOLs incurred by Massachusetts corporate excise filers could be carried forward for not more than 5 years, and could not be carried back. Losses incurred in taxable years beginning on or after January 1, 2010 can be carried forward for 20 years, and cannot be carried back.
IRC §172; M.G.L. c. 63, §30.5
245.3
2.204
Excess Natural Resource Depletion Allowance
Excess Natural Resource Depletion Allowance
Taxpayers in extractive industries (mining or drilling for natural resources) may deduct a percentage of gross mining income as a depletion allowance ("percentage depletion") even if the cost basis of the property has been reduced to zero. The deduction may not exceed 50% (in some cases, 100%) of taxable income from the property. In the case of oil and gas, percentage depletion is available only to domestic oil and gas sold by "independent producer's" (nonintegrated companies). The excess of the deduction, which is available using the percentage of gross income method of depletion over a depletion deduction based on cost, is a tax expenditure.
IRC §§613, 613A; M.G.L. c. 63, §30.3
1.9
2.205
Deduction for Certain Dividends of Cooperatives
Deduction for Certain Dividends of Cooperatives
Cooperatives are organizations comprised of separate businesses that band together for limited purposes to take advantage of economies of scale, for example when buying supplies or selling products. Farmers' cooperatives and certain corporations acting as cooperatives may deduct so-called "patronage dividends" from their gross incomes. A "patronage dividend" is a dividend paid to members of the cooperative: (i) based on the quantity or value of business done with the members, (ii) under a pre-existing obligation of the cooperative; and (iii) determined by the cooperative's net earnings from business with members. In order to deduct the dividends, cooperatives must provide notice to members of the total patronage dividend and must pay a minimum of 20'% of each member's dividend in cash within 8½ months following the close of the cooperative's taxable year.
The deduction is based on the notion that the cooperative is an agent working for the members and that any funds transferred to members already belong to the members. See Farm Service Cooperative v. Commissioner, 619 F.2d 718, 722 (1979). In this view, the primary function of a cooperative is the allocation of the economic benefits of the cooperative, either in the form of net savings or net earnings. The deduction recognizes that taxing patronage dividends would discourage such allocation and could result in double taxation of income (first when earned by the cooperative and second as a dividend received by the member).
The deduction is based on the notion that the cooperative is an agent working for the members and that any funds transferred to members already belong to the members. See Farm Service Cooperative v. Commissioner, 619 F.2d 718, 722 (1979). In this view, the primary function of a cooperative is the allocation of the economic benefits of the cooperative, either in the form of net savings or net earnings. The deduction recognizes that taxing patronage dividends would discourage such allocation and could result in double taxation of income (first when earned by the cooperative and second as a dividend received by the member).
2.4
2.206
Deduction for Renovation of Abandoned Buildings as Part of Certified Project
Deduction for Renovation of Abandoned Buildings as Part of Certified Project
Corporations and individuals are subject to tax on their taxable net income (under the corporate excise) and taxable income (under the personal income tax), respectively. In determining the applicable tax base, a deduction is provided to corporations and individuals for 10% of the cost of renovating abandoned buildings. The deduction is in addition to any other deduction for the cost of such renovation that is available to corporations subject to the net income measure of the corporate excise or to individuals subject to the personal income tax. Apart from this deduction, renovation expenses incurred with respect to business property are generally deductible as current business expense deductions or as depreciation. Amounts allowed under the renovation deduction might also be included in deductible business expenses or deductible depreciation. Thus, the deduction functions as an extra, or bonus, deduction for renovation expenses. To be deductible, the renovation costs must be incurred with respect to a building (i) located in an economic opportunity area and (ii) designated as abandoned, by the Economic Assistance Coordinating Council (EACC).
The deduction is part of the Massachusetts Economic Development Incentive Program (EDIP). The EDIP generally employs local property tax incentives to spur economic development, often in blighted areas. These incentives are available for projects that will create new jobs. In addition to the local property tax incentives, the EACC is empowered to authorize the abandoned building renovation deduction. The revenue lost as a result of the deduction constitutes a tax expenditure.
The deduction is part of the Massachusetts Economic Development Incentive Program (EDIP). The EDIP generally employs local property tax incentives to spur economic development, often in blighted areas. These incentives are available for projects that will create new jobs. In addition to the local property tax incentives, the EACC is empowered to authorize the abandoned building renovation deduction. The revenue lost as a result of the deduction constitutes a tax expenditure.
M.G.L. c. 63, §38O
Negligible
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