Key Takeaways

  • Massachusetts corporate excise tax applies to corporations and some LLCs doing business in the state.
  • The tax has two parts: a property measure (0.26% of tangible assets) and an income measure (8.75% of net income).
  • The minimum excise tax is $456, even for companies with no income.
  • Both domestic and foreign corporations must file under Chapter 63 if they conduct business or own property in Massachusetts.
  • S corporations with gross receipts over $6 million face additional excise taxes.
  • Filing deadlines vary depending on entity type, but most corporate excise returns are due March 15 for calendar-year filers.
  • Changes in federal tax law often flow into Massachusetts rules, creating adjustments in allowable deductions.
  • Failure to file or pay on time can trigger penalties and interest.

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 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.

Who Must Pay Corporate Excise Tax

Corporate excise tax in Massachusetts applies broadly to both domestic corporations formed under state law and foreign corporations doing business or owning property in the state. The tax also applies to financial institutions and certain pass-through entities, such as S corporations with gross receipts above specific thresholds. Generally:

  • C corporations pay based on both property and income measures.
  • S corporations are subject to a reduced excise but can still face higher tax rates if gross receipts exceed $6 million, with an additional surtax for those above $9 million.
  • LLCs that elect corporate taxation are also subject to this excise.

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 can 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 Corporation Gross Receipts Thresholds

S corporations with less than $6 million in gross receipts are generally subject only to the minimum excise of $456.

  • Between $6 million and $9 million, an additional tax of 2% of income applies.
  • Over $9 million, the additional tax rises to 3% of income.

This structure ensures that larger S corporations contribute more significantly, aligning their obligations closer to those of C corporations.

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.

Property Measure vs. Income Measure

The corporate excise has two components:

  1. Income Measure – calculated as 8.75% of net income apportioned to Massachusetts.
  2. Property Measure – 0.26% of tangible property or net worth apportioned to Massachusetts.

Corporations pay whichever amount is greater between the combined calculation and the statutory minimum tax of $456.

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 non-resident 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.

Filing Penalties and Interest

Massachusetts imposes penalties for late filing or underpayment of corporate excise tax.

  • Late Filing Penalty: 1% per month of unpaid tax, up to 25%.
  • Late Payment Penalty: 1% per month, up to 25%.
  • Interest: Accrues on unpaid balances until full payment is made.

Businesses should also note that the Department of Revenue requires electronic filing and payment for most entities.

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 the 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 to create a definition for S corporations and determine 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.

Conformity with Federal Tax Law

Massachusetts corporate excise tax rules often incorporate elements of the Internal Revenue Code (IRC). While the state adopts many federal provisions, it does not conform automatically. Instead, the legislature periodically updates the statutes to reflect federal changes. This means deductions, depreciation schedules, and treatment of certain income items may differ slightly between federal and Massachusetts returns.

Frequently Asked Questions

  1. What is corporate excise tax in Massachusetts?
    It is a tax on corporations and certain LLCs doing business in the state, based on both income and property, with a $456 minimum.
  2. Who must file a Massachusetts corporate excise tax return?
    Domestic corporations, foreign corporations doing business in Massachusetts, financial institutions, and LLCs electing corporate tax status.
  3. What is the minimum Massachusetts corporate excise tax?
    All corporations subject to the tax must pay at least $456, even if they had no income.
  4. How are S corporations taxed differently?
    S corporations under $6 million in receipts generally pay only the minimum tax. Above $6 million, they face additional excise of 2% to 3% on income.
  5. What happens if I miss the filing deadline?
    Late filers face penalties of up to 25% of the unpaid tax, plus interest, until payment is complete.

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