Massachusetts amended its rules on corporate excise tax nexus. The rules explain the standards Massachusetts follows when exercising tax jurisdiction over corporations doing business in the state.
Among other changes, the amended rules:
- adopt an economic and virtual contacts standard set forth by the U.S. Supreme Court in South Dakota v. Wayfair;
- clarify that the rules apply to the nonincome measure of the corporate excise tax and the minimum tax;
- remove the laundry list of activities protected from excise tax jurisdiction by Public Law (P.L.) 86-272; and
- eliminate exceptions for de minimis activities.
What Are the Nexus Rules?
A corporation is subject to Massachusetts tax jurisdiction if it:
- is incorporated or organized in the state;
- is headquartered or has a principal place of business in the state;
- owns or uses real or tangible personal property in the state;
- leases, licenses, or consigns real or tangible personal property in the state;
- has a full or part-time employee in the state;
- owns or uses intangible property in the state under a contract, license, sublicense, or franchise;
- holds an interest in a partnership doing business in the state, including interests in tiered partnerships; or
- has in-state sales, including sales of unitary business affiliates, from either economic or virtual contacts that exceed $500,000.
Visits to Massachusetts by employees or other representatives normally create nexus if:
- the visits are lengthy, continuous, regular, or systematic; or
- the visits provide management, technical, or other business support to unitary business affiliates.
Can Independent Contractors Create Nexus?
A corporation can also create corporate excise tax nexus if it has an independent contractor or other representative in Massachusetts that:
- delivers, installs, assembles, maintains, or repairs the corporation’s products; or
- takes orders or otherwise establishes or maintains a market for the corporation’s products or services.
Are There Exceptions to the Rules?
A corporation does not create corporate excise tax nexus in Massachusetts if it:
- owns property stored in a licensed public warehouse in the state;
- owns property in transit through the state that is in the possession and control of a common or contract carrier;
- owns stock in a corporation doing business in the state;
- deposits funds or maintains securities brokerage accounts with unrelated financial institutions in the state; or
- holds a limited interest in a publicly traded partnership doing business in the state.
P.L. 86-272 also prohibits Massachusetts from imposing its excise tax on a corporation if:
- its exclusive activity in the state is the solicitation of orders for the sale of tangible personal property;
- the orders are sent outside the state for approval or rejection; and
- the orders are filled by shipment or delivery from a location outside the state.
The protection under P.L. 86-272 does not apply to:
- sales of services or licenses of intangibles in the state;
- in-state activity that is not entirely ancillary to the solicitation of orders for tangible personal property; or
- the non-income measure of the corporate excise tax or the minimum tax.
By Tim Bjur, J.D.