United States

Massachusetts finalizes economic nexus regulations for corporate taxes

TAX ALERT  | 

In final regulations published on Oct. 18, the Massachusetts Department of Revenue has established new nexus rules for corporations doing business in the commonwealth. The new rules are set forth in 830 CMR 63.39.1.  The regulations create a presumption that an out of state corporation with annual sales in Massachusetts of $500,000 or more will be subject to the state’s corporate excise tax. The Department of Revenue will aggregate related companies sales to reach the $500,000 threshold.

The regulations were first proposed in May 2019. The department maintains that the rules reflect changes in the law and specifically cited the U.S. Supreme Court’s decision in South Dakota v. Wayfair. According to the department, “The rules set forth in this regulation explain when a business corporation, financial institution, or insurance company is subject to tax under Chapter 63 of the General Laws, with respect to the income measure, non-income measure, or minimum excise, taking into consideration the principles that apply under the U.S. Constitution and federal law.” 

Takeaways

Companies that may be subject to these rules should note that the department did not include an effective date for the new nexus threshold. We understand that the department of revenue intends the rule to be effective for taxable years beginning on or after Jan. 1, 2019.  

Out of state businesses with more than $500,000 in sales in the Commonwealth will likely be subject to corporate excise taxation and filing requirements. Members of a group with an aggregate sales of more than $500,000 will likely be subject to taxing jurisdiction in the Commonwealth and should prepare accordingly. 

Massachusetts has long taken a position, supported by the courts, that it could use economic nexus to assert income tax jurisdiction. The new regulations may be helpful in setting a bright line test for determining when an out of state corporation will be subject to Massachusetts tax jurisdiction.  

Companies doing business in Massachusetts still retain the protection of P.L. 86-272. But the regulations emphasize that those protections are not afforded to non-income taxes or to companies selling services or intangible property in Massachusetts. 

Companies that sell services and intangibles into the Commonwealth but do not have a physical presence should review their filing and tax obligations closely. Being taxed in Massachusetts will likely have an effect on throwback issues in both Massachusetts and other states. Companies should consult with their tax advisors for more information.

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