Massachusetts Enacts Single-Sales Apportionment Among Other Tax Provisions

On October 4, 2023, Massachusetts enacted tax legislation (H.4104), which will dramatically affect how businesses calculate their Massachusetts income. The legislation adopts a single sales factor apportionment formula for all corporations and also makes changes for how financial institutions source its income from investment activities and trading activities.

Historically, most businesses in Massachusetts apportioned income using a three-factor apportionment formula comprising of property, payroll, and double-weighted sales. As such, effective January 1, 2025, corporations will use a single sales factor, and based on current statute, partnerships would also be required to utilize the single sales factor formula.

Financial institutions currently source receipts based on consideration of the taxpayer’s regular place of business. However, the legislation removes the “regular place of business” concept.

Furthermore, the legislation reduces the short-term capital gains tax rate for individuals, estates, and trusts from 12% to 8.5%, which is retroactive for 2023. Also, the legislation closed a loophole for individuals subject to the millionaire’s tax, which imposed a 4% surtax for income over $1M. As the millionaire’s surtax is imposed per tax return, a married couple could file separately to either reduce or eliminate the 4% surtax. However, effective for tax years 2024 or after, Massachusetts will require taxpayers who file a joint federal return to also file a joint Massachusetts return.