Massachusetts Corporate Tax: Everything You Need to Know
Massachusetts corporate tax is applied to the taxable earnings of corporations that do business or are located in the state.3 min read
2. Filing the Annual Tax Return
3. Potential Additional Taxes
4. Application of Corporate Excise Tax
5. How the Location Affects Taxes
Massachusetts corporate tax is applied to the taxable earnings of corporations that do business or are located in the state.
Introduction of Massachusetts Corporate Tax
Income resulting from businesses is taxed in just about every state, and Massachusetts is no exception.
Although some feel Massachusetts' reputation regarding taxes is up for debate, the nickname, Taxachusetts, indicates that the state is certainly known for its taxes.
With a flat 8 percent corporate tax rate, Massachusetts finds itself between the higher and lower rates applied by other states in the area.
Comparatively, federal corporate tax is applied marginally rather than at a flat rate, and the corporate tax rate of 15 other states surpasses that of Massachusetts.
Vermont and Maine apply a graduated system concerning rates; however, this application allows the taxes to rapidly exceed the 8 percent rate of Massachusetts.
Looking at the 8.2 percent rate of New Hampshire, Massachusetts' rate seems quite reasonable in comparison.
Additionally, a corporate alternative minimum tax is not required in Massachusetts like it is in Maine and New Hampshire.
The Massachusetts corporate tax is like an individual tax, except it is applied to businesses and uses a bracketed structure.
Filing the Annual Tax Return
Corporations are required to file an annual return like individual taxpayers and are also authorized to apply deductions from the following expenses:
- Salaries paid
- Cost of goods sold
- Other appropriate business costs
The purpose of the alternative minimum tax system is to work in conjunction with the standard system, making sure that a minimum amount of taxes is paid each year by taxpayers. The alternative minimum amount is paid if it is greater than the amount applied under the standard system.
Legal business types are taxed differently:
- Corporations: Complete corporate income tax.
- S corporations: Apply state tax to personal returns.
- Limited Liability Companies (LLCs): Apply state tax to personal returns.
- Partnerships: Apply state tax to personal returns.
- Sole Proprietorships: Apply state tax to personal returns.
The rates applied to corporate and personal income differ from state to state.
Corporate rates usually vary between 4 and 9 percent and are usually flat, while personal rates change with income and can vary between 0 and 9 percent or more.
The following four states do not apply a corporate income tax:
- South Dakota
The following seven states do not apply a personal income tax:
- South Dakota
The following states only apply tax earnings from interest and dividends:
- New Hampshire
Potential Additional Taxes
In addition to corporate and personal taxes, some states apply a franchise or privilege tax to certain businesses for the right to do business in that state.
Just like state taxes, a franchise tax is based on the type of business, but are often either applied as a flat rate or calculated using the net value of the business.
Specifically, Massachusetts institutes a corporate excise tax that takes into consideration both a business's earnings and net value.
This corporate excise tax is usually applied to the following business types:
- S corporations
The remaining unlisted business types do not have an entity level tax.
Regardless of the type of business, any personal income received from a business must be included on the individual state return.
Massachusetts adheres to the federal application of classifying businesses:
- If a business files federally as a corporation, then it is considered a corporation in Massachusetts for tax purposes.
- Businesses that are not incorporated can choose to file as either an individual or a corporation.
Application of Corporate Excise Tax
Both foreign and domestic corporations in Massachusetts are usually subject to the corporate excise tax.
Corporate excise taxes must be filed by the 15th day of the third month following the end of the corporation's fiscal year.
Although it is not required unless a business earns more than $100,000 in revenues per year, Massachusetts Department of Revenue prefers that corporations file online.
How the Location Affects Taxes
Businesses that provide products or services to other states may have ties to more than one state requiring that they pay taxes in those states, as well as their home state.
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