Key takeaways
- On October 4, 2023, Governor Maura Healey (D) signed House Bill 4104 into law, which moves Massachusetts to a single sales factor apportionment regime for multi-state business corporations and financial institutions.
The Massachusetts corporate excise tax will have a new apportionment scheme effective January 1, 2025. Beginning on that date, taxpayers will be required to apportion net income using a single sales factor. This is a departure from current law, under which financial institutions and business corporations (but not corporations classified as manufacturing corporations and defense corporations) apportion their net income using a formula comprised of a property factor, payroll factor, and a double-weighted sales factor. Business corporations and financial institutions will now be required to apportion net income using a single sales factor, although the distinctions in sourcing methods for certain receipts of financial institutions (e.g., interest, receipts from loans, etc.) have been retained in the statute. The move to single sales factor will not be phased in gradually.
The adoption of single sales factor is a result of a compromise that has been months in the making. As was the case in prior years, this spring, multiple bills were introduced relating to the implementation of single sales factor apportionment. One bill, which included single sales factor among a host of other tax changes, was voted on favorably by the House, but the Senate amended the bill to, in part, remove the single sales factor provisions. After the House refused to concur with the Senate’s amendments, the bill was referred to a Joint Committee for discussion and debate. However, the bill failed to pass prior to the July break for summer recess.
Once the legislature reconvened, the Joint Committee reached an agreement on the tax package to fill the gaps in the budget. (The FY 2024 budget was enacted on August 9 – it appropriated $580 million in tax relief but left the contours of the tax package to be determined later). The compromise reached in the Joint Committee adopted the single sales factor change and the resulting bill proceeded to a vote in both houses. The bill was approved by both houses and was signed into law by the governor on October 4, 2023, as Chapter 50 of the Acts of 2023. The new law instructs the Department of Revenue (“Department”) to promulgate regulations to implement the change to single sales factor, so additional guidance may be forthcoming.