2.000
2.000 Exclusions from Gross Income
Tax Expenditure Name
Tax Expenditure Number
FY2023
FY2024
FY2025
FY2026
FY2027
Exclusions from Gross Income
2.000
277.2
298.5
316.0
330.4
345.4
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Tax Item
Description
Origin
FY2027
2.001
Small Business Corporations
Small Business Corporations
Corporations with only one class of stock and no more than 100 shareholders are generally permitted to elect to be treated as S corporations for federal tax purposes. See Internal Revenue Code (Code) § 1361. S corporations are generally not subject to federal tax at the corporate level. However, S corporation income is subject to federal tax at the shareholder level on a flow-through basis. See (Code) § 1366. If a corporation does not make an S corporation election, it is generally treated as a C corporation. A C corporation is subject to federal tax on its income at the corporate level and its distributions of profits are subject to tax as dividends at the shareholder level.
Massachusetts conforms to the federal definition of an S corporation. See M.G.L. c. 62, § 17A, M.G.L. c. 63, § 32D. For Massachusetts purposes, S corporations are not subject to the net income measure of the corporate excise if they have total receipts under $6 million. An S corporation with total receipts that are $6 million or more, but less than $9 million, is subject to the net income measure at a rate of 2% and an S corporation with total receipts that are $9 million or more is subject to the income measure of the corporate excise at a rate of 3%. See M.G.L. c. 63, § 32D. In contrast, C corporations are subject to the net income measure at a rate of 8%. See M.G.L. c. 63, § 39.
The non-income measure of the corporate excise (a .26% tax on net worth or taxable tangible property) applies to S corporations and C corporations in the same manner. Similarly, the $456 minimum corporate excise applies to both. See M.G.L. c. 63, § 39.
S corporation income is subject to Massachusetts personal income tax at the shareholder level on a flow-through basis. The Massachusetts flow through rules are modeled after the federal flow-through rules. See M.G.L. c. 62, § 17A.
The corporate excise revenue lost as a result of the reduced rates applicable to S corporation net income compared to the 8% rate applicable to C corporation net income constitutes a tax expenditure.
Massachusetts conforms to the federal definition of an S corporation. See M.G.L. c. 62, § 17A, M.G.L. c. 63, § 32D. For Massachusetts purposes, S corporations are not subject to the net income measure of the corporate excise if they have total receipts under $6 million. An S corporation with total receipts that are $6 million or more, but less than $9 million, is subject to the net income measure at a rate of 2% and an S corporation with total receipts that are $9 million or more is subject to the income measure of the corporate excise at a rate of 3%. See M.G.L. c. 63, § 32D. In contrast, C corporations are subject to the net income measure at a rate of 8%. See M.G.L. c. 63, § 39.
The non-income measure of the corporate excise (a .26% tax on net worth or taxable tangible property) applies to S corporations and C corporations in the same manner. Similarly, the $456 minimum corporate excise applies to both. See M.G.L. c. 63, § 39.
S corporation income is subject to Massachusetts personal income tax at the shareholder level on a flow-through basis. The Massachusetts flow through rules are modeled after the federal flow-through rules. See M.G.L. c. 62, § 17A.
The corporate excise revenue lost as a result of the reduced rates applicable to S corporation net income compared to the 8% rate applicable to C corporation net income constitutes a tax expenditure.
IRC §§ 1361-1363; M.G.L. c. 63, §32D; c. 62, § 17A
345.4
2.002
Exemption of Income from the Sale, Lease or Transfer of Certain Patents
Exemption of Income from the Sale, Lease or Transfer of Certain Patents
Similarly for individual income tax, for purposes of the corporate excise the starting point for the computation of Massachusetts taxable net income is federal gross income as defined under the IRC, as amended and in effect for the taxable year (with certain modifications not relevant here). Federal gross income includes income from the sale, lease or other transfer of all patents and income from property subject to such patents. Pursuant to M.G.L. c. 63, § 30.3 income from certain patents that are useful for energy conservation or alternative energy development may be deducted from Massachusetts gross income (and therefore is not subject to tax) for a period of five years. The five-year period begins on the date of issuance of the United States patent or the date of approval by the Commissioner of Energy Resources, whichever expires first.
The income may only be deducted in relation to patents that were issued to or applied for by a Massachusetts resident or a Massachusetts corporation. Also, the patents must be of economic value, practicable, and necessary for the Commonwealth. Finally, the patents must be approved by the Commissioner of Energy Resources.
The FY22 Budget repeals the exemption effective for taxable years beginning on or after January 1, 2022.
The income may only be deducted in relation to patents that were issued to or applied for by a Massachusetts resident or a Massachusetts corporation. Also, the patents must be of economic value, practicable, and necessary for the Commonwealth. Finally, the patents must be approved by the Commissioner of Energy Resources.
The FY22 Budget repeals the exemption effective for taxable years beginning on or after January 1, 2022.
M.G.L. c. 63, § 30.3
Expired
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