General overview of the most common differences between the federal and Massachusetts state tax treatment of corporate excise.
Massachusetts generally follows the Internal Revenue Code (IRC) as currently in effect for Massachusetts corporate excise tax purposes.
The following is a summary of the most common differences between the IRC and Massachusetts tax code for corporate excise tax purposes. This list is not all inclusive and will be updated regularly.
Federal Deductions Disallowed by Massachusetts
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- Bonus Depreciation allowed as a federal deduction under Internal Revenue Code § 168(k) is not allowed as a deduction for purposes of determining Massachusetts taxable net income. Taxpayers must adjust their taxable net income to eliminate the effect of IRC § 168(k). The adjustment may result in an addition to, or a subtraction from, taxable net income. The Massachusetts adjusted basis of depreciable property is also determined without regard to IRC § 168(k).
– TIR 02-11: Effect of Federal “Bonus” Depreciation Allowance (as revised)
– TIR 03-25: Depreciable Business Assets; Modifications For Decoupling From Federal Bonus Depreciation
- Bonus Depreciation allowed as a federal deduction under Internal Revenue Code § 168(k) is not allowed as a deduction for purposes of determining Massachusetts taxable net income. Taxpayers must adjust their taxable net income to eliminate the effect of IRC § 168(k). The adjustment may result in an addition to, or a subtraction from, taxable net income. The Massachusetts adjusted basis of depreciable property is also determined without regard to IRC § 168(k).
- 1099-K reporting threshold for federal purposes was increased by P.L. 119-21 to $20,000 or 200 transactions. The Massachusetts 1099-K reporting threshold remains at $600. For all other 1099 forms, Massachusetts conforms to the federal thresholds.
- Foreign-Derived Deduction Eligible Income allowed as a federal deduction under Internal Revenue Code § 250 is not allowed as a deduction for purposes of determining Massachusetts taxable net income. Taxpayers must adjust their taxable net income to eliminate the effect of IRC § 250. The adjustment may result in an addition to, or a subtraction from, taxable net income.
TIR 19-11 - Income, Franchise and Capital Stock Taxes imposed by foreign countries, states (including Massachusetts) and political subdivisions of states are not allowed as a deduction for purposes of determining taxable net income. Such taxes allowed as a federal deduction must be added back to federal gross income when computing Massachusetts taxable net income. Taxes subject to the addback include net income taxes, gross income taxes, margin taxes, business privilege taxes, capital stock taxes and net worth taxes. The addback does not apply to taxes on discrete items (such as local taxes imposed on specific property) or discrete transactions (such as sales taxes and payroll taxes).
– DD 99-9: Disallowance or “Add-back” of the Deduction for Certain State Taxes to Corporate Net Income
- Massachusetts does not allow the dividends-received deduction that is allowed under the Internal Revenue Code. However, a Massachusetts deduction is allowed for 95% of the value of dividends received from corporations, so long as the recipient directly owns 15% or more of the payor’s voting stock. The Massachusetts deduction is not allowed for deemed or actual distributions (except actual distributions of previously taxed income) from a DISC which is not wholly-owned.
– Corporate Excise Tax Guide: Deductions and Credits - Interest and royalties paid to related parties may be disallowed as a deduction in Massachusetts despite being deductible for federal tax purposes.
– 830 CMR 63.31.1: Add Back of Interest or Intangible Expense - State and municipal bond interest is excluded from federal gross income but included in Massachusetts gross income under M.G.L. c. 63, § 30.3.
- The amount claimed as a Massachusetts research credit may not be claimed as a deduction. The amount of research expenses that qualify for the credit must be added to federal taxable income when determining Massachusetts taxable net income. However, a Massachusetts deduction is allowed for amounts disallowed as a federal deduction due to the taxpayer claiming the federal research credit.
– Regulation 830 CMR 63.38M.1: Massachusetts Research Credit