Massachusetts — Corporate Income / Franchise Tax

Massachusetts imposes a corporate excise under M.G.L. Chapter 63, Section 39 on general business corporations. The excise applies to domestic corporations (formed in Massachusetts) and foreign corporations (formed elsewhere) that are subject to the tax jurisdiction of Massachusetts. A corporation is subject to Massachusetts tax jurisdiction if it meets constitutional nexus standards. The Massachusetts Department of Revenue construes the state's tax jurisdiction to the fullest extent permitted by the U.S. Constitution and federal law.

The corporate excise consists of two components: an income measure and a non-income measure (based on either tangible property or net worth), along with a minimum excise that applies when the combined measures fall below a specified dollar amount. Certain entity types—including financial institutions, insurance companies, and S corporations—are subject to separate excise provisions under other sections of Chapter 63.

Source: M.G.L. c. 63, § 39; Massachusetts DOR Corporate Excise Tax Guide; 830 CMR 63.39.1

Massachusetts general business corporations pay the greater of an income measure or a non-income measure, subject to a minimum excise. The income measure is 8.00% of net income apportioned to Massachusetts. The non-income measure is $2.60 per $1,000 (0.26%) of either the corporation's Massachusetts tangible property (for tangible property corporations) or its net worth allocable to Massachusetts (for intangible property corporations). The minimum excise is $456, regardless of income or property value.

Source: M.G.L. c. 63, § 39; DD 02-11

Massachusetts corporations doing business in multiple states apportion their taxable net income using a single-sales-factor formula, effective for tax years beginning on or after January 1, 2025. The corporation multiplies its taxable net income by a fraction consisting solely of its Massachusetts sales in the numerator and its total sales everywhere in the denominator. This replaced the prior three-factor formula (property, payroll, and double-weighted sales) that applied to most non-manufacturing corporations. The same single-sales factor also apportions the non-income measure (tangible property or net worth component) of the corporate excise.

Source: M.G.L. c. 63, § 38; Governor's FY26 Budget — Tax Expenditure Analysis

Massachusetts corporate excise returns are due on the 15th day of the fourth month following the close of the taxable year for C corporations (including financial institutions and insurance companies). For calendar-year C corporations, the return is due April 15. S corporations must file by the 15th day of the third month following the close of the taxable year (March 15 for calendar-year S corporations). These due dates were conformed to federal filing schedules effective for tax years beginning on or after January 1, 2018.

Source: M.G.L. c. 62C, § 11; Massachusetts DOR Corporate Excise Tax Guide

Massachusetts presumes that a general business corporation's virtual and economic contacts establish corporate excise tax jurisdiction when the corporation's Massachusetts sales for the taxable year exceed $500,000. This threshold applies regardless of whether the corporation has physical presence in the state. The presumption creates nexus under M.G.L. c. 63, § 39, subjecting the corporation to the full corporate excise — both the income measure and the non-income measure (or minimum excise).

What counts as "Massachusetts sales"

For purposes of the $500,000 threshold, Massachusetts sales are those attributed to Massachusetts under the apportionment statute, M.G.L. c. 63, § 38. These are receipts from sales sourced to Massachusetts under the market-based sourcing rules set forth in that statute and the apportionment regulation (830 CMR 63.38.1). The sales measure is not limited to sales of tangible personal property — it includes receipts from services, licenses of intangible property, and other business activities sourced to Massachusetts.

The regulation aggregates sales of related persons engaged in a unitary business with the taxpayer when calculating whether the $500,000 threshold is met. Specifically, 830 CMR 63.39.1(3)(d) provides that in applying the presumption, Massachusetts sales include the sales of members of a unitary business with which the taxpayer is engaged, if without such aggregation no member would individually exceed the threshold. This prevents groups from fragmenting operations to avoid nexus.

Effect of the presumption

When the $500,000 presumption applies, the corporation is required to file a Massachusetts corporate excise return on the basis that it is subject to Massachusetts tax jurisdiction. The presumption is rebuttable — a taxpayer may seek to rebut it in a manner prescribed by the Commissioner under 830 CMR 63.39.1(3)(d) — but the burden is on the taxpayer to demonstrate why nexus should not apply despite exceeding the threshold.

