United States

Massachusetts enacts legislation to treat GILTI as dividends received

INSIGHT ARTICLE  | 

On Oct. 23, 2018, Massachusetts Gov. Charlie Baker signed House Bill 4930, a supplemental budget appropriations bill which, among other things, addresses the treatment of global intangible low-taxed income (GILTI) in response to federal tax reform. Highlighted provisions as related to the Massachusetts corporate and personal income tax are summarized below.

Corporate income tax

  • For Massachusetts corporate income tax purposes, amounts included in federal gross income pursuant to sections 951 and 951A (GILTI) must be treated as dividends received
    • Such income is also treated as dividend income for Massachusetts apportionment purposes; as such, it is excluded from the calculation of the Massachusetts sales factor
    • Such income will not be treated as “receipts” for purposes of the apportionment of income for financial institutions
  • Since section 951A income will be treated as dividend income, it is subject to a 95 percent dividends received deduction for corporate tax purposes (assuming 15 percent or more ownership of voting stock in the distributing corporation)
  • The deductions allowed under sections 245A, 250, and 965(c) are disallowed for Massachusetts corporate tax purposes

Personal income tax

  • For personal income tax purposes, Massachusetts has adopted sections 951 and 951A “as amended and in effect for the taxable year.”  Consequently, Massachusetts has adopted the GILTI provisions for personal income tax purposes
    • Note that for personal income tax purposes, Massachusetts generally adopts the Internal Revenue Code as in effect on Jan. 1, 2005, with selected provisions adopted on a rolling basis (with section 951A now being one of those selected provisions).  Since Massachusetts has not specifically adopted section 965, deemed repatriated income under section 965 is generally not included in the tax base for Massachusetts personal income tax purposes
  • Amounts included in federal gross income pursuant to sections 951 and 951A must be treated as dividends for Massachusetts personal income tax purposes
  • Note, there is no dividends received deduction for Massachusetts personal income tax purposes

Takeaway

Taxpayers that are anticipating including GILTI in their tax base for federal income tax purposes should consider the potential corresponding impact on their Massachusetts tax returns.  As noted above, Massachusetts’ adoption of the federal income tax GILTI provisions could affect not only corporate taxpayers, but individuals subject to Massachusetts personal income tax.

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