On October 4, 2023, Massachusetts Governor Maura Healey signed House Bill 4104 into law. The most significant change it introduces is the adoption of single-sales-factor apportionment (SSF) for all corporate taxpayers, not just manufacturers and mutual fund service corporations. Massachusetts joins more than 30 other states that have adopted either mandatory or elective SSF. The law applies to tax years beginning on or after January 1, 2025.

In addition to the anticipated reduction in taxes for corporations with a relatively large Massachusetts property and payroll base, the change will end the relevance of the manufacturing and mutual fund service corporation classifications.

During the 20th century, Massachusetts was synonymous with three-factor apportionment. In fact, many called three-factor apportionment the “Massachusetts formula,” especially in the context of manufacturing. Then, in the 1990s, the state adopted SSF for manufacturers and mutual fund service corporations.

Generally speaking, under SSF, companies with a relatively large out-of-state presence had a lower apportionment percentage if they were not considered manufacturers. By contrast, companies with a large in-state presence generally had a lower apportionment percentage if they were manufacturers. Naturally, there were years of audits and litigation regarding these classifications. A company’s classification could even change from year to year depending on what ratio of its business fell within a classification. Thus, “winning” in one year did not mean that the issue would not be reexamined during the next audit cycle.

The broad adoption of SSF means that these classifications will no longer be relevant in this context, although the classifications still matter for other aspects of corporate income tax (like credits), as well as property and sales tax.

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