Interaction with Public Law 86-272

A corporation that exceeds the $500,000 threshold and thereby has nexus may nonetheless be exempt from the income measure of the corporate excise (though not the non-income measure or minimum excise) if it qualifies for protection under federal Public Law 86-272 (15 U.S.C. § 381 et seq.). P.L. 86-272 protects corporations whose only in-state business activity is the solicitation of orders for sales of tangible personal property, where the orders are approved and filled from outside Massachusetts.

The protection does not apply to corporations that sell services or license intangible property in the state. Nor does it apply if in-state business activity includes anything beyond activities that are entirely ancillary to solicitation of orders for tangible personal property. Massachusetts follows the Multistate Tax Commission's interpretation of P.L. 86-272, including the position that certain Internet-based activities — such as placing cookies on the computers or devices of Massachusetts customers, or using customer data for non-ancillary business purposes — exceed the scope of protected solicitation and do not qualify for the exemption. These positions are reflected in 830 CMR 63.39.1(4)(e).

Effective date

The $500,000 economic nexus presumption was adopted in 830 CMR 63.39.1, finalized on October 18, 2019. The regulation has been periodically amended to clarify nexus-creating activities and the interaction with federal limitations such as P.L. 86-272.

Source: 830 CMR 63.39.1(3)(d); 830 CMR 63.39.1(4)(e); M.G.L. c. 63, § 39; M.G.L. c. 63, § 38

Massachusetts requires certain corporations engaged in a unitary business with one or more related corporations to file a combined report and calculate their Massachusetts corporate excise on a combined basis. This mandatory combined reporting regime has been in effect for tax years beginning on or after January 1, 2009. Combined reporting applies only to the income measure of the corporate excise—it does not apply to the non-income measure (the tangible property or net worth component) or the minimum excise, which each taxable member must calculate separately.

Who must file a combined report

A corporation is required to file as part of a combined group when it meets all three conditions under M.G.L. c. 63, § 32B:

1. Subject to tax — The corporation is subject to tax (or would be subject to tax if doing business in Massachusetts) under M.G.L. c. 63, § 2 (financial institutions), § 2B (S corporation financial institutions), § 32D (S corporations), § 39 (general business corporations), or § 52A (utility corporations).

1. Unitary business — The corporation is engaged in a unitary business with one or more other corporations. Massachusetts applies the constitutional three-prong unitary business standard: functional integration, centralization of management, and economies of scale. The determination is fact-specific; typical indicators include centralized purchasing, shared services, integrated operations, and common product lines or markets.

1. Common ownership — The corporations are under common control. Under 830 CMR 63.32B.2, common ownership generally means that more than 50% of the voting control of each member of the group is directly or indirectly owned by a common owner or owners (corporate or non-corporate), whether or not the owner itself is a member of the combined group. The regulation does not require use of the federal consolidated return methodology for determining voting power; Massachusetts applies its own ownership test for combined reporting purposes.

The combined reporting requirement is mandatory, not elective. It is imposed when the statutory conditions are met, without regard to whether there is income distortion or non-arm's-length pricing between related corporations. 830 CMR 63.32B.2 explicitly states that the requirement to file a combined report "is not dependent upon an evidentiary showing that there is a distortion of income between corporations that are related by common ownership."

Corporations subject to combination

The combined group includes not only taxable members (corporations that pay Massachusetts corporate excise) but also non-taxable members if they are engaged in the same unitary business and under common control. Non-taxable members' income and apportionment factors flow through into the combined group's combined income and combined apportionment factors.

Certain entity types are excluded from combined reporting:

• Insurance companies (M.G.L. c. 63, §§ 20–29E) are not subject to combined reporting.
• Many financial institutions do not qualify for combined reporting, though general business corporations taxable under § 39 and S corporations taxable under § 32D that are financial institutions may be included under certain circumstances.
• Real estate investment trusts (REITs) and regulated investment companies (RICs) that qualify for special treatment under separate statutory provisions are generally excluded.

