Massachusetts Corporate Excise Tax: Economic & Virtual Nexus
Massachusetts is one of the first states to use the South Dakota v. Wayfair, Inc. decision outside of sales and use tax collection. Effective October 18, 2019, the Massachusetts Department of Revenue adopted Regulation 830 CMR 63.39.1: Corporate Nexus. This regulation subjects certain corporations to the Massachusetts corporate excise tax if the corporation has substantial economic or virtual contacts with the state.
Economic nexus is presumed in Massachusetts when the corporation’s sales for the taxable year exceed $500,000. Conceivably, nexus can be established with sales of less than $500,000. In addition, any sales of a related person engaged in a unitary business with such corporation will be included in determining the $500,000 threshold. For future tax years, taxpayers should focus on the precise sourcing of their sales (especially sales of services) to evaluate whether the $500,000 threshold has been met. For financial institutions, nexus will be presumed if the taxpayer conducts certain activities with 100 or more residents of the state; the taxpayer has $10 million or more of assets attributable to sources within the state; or the taxpayer has in excess of $500,000 in receipts attributable to sources within the state.
Unchanged by the new regulation, employee or representative visits into the state that are lengthy, continuous, regular or systematic will still subject the corporation to the tax. Nexus also may be triggered if employees provide management or technical oversight or other business assistance with respect to a related person’s in-state business activities when the corporation and related person are engaged in a unitary business.
It should be noted the Public Law 86-272 exception may still apply if the sole business activity within Massachusetts is the solicitation of orders of tangible personal property. These orders are required to be sent outside the state for approval and filled by delivery from a location outside of Massachusetts. This exception won’t apply if the corporation sells services or licenses intangible property within the state. Any activity that’s not entirely ancillary to the solicitation of orders of tangible personal property won’t fall within the exception. Furthermore, Massachusetts and other states that have opted to implement or enforce economic nexus via their regulations have yet to face a challenge if the taxing agency properly exercised the authority granted to it by the legislature.
For additional guidance on how the new Massachusetts regulation may affect your business, reach out to your BKD trusted advisor or use the Contact Us form below.