Massachusetts Governor Maura Healey signed supplemental budget legislation (H. 5077, ch. 248) on December 4, 2024, which includes a fix to the commonwealth's single sales factor apportionment provisions, effective for tax years beginning on or after January 1, 2025.

Under a law enacted in 2023, Massachusetts will require the use of a single sales factor apportionment formula for corporate excise tax purposes by all industries effective for tax years beginning on or after January 1, 2025 (see Tax Alert 2023-1655). Previously, only manufacturing companies, qualifying defense contractors and qualifying mutual fund service corporations were required to use single sales factor apportionment.

The 2023 law also modified statutory provisions on factor drop out (e.g., when there is no denominator). As originally enacted, a missing sales factor (i.e., both the numerator and the denominator are zero) meant that a corporation's net income would be fully taxable in the state.

As amended, and effective for tax years beginning on or after January 1, 2025, a corporation's taxable net income will be apportioned to Massachusetts based on the corporation's property and payroll in the state if the sales factor does not apply. The law specifies that the sales factor does not apply if:

• Both the numerator and the denominator are zero
• The denominator is less than 10% of one-third of a corporation's taxable net income
  or
• The commissioner determines that the sales factor is insignificant in producing income

The sales factor, however, may apply when only the sales factor numerator is zero.

Implications

Corporate taxpayers that apportion their income to Massachusetts should evaluate the changes to the factor drop out provisions to determine their impact. As originally enacted, a corporation's net income would have been fully taxable in the state effective for tax years beginning on or after January 1, 2025, if its sales factor numerator and denominator were both zero; that income will now be apportioned under the recently made changes.