Water's-edge vs. worldwide election

By default, Massachusetts combined reporting applies on a water's-edge basis. Under water's-edge, the combined group includes only members that meet one or more of the following criteria (M.G.L. c. 63, § 32B(b)(3)):

• Corporations incorporated in the United States or formed under the laws of any U.S. state, the District of Columbia, or any U.S. territory or possession;
• Corporations whose commercial domicile is in the United States;
• Foreign corporations that have more than 20% of their property or payroll in the United States; or
• Foreign corporations that elect or are required by the Commissioner to be included.

The combined group may elect to file on a worldwide basis, including all members of the unitary group wherever located. The worldwide election must be made by all taxable members of the group and, once made, remains in effect for a specified period subject to the Commissioner's rules.

A special rule applies when a foreign corporation included in a water's-edge combined group has income exempt from U.S. federal tax under a tax treaty: the corporation is included in the combined group only with respect to non-exempt income items, with associated expenses and apportionment factors.

How combined income is calculated

Each member of the combined group computes its own taxable net income under the rules that apply to it (general business corporation, financial institution, S corporation, etc.). The combined group then aggregates the taxable net income or loss of all members—both taxable and non-taxable members—engaged in the unitary business to determine the combined group's total apportionable income or loss.

Intercompany eliminations are required. Under M.G.L. c. 63, § 32B(a), items of income, deductions, and receipts from transactions between or among members of the combined group—including dividends, interest, royalties, and service fees—must be eliminated in computing the combined group's apportionable income.

How combined income is apportioned to Massachusetts

The combined group apportions its combined income to Massachusetts using the apportionment formulas applicable to the taxable members. Each taxable member computes its own apportionment percentage:

• The numerator of each taxable member's apportionment factor includes that member's own Massachusetts property, payroll, and sales, plus its allocable share of non-taxable members' Massachusetts property, payroll, and sales (calculated based on the non-taxable members' ownership or functional relationship to the taxable member).
• The denominator includes the combined group's total property, payroll, and sales everywhere (with appropriate eliminations for intercompany transactions).

Because Massachusetts adopted a single-sales-factor apportionment formula for general business corporations effective for tax years beginning on or after January 1, 2025, most combined groups with general business corporation members will apportion using a 100% sales-factor formula. Financial institution members and utility members use their own apportionment formulas under §§ 2A and 52A, respectively.

When a combined group includes both financial institution members and non-financial institution members, special adjustments apply under M.G.L. c. 63, § 32B(a). These include reducing intangible property values of financial institutions to 20% of their otherwise-determined amounts before combining denominators, and adjusting receipts to conform treatment across member types.

Each taxable member's share of combined income

Once the combined group's total Massachusetts apportionable income is determined, each taxable member's share is calculated by multiplying the combined group's total apportionable income by that taxable member's apportionment percentage. The taxable member then applies the excise rate applicable to it (8.00% for C corporations under § 39; lower tiered rates for S corporations under § 32D based on total receipts; rates for financial institutions under § 2).

Each taxable member retains its separate identity for purposes of applying credits, net operating loss carryforwards, and other attributes. 830 CMR 63.32B.2(1) provides that corporations in a combined group "generally retain their separate identities under M.G.L. c. 63 for purposes of determining the income measure of the corporate excise to be applied to the taxable members' share of the combined group's taxable income."

Principal reporting corporation and filing mechanics

The combined group files a single combined report through a principal reporting corporation designated by the group. The principal reporting corporation is responsible for filing the combined report on behalf of all members and is jointly and severally liable, along with each taxable member, for the corporate excise due from each taxable member.

The combined report must include schedules showing the income, apportionment factors, and other information for all members of the combined group—both taxable and non-taxable members—as required by the Commissioner.

Affiliated group election

In some cases, a taxpayer may elect to treat as its combined group all corporations that are members of its Massachusetts affiliated group, rather than limiting the combined group to corporations engaged in a unitary business. The affiliated group is defined by reference to common ownership (generally more than 50% direct or indirect ownership), without regard to whether the corporations are engaged in a unitary business. This election is made on terms and conditions specified in 830 CMR 63.32B.2 and applies for a binding period once made. The affiliated group election is less common but may be advantageous when a commonly owned group includes members with losses that would not otherwise be part of a unitary business.

Effective date

Combined reporting under M.G.L. c. 63, § 32B became mandatory for tax years beginning on or after January 1, 2009, enacted by St. 2008, c. 173. The regulation, 830 CMR 63.32B.2, was finalized October 18, 2019, and has been amended periodically to clarify technical issues including the treatment of S corporations in combined groups and the interaction with federal filing due dates.

