Origin: 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.
Origin: IRC §§ 1361-1363; M.G.L. c. 63, §32D; c. 62, § 17A
Corporate Excise Tax
Exclusions from Gross Income
2.001
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) <a href="https://www.law.cornell.edu/uscode/text/26/1361" target="_blank">§ 1361</a>. 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) <a href="https://www.law.cornell.edu/uscode/text/26/1366" target="_blank">§ 1366</a>. 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.<BR><BR>Massachusetts conforms to the federal definition of an S corporation. See <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section17a" target="_blank">M.G.L. c. 62, § 17A</a>, <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section32d" target="_blank">M.G.L. c. 63, § 32D</a>. 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 <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section32d" target="_blank">M.G.L. c. 63, § 32D</a>. In contrast, C corporations are subject to the net income measure at a rate of 8%. See <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section39" target="_blank">M.G.L. c. 63, § 39</a>.<BR><BR>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 <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section39" target="_blank">M.G.L. c. 63, § 39</a>.<BR><BR>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 <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section17a" target="_blank">M.G.L. c. 62, § 17A</a>.<BR><BR>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 §§ <a href="https://www.law.cornell.edu/uscode/text/26/1361" target="_blank">1361</a>-<a href="https://www.law.cornell.edu/uscode/text/26/1363" target="_blank">1363</a>; M.G.L. <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter63/Section32d" target="_blank">c. 63, §32D</a>; <a href="https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter62/Section17a" target="_blank">c. 62, § 17A</a>
277.2
298.5
316.0
330.4
345.4
