Mass. Gen. Laws ch. 63, § 32B – Combined reporting; corporations subject to combination; apportionment of income; joint and several liability; regulations; affiliated group election

(a) Notwithstanding any other provision of this chapter, a corporation subject to tax under this chapter and engaged in a unitary business with 1 or more corporations subject to combination within the meaning of this section shall, under regulations adopted by the commissioner, calculate its taxable net income derived from this unitary business as its share, attributable to the commonwealth, of the apportionable income or loss of the combined group engaged in the unitary business, determined in accordance with a combined report. In computing the apportionable income or loss of the combined group and of each member thereof, items of income, deductions and receipts from transactions between or among members of the combined group, including but not limited to the payment of dividends, shall be eliminated, subject to regulations as may be adopted pursuant to clause (i) of subsection (f).
(b)
1. (1) For purposes of this section, the term ''unitary business'' shall mean the activities of a group of 2 or more corporations under common ownership that are sufficiently interdependent, integrated or interrelated through their activities so as to provide mutual benefit and produce a significant sharing or exchange of value among them or a significant flow of value between the separate parts. The term unitary business shall be construed to the broadest extent permitted under the United States Constitution.
2. (2) For purposes of this section, the words ''common ownership'' shall mean that more than 50 per cent of the voting control of each member of the group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether or not the owner or owners are members of the combined group. A group of corporations under common ownership may be engaged in 1 or more unitary businesses.
3. (3) Any business conducted by a partnership shall be treated as the business of the partners, whether the partnership interest is directly held or indirectly held through a series of partnerships, to the extent of the partner's distributive share of the partnership's income, regardless of the magnitude of the partner's ownership interest or its distributive share of partnership income. A business conducted directly or indirectly by 1 corporation is unitary with that portion of a business conducted by another, commonly owned corporation through its direct or indirect interest in a partnership if the activities conducted by the former corporation and the partnership are unitary within the meaning of paragraph (1) regardless of the magnitude of the partner's ownership interest or its distributive or any other share of partnership income.
(c)
1. (1) Corporations that are subject to combination within the meaning of this section shall include an entity of the kind that is subject to tax or would be subject to tax if doing business in the state under section 2, 2B, 32D, 39 or 52A, as well as an entity described in sections 20 to 29E, inclusive, in any case in which the entity does not qualify for treatment as a life insurance company as defined in section 816 of the Code or an insurance company subject to tax imposed by section 831 of the Code. A corporation is subject to combination irrespective of whether the corporation is actually subject to tax under section 2, 2B, 32D, 39 or 52A. A corporation subject to combination includes a real estate investment trust as referenced under sections 856 to 859, inclusive, of the Code and a regulated investment company as referenced under sections 851 to 855, inclusive, of the Code. Any corporation included in the combined group pursuant to this section that is subject to tax under section 2, 2B, 32D, 39 or 52A shall determine that part of its taxable net income or loss that is derived from a unitary business or from an affiliated group pursuant to an election under paragraph (2) of subsection (g). Such corporation shall not be subject to any duplicate inclusion of income or benefit from any duplicate deduction of loss under section 2, 2B, 32D, 39 or 52A.
2. (2) A corporation subject to combination within the meaning of this section shall not include an entity described in section 38B or 38Y. In addition, an entity subject to combination within the meaning of this section shall not include an entity described in sections 20 to 29E, inclusive, except as provided in paragraph (1) or otherwise in this chapter.
3. (3) The members of a combined group subject to tax under this chapter may elect to determine their apportioned share of the taxable net income or loss of the combined group pursuant to a worldwide election under which each taxpayer member, wherever located, shall take into account the income and apportionment factors of all the members includible in the combined group. If the members do not so elect, the combined group shall determine its share of the taxable net income or loss of the combined group on a water's edge basis under which each member shall take into account the income and apportionment factors of only the members that are described in any one or more of the following categories:—
(i) any member incorporated in the United States or formed under the laws of the United States, any state, the District of Columbia, or any territory or possession of the United States;
(ii) any member, regardless of the place incorporated or formed, if the average of its property, payroll, and sales factors within the United States is 20 per cent or more;
(iii) any member that earns more than 20 per cent of its income, directly or indirectly, from intangible property or service-related activities the costs of which generally are deductible for federal income tax purposes, whether currently or over a period of time, against the business income of other members of the group, but only to the extent of that income and the apportionment factors related thereto. A worldwide election shall be effective only if made on a timely-filed, original return for a taxable year by the members of the combined group subject to tax under this chapter. A worldwide election shall be binding for and applicable to the taxable year for which it is made and all taxable years thereafter for a period of 10 years, subject to regulations adopted by the commissioner.
(iv) Where a combined group determines its taxable net income or loss on a water's edge basis, an item of income of a corporation that is organized outside of the United States shall not be included in the combined group's taxable income to the extent that such item is exempt from United States federal income tax by virtue of a federal income tax treaty. Any items of expense and apportionment factors related to such item of exempt income shall be excluded in the determination of taxable net income or loss to the extent provided in regulations issued by the commissioner. However, any such item of exempt income shall be taken into account to determine whether the corporation is included in the water's edge group under clause (ii) or (iii). If a corporation organized outside of the United States is included in a water's edge combined group and has an item of income that is exempt from United States federal income tax by virtue of a federal tax treaty, the corporation shall be considered to be included in the combined group under that clause only with regard to any items of income described in that clause that are not so exempt, taking into account items of expense and apportionment factors associated with such items of non-exempt income to the extent provided by regulations issued by the commissioner. Nothing in this clause shall prevent the commissioner from adjusting, under sections 31I, 31J, 31K or 39A of this chapter, section 3A of chapter 62C, or any other provision of law, any deduction claimed by the payer for amounts that are excluded from the combined group's taxable income under this clause. The commissioner may require the reporting of the amounts of such excluded income and the documentation of any claimed treaty exemption as conditions to be met by a payer claiming a deduction of such payments.
(d)
1. (1) When used in this section, the following words shall have the following meaning:—
  ''Combined group's taxable income,'' the aggregate taxable net income or loss subject to apportionment and derived from a unitary business or the aggregate taxable net income or loss from an affiliated group pursuant to an election under paragraph (2) of subsection (g), in either case reported on a combined report in accordance with this section, of every taxable member and non-taxable member of the combined group.
  ''Non-taxable member,'' a member of the combined group that is not subject to tax under section 2, 2B, 32D, 39 or 52A.
  ''Taxable member,'' a member of the combined group that is subject to tax under section 2, 2B, 32D, 39 or 52A.
2. (2) A corporation subject to tax under this chapter that is part of a combined group shall apportion its income as follows:—
  1. (i) Subject to this subsection, each taxable member shall determine its apportionment percentage based on its specific apportionment formula pursuant to this chapter.
  2. (ii) Each taxable member shall compute the numerator of its apportionment factors pursuant to the apportionment provisions of this chapter that apply to such member. Each taxable member shall add to its sales factor numerator its share of Massachusetts sales of non-taxable members based on subparagraph (iv). If a combined group includes one or more members that are financial institutions and one or more members that are not financial institutions, the numerators of the property and sales factors of the members shall be adjusted in the same manner as the denominator adjustments described in subparagraph (iii) and such receipts as are added pursuant to such adjustments shall be sourced as provided in section 2A.
    [Subparagraph (iii) of paragraph (2) of subsection (d) applicable as provided by 2018, 273, Sec. 69.]