Source: M.G.L. c. 63, § 32B; 830 CMR 63.32B.2

Under Massachusetts' single-sales-factor apportionment formula effective for tax years beginning on or after January 1, 2025, the sales factor may be inapplicable in certain limited circumstances. When the sales factor is inapplicable, M.G.L. c. 63, § 38(g) provides that "the corporation's taxable net income shall be apportioned to the commonwealth based on the corporation's property and payroll in the commonwealth."

When the sales factor is inapplicable

The statute sets forth three circumstances in which the sales factor is not applicable:

1. Both numerator and denominator are zero — The sales factor is not applicable if both its numerator (Massachusetts sales) and its denominator (total sales everywhere) are zero.

1. Denominator is less than 10% of one-third of taxable net income — The sales factor is not applicable if "the denominator is less than 10 per cent of one third of the taxable net income." This threshold is expressed as a fraction of taxable net income (10% × 1/3 = approximately 3.33%). When a corporation's total sales everywhere fall below this threshold relative to its taxable net income, the sales factor is deemed inapplicable.

1. Otherwise determined insignificant in producing income — The sales factor is not applicable if "it is otherwise determined by the commissioner to be insignificant in producing income." This is a facts-and-circumstances determination made by the Commissioner.

Zero numerator alone does not make the factor inapplicable

The statute expressly provides that "the sales factor shall not be deemed to be inapplicable solely because the numerator is zero." A corporation with zero Massachusetts sales (numerator = zero) but positive total sales everywhere (denominator > zero) has an applicable sales factor of zero. This produces a Massachusetts apportionment percentage of zero. The sales factor is inapplicable only when both numerator and denominator are zero, or when one of the other two statutory tests is met.

Alternative apportionment method

When the sales factor is inapplicable under any of the three tests above, the corporation apportions its taxable net income to Massachusetts based on the corporation's property and payroll in the Commonwealth. M.G.L. c. 63, § 38(g) states: "If the sales factor is inapplicable, the corporation's taxable net income shall be apportioned to the commonwealth based on the corporation's property and payroll in the commonwealth."

The statute does not specify a formula or weighting for combining the property and payroll factors when the sales factor is inapplicable. Section 38(g) directs that "the commissioner shall adopt regulations providing for such method of apportionment." As of June 5, 2026, regulations implementing the property-and-payroll alternative apportionment method under the single-sales-factor regime have not been identified.

Prior-law background

Before the single-sales-factor formula took effect on January 1, 2025, Massachusetts corporations apportioned income using a three-factor formula (property, payroll, and double-weighted sales). Under prior M.G.L. c. 63, § 38(g), when only two of the three factors were applicable, the corporation apportioned taxable net income by a fraction whose numerator was the remaining two factors with their respective weights and whose denominator was the number of times such factors were used in the numerator. If only one factor was applicable, apportionment was determined solely by that factor. Whether the Commissioner's regulations under current § 38(g) will adopt an analogous approach—for example, equally weighting property and payroll when the sales factor is inapplicable—is not specified in the statute.

Source: M.G.L. c. 63, § 38(g)

Massachusetts imposes a corporate excise on S corporations under M.G.L. c. 63, § 32D. An S corporation is subject to tax under § 39 and pays the same non-income measure (tangible property or net worth component at $2.60 per $1,000, or 0.26%) and minimum excise ($456) as a C corporation. The income measure, however, is calculated differently.

Two-tier income measure for S corporations

S corporations determine their income measure in two steps under § 32D(a):

1. Entity-level federal S corporation income — The S corporation first includes in its net income measure any income that is taxed to the S corporation at the entity level for federal income tax purposes (such as built-in gains tax or excess passive income tax under Internal Revenue Code §§ 1374 and 1375). This income is taxed at the same 8.00% rate that applies to C corporations under § 39.

1. Additional income measure based on total receipts — If the S corporation's total receipts for the taxable year are $6,000,000 or more, it must also include an additional income measure. This additional measure is calculated by multiplying the S corporation's net income (determined without taking into account Subchapter S of the Internal Revenue Code, and excluding income already taxed under step 1 above) by a rate that depends on the corporation's total receipts.

