What Is the Massachusetts Corporate Excise Tax?

The Massachusetts corporate excise tax is a levy on corporations for the privilege of conducting business in the state. It is a multifaceted tax composed of two parts: one based on the corporation’s net income apportioned to Massachusetts, and another based on either its tangible property value or its net worth.

A corporation’s final tax is the sum of these two measures. If the calculated total is less than the state’s minimum tax of $456, the corporation must pay the minimum amount. This ensures all businesses contribute even in years with low or no profit.

Determining Filing Requirements

A corporation’s obligation to file and pay the Massachusetts corporate excise tax is determined by its business structure and its connection, or “nexus,” with the state. The tax applies to C corporations, S corporations, and LLCs that have elected to be taxed as corporations.

In Massachusetts, nexus can be created through physical presence, such as having an office, employees, or property in the state. Massachusetts also asserts economic nexus over out-of-state corporations with no physical footprint. A corporation is presumed to have economic nexus if its sales from sources within Massachusetts exceed $500,000 during the taxable year. This rule applies to sales generated through both direct and virtual or online activities.

Calculating the Corporate Excise Tax

A corporation’s final liability is the greater of the combined tax from the two measures or the minimum tax of $456. This minimum applies even if the corporation operates at a loss for the tax year. The following sections detail how to calculate each measure.

The Net Income Measure

The income portion of the tax is 8.00% of the corporation’s net income apportioned to Massachusetts, which starts with the federal taxable income and includes state-specific adjustments. For tax years beginning on or after January 1, 2025, most corporations must use a single-sales factor apportionment formula. This method calculates the taxable income based on the ratio of Massachusetts sales to total sales.

For example, if a company has 10% of its sales in Massachusetts, then 10% of its net income is subject to the 8.00% tax. However, manufacturing corporations and certain mutual fund service corporations must use a three-factor apportionment formula considering property, payroll, and sales, with the sales factor being double-weighted.

The Non-Income Measure

The non-income measure is a tax on either a corporation’s tangible property or its net worth. A business is a “tangible property corporation” if its tangible assets in Massachusetts are 10% or more of its total assets in the state. These corporations pay tax on their qualifying tangible property. Businesses that do not meet this threshold are “intangible property corporations” and are taxed on their net worth.

The tax rate is $2.60 per $1,000 of the taxable tangible property or allocable net worth. For a multi-state corporation, the net worth is apportioned using the same percentage from the income measure. For example, a corporation with $10,000,000 in apportioned net worth would have a non-income tax of $26,000 ($10,000,000 / $1,000 x $2.60).

Special Corporate Classifications

Massachusetts law provides special tax treatment for corporations in specific classifications, which can alter their final tax liability. To receive these benefits, a corporation must formally apply for and be granted the classification by the state.

Manufacturing Corporations

Corporations classified as manufacturers receive an exemption from the non-income measure of the corporate excise tax on their tangible personal property. This means they do not pay the $2.60 per $1,000 tax on the value of their machinery and equipment used in manufacturing operations. To qualify, a company must be substantially engaged in transforming materials into a new product.

The state has extended this classification to include developers of standardized software. Manufacturing corporations may also be eligible for a 3% investment tax credit (ITC) for acquiring, constructing, or improving depreciable tangible property in the state.

Research and Development (R&D) Corporations

Companies heavily engaged in research and development can qualify for R&D corporation status. A primary benefit is a sales tax exemption on tangible personal property purchased and used directly for R&D activities. This reduces the cost of equipment and materials essential for innovation.

Qualification is met if a corporation derives more than two-thirds of its receipts from R&D in the state, or for a startup, if more than two-thirds of its expenditures are for R&D. These corporations may also claim an R&D tax credit for increases in their research expenditures.

Security Corporations

Security corporations primarily buy, sell, and hold securities on their own behalf and are taxed under a different regime. Instead of the standard two-part excise tax, their tax is calculated based on a percentage of their gross income with specific allowable deductions.

Filing and Paying the Tax

The process of filing and paying the Massachusetts corporate excise tax is a structured procedure with specific forms, deadlines, and submission methods. The primary platform for all filing and payment activities is the MassTaxConnect online portal.

Required Forms and Information

The primary form for C corporations is Form 355, the Massachusetts Corporate Excise Tax Return, while S corporations file Form 355S. These forms require detailed information for calculating both the income and non-income tax measures.

Filing Deadlines and Extensions

For C corporations operating on a calendar year, the tax return is due on or before April 15th. S corporations have a due date of March 15th. Massachusetts provides an automatic six-month extension of time to file the return, moving the deadline to October 15th for C corporations and September 15th for S corporations. This is an extension to file, not an extension to pay; the full amount of tax owed is still due by the original deadline.

Estimated Tax Payments

Corporations that expect their annual excise tax liability to exceed $1,000 are required to make quarterly estimated tax payments. These payments are made using Form 355-ES and must be submitted electronically. For a calendar-year taxpayer, the payments are due on April 15, June 15, September 15, and December 15. The standard installment schedule requires 40% of the estimated tax to be paid in the first installment, 25% in the second, 25% in the third, and the remaining 10% in the final installment.

Submission Process

The Massachusetts Department of Revenue mandates electronic filing and payment. To submit a return, a corporation or its tax preparer must log into their MassTaxConnect account, upload the completed tax form, and authorize an electronic payment from a bank account. The system provides a confirmation of receipt for both the filed return and the payment.