What Is the Massachusetts Corporate Tax Rate?

Corporations conducting business in Massachusetts are subject to a corporate excise tax, a levy for the privilege of operating within the state. This tax framework is distinct from a straightforward corporate income tax that many other jurisdictions impose.

The tax applies to both domestic corporations organized in Massachusetts and foreign corporations that do business or own property there. Its unique composition means that a company’s tax liability is not based solely on its profitability. Instead, the total excise considers both a corporation’s income and its property or net worth, creating a more complex calculation than a simple income-based tax system.

The Massachusetts Corporate Excise Tax

The Massachusetts corporate excise tax is a multifaceted levy imposed on most corporations. The tax on net income is set at a rate of 8.0%. This percentage is applied to the portion of a corporation’s net income that is allocated to its business activities within Massachusetts.

The corporate excise is composed of two distinct measures: the net income measure and the non-income measure. The non-income measure is based on either the value of a corporation’s tangible property in the state or its overall net worth. This dual structure ensures that corporations contribute based on both their earnings and their physical or financial presence in the Commonwealth.

A corporation’s final tax bill is the sum of the amounts calculated from the net income and non-income measures. There is a floor to this liability, known as the minimum corporate excise tax, which is currently $456. A business must pay the greater of its calculated corporate excise tax or this minimum amount.

Calculating the Net Income Measure

The process of calculating the net income measure begins with a company’s federal taxable income. This figure serves as the starting point before state-specific adjustments. Massachusetts law requires certain modifications to this federal number, such as adding interest earned from the bonds of other states or subtracting certain types of income that Massachusetts exempts.

After adjusting the federal taxable income, the next step for companies operating in multiple states is apportionment. This process determines what share of a corporation’s total net income is subject to taxation by Massachusetts. The Commonwealth uses a single sales factor apportionment formula.

Under the single sales factor formula, a corporation’s total sales in Massachusetts are divided by its total sales everywhere. The resulting percentage is the apportionment factor. This factor is then multiplied by the corporation’s total taxable net income to determine the amount of income that is taxable in Massachusetts.

Calculating the Non-Income Measure

The non-income measure of the corporate excise tax provides an alternative basis for taxation, focusing on a corporation’s assets rather than its profits. This part of the tax is calculated on the greater of two different bases: the value of the corporation’s tangible property located in Massachusetts or its net worth.

The first base is the value of tangible property, which includes real estate, machinery, equipment, and inventory physically present in Massachusetts that is not subject to local property taxes. The tax rate applied to this property base is $2.60 per $1,000 of value. A corporation is classified as a “tangible property corporation” and uses this base if 10% or more of its total assets are tangible property situated in the state and not taxed locally.

If a corporation does not meet the criteria to be a tangible property corporation, it is considered an “intangible property corporation” and its non-income tax is based on its net worth. Net worth is allocated to Massachusetts based on the same apportionment factor used for the income measure. The tax rate for the net worth base is also $2.60 per $1,000.

Tax Treatment for S Corporations

The tax rules for S corporations in Massachusetts differ significantly from those for traditional C corporations. While S corporations are typically considered pass-through entities for federal tax purposes, they can be subject to the Massachusetts corporate excise tax at the entity level under specific circumstances.

An S corporation is required to pay the net income measure of the excise tax if its total receipts are $6 million or more for the taxable year. The tax rate applied to the net income depends on the total receipts. For S corporations with total receipts between $6 million and $9 million, a rate of 2% is applied to their net income. If total receipts are $9 million or more, the rate increases to 3%.

Regardless of their income or revenue levels, all S corporations are subject to the non-income measure of the corporate excise tax. This means they must calculate and pay the tax based on either their tangible property or net worth, just like a C corporation. S corporations are also subject to the minimum corporate excise tax of $456.

Filing and Payment Obligations

To comply with Massachusetts tax law, corporations must file the appropriate annual tax return and make timely payments. C corporations are required to file Form 355, the Massachusetts Corporate Excise Tax Return. S corporations use a separate form, Form 355S, the S Corporation Excise Tax Return.

The due dates for these returns depend on the corporation’s accounting year. For calendar-year C corporations, the return is due by April 15th. For calendar-year S corporations, the deadline is a month earlier, on March 15th. Massachusetts provides an automatic six-month extension to file the return, but this is an extension of time to file, not to pay. Any tax owed must still be paid by the original due date to avoid penalties.

Corporations that anticipate their excise tax will exceed $1,000 for the year must make quarterly estimated tax payments. For a calendar-year corporation, these dates are March 15, June 15, September 15, and December 15. The required payment amounts are:

• First installment: 40%
• Second installment: 25%
• Third installment: 25%
• Fourth installment: 10%