Rate tiers based on total receipts

When an S corporation has total receipts of $6,000,000 or more, it pays the additional income measure at one of two rates, in lieu of the 8.00% rate in § 39:

• $6,000,000 to less than $9,000,000 in total receipts — The rate is two-thirds of the rate applicable to S corporations with $9,000,000 or more in receipts. Under the current statutory formula, this produces an effective rate of approximately 2.00% as of tax year 2026.

• $9,000,000 or more in total receipts — The rate is calculated by subtracting the rate applicable to Part B taxable income under M.G.L. c. 62, § 4(b) (the Massachusetts individual income tax rate on ordinary income) from the rate applicable to C corporations under § 39. For tax years beginning on or after January 1, 2012, the § 39 rate has been 8.00%. The Part B rate under c. 62, § 4(b) is currently 5.00% (with a statutory floor of 5.00%). Thus, the S corporation rate for this tier is 8.00% minus 5.00% = 3.00%.

Definition of total receipts

M.G.L. c. 63, § 32D(a)(ii) defines "total receipts" to mean gross receipts or sales, less returns and allowances, and includes dividends, interest, royalties, capital gain net income, rental income, and all other income. The cost of goods sold or the cost of operations is not deductible in determining total receipts. This is a gross-receipts measure, not a net-income measure.

Aggregation for unitary businesses

The statute directs the Commissioner to apply the $6,000,000 and $9,000,000 total-receipts thresholds on an aggregate basis to S corporations engaged in a unitary business with majority direct or indirect ownership by common stockholders. The aggregation also includes any other type of entity (including qualified subchapter S subsidiaries) so engaged and so owned if the Commissioner finds the entity was established for the purpose of avoiding the threshold. This prevents fragmentation to avoid the higher-tier rates. The aggregation rule is set forth in 830 CMR 62.17A.2.

Comparison to C corporation rates

C corporations pay 8.00% on all net income apportioned to Massachusetts (for tax years beginning on or after January 1, 2012). S corporations with total receipts below $6,000,000 pay no Massachusetts entity-level income tax on their ordinary business income (unless they have entity-level federal S corporation income such as built-in gains tax). S corporations with total receipts of $6,000,000 or more pay the tiered rates described above—2.00% (for receipts from $6M to less than $9M) or 3.00% (for receipts of $9M or more)—which are significantly lower than the 8.00% C corporation rate. The income not taxed at the entity level under Massachusetts law passes through to the S corporation's shareholders and is taxed under M.G.L. c. 62 (the personal income tax) at the shareholder level.

Qualified subchapter S subsidiaries (QSubs)

Qualified subchapter S subsidiaries are not subject to separate entity-level taxation under § 32D or § 39. The parent S corporation is subject to tax under §§ 32D and 39, and must include the income and activities of all QSubs when determining the excise due under § 32D(a) and the non-income measure under § 39. The parent S corporation and its QSubs are jointly and severally liable for the tax due under chapter 63.

Source: M.G.L. c. 63, § 32D; M.G.L. c. 63, § 39; M.G.L. c. 62, § 4(b); 830 CMR 62.17A.2

Massachusetts corporations that reasonably estimate their corporate excise for the taxable year will exceed $1,000 are required to make estimated tax payments. This threshold applies to all corporations subject to the Massachusetts corporate excise, including general business corporations under M.G.L. c. 63, § 39, financial institutions under § 2, S corporations under § 32D, and corporations participating in combined reporting under § 32B.

Threshold for estimated payments

The $1,000 threshold is measured against the total corporate excise liability for the taxable year, including both the income measure and the non-income measure (tangible property or net worth component), or the minimum excise, whichever is greater. M.G.L. c. 63B, § 2 requires payment of estimated tax when a corporation "can reasonably expect to have an estimated tax for such taxable year in excess of one thousand dollars."

For corporations participating in combined reporting, the threshold applies to the combined group's total excise liability, including the excise due from all taxable members on both their income and non-income measures. The principal reporting corporation makes the estimated payments on behalf of the combined group in accordance with the requirements set forth in 830 CMR 63B.2.2.

