Origin: Apportionment formulas are used throughout the country to determine the share of a multistate corporation's income that an individual state may tax. Massachusetts employs such formulas. Corporations with a presence both in Massachusetts and in other states generally apportion income to the Commonwealth using a three-factor apportionment formula. A corporation's sales, payroll, and property in Massachusetts are compared to those outside Massachusetts and the resulting percentage is applied to total income to determine income taxable in the Commonwealth. Double-Weighted Sales Factor An apportionment calculation that counts the sales factor twice (so-called "double-weighted sales") was adopted for most business corporations beginning with taxable years ending on or after December 31, 1976. Companies with property and payroll in Massachusetts and sales in other states tend to benefit from an apportionment formula that weights sales more heavily than the other factors. On the other hand, businesses located outside of the state with a large volume of sales into Massachusetts are hurt by double weighted sales factor formula. On balance, apportionment with double-weighted sales factor is a tax expenditure. Single-Sales Factor Certain corporations are permitted to apportion their income using only the sales factor (so- called "single-sales factor" apportionment). Eligible defense corporations were permitted to apportion using a single-sales factor formula starting in 1996. Single-sales factor apportionment was extended to other qualified manufacturers (referred to in this report as "section 38 manufacturers") in 2000. Starting in 1997, corporations that perform services for a mutual fund are allowed to apportion their income to Massachusetts based solely on the percentage of the mutual fund's shareholders that are Massachusetts residents. As is the case with double-weighted sales factor, not all corporations that apportion using single-sales factor benefit from the rule, in particular those that are located outside of Massachusetts. However, on balance, single-sales factor apportionment is a tax expenditure.
Effective January 1, 2025, all corporations are required to apportion their income using a single-sales factor. Accordingly, DOR will reevaluate whether this item constitutes a tax expenditure. The FY26 impact of this item is not available.
Origin: M.G.L. c. 63, §38 (c), (k), (l), (m)
Corporate Excise Tax
Adjustments to Apportionment Formula
2.401
Unequal Weighting of Sales, Payroll, and Property in the Apportionment Formula
Apportionment formulas are used throughout the country to determine the share of a multistate corporation's income that an individual state may tax. Massachusetts employs such formulas. Corporations with a presence both in Massachusetts and in other states generally apportion income to the Commonwealth using a three-factor apportionment formula. A corporation's sales, payroll, and property in Massachusetts are compared to those outside Massachusetts and the resulting percentage is applied to total income to determine income taxable in the Commonwealth. Double-Weighted Sales Factor An apportionment calculation that counts the sales factor twice (so-called "double-weighted sales") was adopted for most business corporations beginning with taxable years ending on or after December 31, 1976. Companies with property and payroll in Massachusetts and sales in other states tend to benefit from an apportionment formula that weights sales more heavily than the other factors. On the other hand, businesses located outside of the state with a large volume of sales into Massachusetts are hurt by double weighted sales factor formula. On balance, apportionment with double-weighted sales factor is a tax expenditure. Single-Sales Factor Certain corporations are permitted to apportion their income using only the sales factor (so- called "single-sales factor" apportionment). Eligible defense corporations were permitted to apportion using a single-sales factor formula starting in 1996. Single-sales factor apportionment was extended to other qualified manufacturers (referred to in this report as "section 38 manufacturers") in 2000. Starting in 1997, corporations that perform services for a mutual fund are allowed to apportion their income to Massachusetts based solely on the percentage of the mutual fund's shareholders that are Massachusetts residents. As is the case with double-weighted sales factor, not all corporations that apportion using single-sales factor benefit from the rule, in particular those that are located outside of Massachusetts. However, on balance, single-sales factor apportionment is a tax expenditure. <BR><BR>Effective January 1, 2025, all corporations are required to apportion their income using a single-sales factor. Accordingly, DOR will reevaluate whether this item constitutes a tax expenditure. The FY26 impact of this item is not available.
M.G.L. <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section38" target="_blank">c. 63, §38 (c), (k), (l), (m)</a>
328.2
328.9
326.8
364.2
N.A.
