On October 4, 2023, Massachusetts Governor Maura Healey implemented Bill H.4104, documenting historic tax law changes for the Commonwealth. We have previously covered the important highlights of Bill H.4104 from an individual income tax perspective, and we summarize the impacts to corporate tax below.
Single Sales Factor
Historically, Massachusetts has apportioned income to the state using an average of the state’s share of a taxpayer’s sales, payroll, and property, with sales weighted twice in the average. Bill H.4104 introduces the apportioning of income to the state by only looking at the state’s share of sales. This change from the state represents a shift on focus happening across the nation from physical presence to economic presence. With the rise in remote work and the spread of assets and people across state lines, states are homing in on the actual sales to customers in their state versus what physical presence organizations have in their state. This shift could result in tax relief for companies located in the state but could have the opposite effect for companies located outside but with customers in the state.
What Does This Change Look Like?
Below are a couple of examples that show the impact of this change to a taxpayer that is located within and outside of Massachusetts:
| Assume the following for Corporation A, located in Massachusetts: | ||||||
| $1,000,000 in sales. $500,000 to customers in Massachusetts, $500,000 outside of Massachusetts. | ||||||
| $100,000 in physical assets, all in Massachusetts | ||||||
| $100,000 in payroll, all in Massachusetts | ||||||
| $100,000 in taxable income | ||||||
| Before Single Sales Factor | With Single Sales Factor | |||||
| Sales Apportionment | 50% | 50% | ||||
| Payroll Apportionment | 100% | 100% | ||||
| Property Apportionment | 100% | 100% | ||||
| Total Apportionment | 75% | 50% | ||||
| Taxable Income | $100,000 | $100,000 | ||||
| MA Apportionment | 75% | 50% | ||||
| MA Taxable Income | $75,000 | $50,000 | ||||
| MA Tax Rate | 8% | 8% | ||||
| MA Tax | $6,000 | $4,000 | ||||
| Assume the following for Corporation B, located outside of Massachusetts: | ||||||
| $1,000,000 in sales. $500,000 to customers in Massachusetts, $500,000 outside of Massachusetts. | ||||||
| $100,000 in physical assets, all outside of Massachusetts | ||||||
| $100,000 in payroll, all outside of Massachusetts | ||||||
| $100,000 in taxable income | ||||||
| Before Single Sales Factor | With Single Sales Factor | |||||
| Sales Apportionment | 50% | 50% | ||||
| Payroll Appportionment | 0% | 0% | ||||
| Property Apportionment | 0% | 0% | ||||
| Total Apportionment | 25% | 50% | ||||
| Taxable Income | $100,000 | $100,000 | ||||
| MA Apportionment | 25% | 50% | ||||
| MA Taxable Income | $25,000 | $50,000 | ||||
| MA Tax Rate | 8% | 8% | ||||
| MA Tax | $2,000 | $4,000 | ||||
Conclusion
While this change does not come into effect until tax years beginning on or after January 1, 2025, taxpayers should begin to think through what this change may mean to their tax liabilities in the state, and if any actions should be taken as a result. If you’re looking for assistance planning for the upcoming change, or other forms of tax planning and preparation, reach out to Wolf & Company’s Business Tax team today.