Number and timing of installments

Estimated tax is generally payable in four installments due on or before the 15th day of the 3rd, 6th, 9th, and 12th month of the taxable year. For a calendar-year corporation, the installment due dates are March 15, June 15, September 15, and December 15. When the due date falls on a weekend or legal holiday, the deadline is extended to the next business day.

Percentage of tax due with each installment

Under M.G.L. c. 63B, § 3, the four installments are front-weighted as follows:

• First installment (15th day of 3rd month): 40% of the required annual payment
• Second installment (15th day of 6th month): 25% of the required annual payment
• Third installment (15th day of 9th month): 25% of the required annual payment
• Fourth installment (15th day of 12th month): 10% of the required annual payment

The "required annual payment" is defined in M.G.L. c. 63B, § 3 as the lesser of (i) 90% of the tax shown on the return for the current taxable year (or 90% of the tax for the year if no return is filed), or (ii) 100% of the tax shown on the return for the preceding taxable year. The 100%-of-prior-year safe harbor is not available if the preceding taxable year was not a taxable year of twelve months or if the corporation did not file a return for the preceding taxable year showing a liability for tax.

Large corporation limitation on prior-year safe harbor

M.G.L. c. 63B, § 3 provides that the 100%-of-prior-year safe harbor does not apply in the case of a "large corporation" as defined in I.R.C. § 6655(g), except for purposes of determining the amount of the first required installment. A large corporation is generally defined as a corporation with $1,000,000 or more of federal taxable income during the testing period described in I.R.C. § 6655(g)(2)(B). Any reduction in the large corporation's first installment payment by reason of using the prior-year safe harbor must be recaptured by increasing the amount of the next required installment by the amount of the reduction.

Special rule for first-year corporations with fewer than ten employees

A corporation with fewer than ten employees for the entirety of its first taxable year of twelve months is subject to a different percentage schedule under 830 CMR 63B.2.2(5)(b). These corporations pay:

• First installment: 30% of the required annual payment
• Second installment: 25% of the required annual payment
• Third installment: 25% of the required annual payment
• Fourth installment: 20% of the required annual payment

To qualify for this special schedule, the corporation may not employ more than nine employees at any time during its first taxable year of twelve months. The employee count includes all employees, regardless of their location inside or outside Massachusetts.

Exceptions to the four-installment requirement

If the corporation does not reasonably estimate that its tax will exceed $1,000 until after the last day of the second month of the taxable year, the number of required installments is reduced under 830 CMR 63B.2.2(4)(c):

• If the estimate arises after the last day of the 2nd month but before the first day of the 6th month, three installments are required: 65% on the 15th day of the 6th month, 25% on the 15th day of the 9th month, and 10% on the 15th day of the 12th month.
• If the estimate arises after the last day of the 5th month but before the first day of the 9th month, two installments are required: 80% on the 15th day of the 9th month, and 20% on the 15th day of the 12th month.
• If the estimate arises after the last day of the 8th month but before the first day of the 12th month, one installment is required: 100% on the 15th day of the 12th month.

Underpayment penalty

Under M.G.L. c. 63B, § 3, an addition to tax is imposed for any underpayment of estimated tax. The addition is determined at the rate established under M.G.L. c. 62C, § 32 upon the amount of the underpayment for the period of the underpayment. M.G.L. c. 62C, § 32 sets the rate at the federal short-term rate in effect for the applicable period plus four percentage points. The period of underpayment runs from the installment due date to the earlier of the 15th day of the third month following the close of the taxable year or the date the underpayment is paid. Form M-2220 is used when filing the annual corporate excise return to determine whether the correct amount of estimated tax was paid and to calculate any addition to tax due.

Filing method

Corporations are required to file returns and pay taxes electronically. The Massachusetts DOR instructs corporations to make estimated tax payments electronically through MassTaxConnect, the Department's web-based application. Form 355-ES is used when making an electronic estimated payment on MassTaxConnect.

Source: M.G.L. c. 63B, § 2; M.G.L. c. 63B, § 3; 830 CMR 63B.2.2; Massachusetts DOR Corporate Excise Tax Estimated Payments

Massachusetts corporations subject to the corporate excise may carry forward net operating losses (NOLs) to offset net income in subsequent taxable years. The carryforward period and the availability of carrybacks depend on the taxable year in which the loss was incurred.

