Beginning on January 1, 2025, the Commonwealth of Massachusetts will implement a new apportionment scheme for the corporate excise tax. After that date, taxpayers will be compelled to divide their net income according to a single sales factor. This requirement will take effect immediately. This is a change from the current law, which dictates that corporations that are classified as business corporations and financial institutions (but not corporations that are classified as manufacturing corporations and defence corporations) must divide their net income according to a formula that includes a property factor, a payroll factor, and a double-weighted sales factor. Business companies and financial institutions will now be obliged to apportion net income using a single sales component. However, the Act will continue to maintain the distinctions in sourcing techniques for some receipts of financial institutions (such as interest, receipts from loans, etc.). These distinctions will remain even though business corporations and financial institutions will be compelled to apportion net income using a single sales factor. There will be no transition period before switching to using a single sales factor.
The adoption of a single sales factor was the end result of negotiations that lasted for several months and resulted in a compromise. This spring, as was the case in previous springs, various bills relating to the implementation of a single sales factor apportionment were filed in the legislature. The single sales factor was one of a number of different tax adjustments that were included in a bill that was voted on favourably and passed by the House. However, the Senate changed the bill to partially eliminate the elements relating to the single sales factor. After the House of Representatives decided not to accept the amendments proposed by the Senate, the bill was sent to a Joint Committee for further discussion and debate. Despite this, the bill did not receive enough votes to pass before the July break for the summer recess.
After the legislature had resumed its work, the Joint Committee worked towards reaching a consensus on the tax package that would be used to close the deficits in the budget. (On August 9, the budget for the fiscal year 2024 was signed into law; it allocated $580 million for tax relief but left the specifics of the tax package to be established at a later date). The single sales factor amendment was included in the compromise that was achieved in the Joint Committee, and as a result, the law that was drafted as a result was put to a vote in both houses. The bill was passed through both chambers of the legislature, and on October 4, 2023, it became official as Chapter 50 of the Acts of 2023 after being signed into law by the governor. Because the new law mandates that the Department of Revenue (hereafter referred to as “the Department”) to issue regulations in order to put into effect the shift to the single sales component, it is possible that more clarification will be provided.
