Massachusetts corporate excise tax is levied against domestic and foreign corporations when charters are exercised, as well as when they are performing business activities in Massachusetts or are qualified to do so. This tax is also imposed if the business owns or uses any or all the capital it holds, including the physical plant and other forms of property.

Corporations Cannot Opt Out

No provision exists under Massachusetts law to let corporations choose not to be subject to this excise tax. If opting to to do business in the state, the excise tax is imposed under Chapter 63 of Massachusetts General Law. This applies even if the business entity is taxed as a Subchapter S corporation, or S-corp. Under Chapter 63, the corporation is taxed based on its apportioned net income. To determine the amount of a corporation's net income, you take the gross income and subtract the allowed deductions.

Subchapter C

An S-corp filing excise tax on Massachusetts corporations is permitted to claim deductions barring a handful of exceptions and tax the S-corp as if it were a C-corp. Some Federal deductions that are disallowed include:

  • Received dividends
  • State income
  • Local income
  • Franchise stock taxes
  • Capital stock taxes
  • Losses incurred in previous tax periods

The taxable income generated by an S-corp is calculated the same way an individual's taxable income is calculated for Federal tax purposes. Although, any items reported by S-corp shareholders have to be itemized and calculated separately, and also, S-corporations aren't allowed the same deductions as individuals.

What S-Corps Can't Claim

Under Massachusetts Code Section 172, S-corporations can't claim a deduction for a net operating loss. During the first five years of business, however, some corporations are able to deduct a portion of this type of loss. Under Section 172, however, S-corporations aren't able to have such a loss. This means an S-corp doesn't have the option to claim a deduction for lost operating costs in years beyond the first five years.

S-Corp Tax Forms

Corporations that elect to be treated as S corporations have to file either Form 355A if they are domestic corporations or Form 355B if they are foreign corporations under Chapter 63 of Massachusetts law. When the Massachusetts excise tax form is required, S-corps need to add US Corporation Income Tax Form 1120 along with all the schedules used in preparing it to explain the Massachusetts excise tax to the Federal government.

Taxes for Corporations and LLC's

Two parts make up the excise tax regulations for Massachusetts corporations and LLC's. First, there is a 0.26 percent tax on tangible property, and second, there is an 8.75 percent tax on net income. For corporations and LLCs, the minimum tax assessed is 456 dollars. The forms these entities use when filing taxes include the corporate excise tax return, payment voucher form, Corp schedule SK-1, Schedule S distributive income, and the online tax payments form.

S-Corp Shareholder Information

S corporations in Massachusetts are required to file a copy of Form 355S along with the accompanying Schedules S and Sk-1 for each of the entity's shareholders, including both resident shareholders and nonresident shareholders. The S schedule reports the distributive income earned by the S-corp. Schedule SK-1 lets each shareholder know how much income, loss, credits and deductions he or she must report when filing an individual tax return.

Due Date for Filings

The forms and payment for corporate excise tax returns are due on or before the 15th of the third month following each taxable year's end, or if using a calendar year filing, by March 15th. For partnerships, the return is due by the 15th of the fourth month following the end of the taxable year for the partnership, or April 15th if using calendar year for filing purposes.

Changes in Corporate Tax Code

Before 1986, personal income tax in Massachusetts was based on definitions from the Internal Revenue Code. Corporation regulations in Massachusetts adopted the code used today for the purpose of creating a definition for S corporations and determining how to tax them. This was done in January of 1998. The code updates led Massachusetts to incorporate a lot of the changes in Federal tax law that occurred over the past ten years.

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