Carryforward period

For losses sustained in taxable years beginning on or after January 1, 2010, the carryforward period is 20 years. Under M.G.L. c. 63, § 30, paragraph 5(b), these losses "may be carried forward for not more than 20 years and may not be carried back." The 20-year period begins with the taxable year in which the loss is incurred and runs for 20 consecutive taxable years, regardless of whether the corporation is subject to the income measure of the corporate excise in each of those years.

For losses sustained in taxable years prior to January 1, 2010, the carryforward period was only 5 years. Under the same statutory provision, losses from those earlier years "may be carried forward for not more than 5 years and may not be carried back."

No carrybacks permitted

Massachusetts does not permit NOL carrybacks for corporate excise purposes. A corporation that incurs a loss in the current taxable year may not carry that loss back to offset income in a prior taxable year and claim a refund or credit. This prohibition applies to all taxable years—both those before and after January 1, 2010. The statute states unambiguously that losses "may not be carried back."

Massachusetts law in this respect differs from federal law. While the Internal Revenue Code has at various times permitted NOL carrybacks (subject to legislative changes), Massachusetts does not conform to the federal carryback rules. M.G.L. c. 63, § 30, paragraph 5(a) defines the Massachusetts NOL by reference to federal Section 172 "as adjusted for any differences between Massachusetts taxable net income and federal taxable income," but Massachusetts imposes its own carryforward and carryback rules under paragraph 5(b).

Counting the carryforward period

Each taxable year after the loss year counts toward the carryforward period, even if the corporation is not subject to the income measure of the corporate excise in that year. For example, a corporation that incurs a loss in 2010 and is protected from the income measure by Public Law 86-272 from 2011 through 2015 (but remains subject to the non-income measure or minimum excise) still counts those years toward the 20-year period; the loss expires after 2030, not 2035. This rule is set forth in 830 CMR 63.30.2(5)(a), which provides that the carryforward period includes "taxable years during which a corporation is not subject to the income measure of the corporate excise in Massachusetts."

The regulation clarifies that while the carryforward clock continues to run during years the corporation is not subject to the income measure, the loss amount itself does not decrease. 830 CMR 63.30.2(5)(b) states: "There is no adjustment to the amount of a net operating loss that is being carried forward in years that the corporation is not subject to the income measure of the corporate excise."

Life sciences exception

A special 15-year carryforward period (rather than the general 20-year period) applies to certain losses sustained by corporations engaged in business as life sciences companies, to the extent authorized and approved under the life sciences tax incentive program established by M.G.L. c. 23I, § 5. This exception is set forth in M.G.L. c. 63, § 30, paragraph 17, and it does not permit carrybacks. Qualification for this treatment is contingent on program approval, not automatic.

Limitations on which losses may be carried forward

Not all losses qualify for carryforward treatment. A corporation may carry forward only losses that were incurred in taxable years during which the corporation was subject to the Massachusetts corporate excise. Under 830 CMR 63.30.2(3)(b), "Eligible business corporations may not deduct net operating losses that were incurred in taxable years during which the corporation was not subject to the corporate excise." A corporation that begins business in Massachusetts and incurs losses before it becomes subject to tax in the Commonwealth cannot carry those pre-nexus losses forward.

How the NOL deduction is applied

When a corporation carries forward an NOL to a year in which it has net income, the deduction is limited under M.G.L. c. 63, § 30, paragraph 5(e) to the loss amount multiplied by the corporation's apportionment percentage for the year in which the loss was sustained (post-apportionment basis). This post-apportionment method has been in effect for losses incurred in taxable years beginning on or after January 1, 2010. For combined reporting groups, special coordination rules under M.G.L. c. 63, § 32B preserve each taxable member's separate NOL attributes.

A corporation that fails to use an NOL within the statutory carryforward period loses it permanently. Under 830 CMR 63.30.2(5)(e), "Net operating loss incurred in a taxable year that is not deducted within the period set forth at 830 CMR 63.30.2(5)(a), is lost and may not be deducted for Massachusetts corporate excise purposes."

Source: M.G.L. c. 63, § 30, ¶ 5(b); 830 CMR 63.30.2