Corporations classified as manufacturing corporations can receive certain Massachusetts corporate excise tax benefits. These include:
– the use of a single sales factor apportionment formula; and
– the availability of a 3% investment tax credit.
Massachusetts amended a regulation that explains the requirements for manufacturing corporation classification. The emergency amendment clarifies how changes in the federal Tax Cuts and Jobs Act impact the classification.
How Do Taxpayers Qualify for the Manufacturing Classification?
In general, a corporation can qualify for the special classification if:
– it engages in manufacturing activity in Massachusetts during the tax year; and
– its gross receipts from the manufacturing activity exceed a certain threshold.
The gross receipts threshold is 1 of 4 tests a corporation can use to determine if it qualifies for the classification.
A corporation determines the gross receipts threshold using a special formula. The denominator of this formula must include apportionable dividend income.
What Federal Tax Changes Impact the Classification?
The Tax Cuts and Jobs Act enacted:
– IRC §965, which imposes a repatriation tax on untaxed foreign earnings and profits; and
– IRC §951A, which requires inclusion of global intangible low-taxed income (GILTI) from foreign corporations.
Both code sections treat this income like Subpart F income.
The emergency amendment provides that dividend income in the gross receipts formula does not include:
– Subpart F income; or
830 CMR 58.2.1, Massachusetts Department of Revenue, effective September 11, 2018