Massachusetts Corporate Excise and 4% Individual Surtax

Massachusetts imposes a corporate excise under G.L. c. 63 with two components: 8% on net income apportioned to the Commonwealth plus a property/net-worth component at $2.60 per $1,000, with a $456 minimum. S-corps with receipts above $9M face an entity-level "sting tax" of 2% ($6–9M) or 3% (>$9M). Single sales factor apportionment applies for tax years beginning on or after January 1, 2025. Individuals pay 5% on most income plus a 4% surtax on taxable income above approximately $1.083M for 2025 (Article 44, Fair Share Amendment). Pass-through entities may elect the 5% entity-level PTE tax under G.L. c. 63D as a SALT-cap workaround. Tax year 2025.

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1. Scope

This skill covers Massachusetts state-level taxation for:

• C corporations doing business in Massachusetts (corporate excise under G.L. c. 63 §§ 30–39).
• S corporations with Massachusetts nexus (modified excise plus the receipts-based "sting tax").
• Limited liability companies to the extent they are classified as corporations for federal purposes or elect such treatment. LLCs disregarded for federal tax (SMLLCs) flow to the owner's PIT; multi-member LLCs taxed as partnerships are not themselves subject to the corporate excise.
• Pass-through entities electing the entity-level tax under G.L. c. 63D.
• Individuals subject to the 5% Part B income tax and the 4% surtax under Article 44 of the Amendments to the Massachusetts Constitution.

Out of scope (refer out):

• Real estate transfer/deeds excise (G.L. c. 64D) — separate skill.
• Massachusetts sales and use tax at 6.25% (G.L. c. 64H/64I) — separate skill.
• Financial institution excise under G.L. c. 63 §§ 1–2A — touched on briefly; full treatment in a dedicated financial institutions skill.
• Insurance company excise under G.L. c. 63 §§ 20–29E.
• Public utility excise.
• Estate tax (G.L. c. 65C).
• Local property tax (assessed by municipalities, not DOR).

This skill is current to tax year 2025 and reflects the changes enacted by the FY2024 Tax Reform (Chapter 50 of the Acts of 2023, "An Act to Improve the Commonwealth's Competitiveness, Affordability, and Equity") and subsequent technical corrections through 2025.

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2. Corporate Excise — the Income Measure

2.1 Rate and base

General business corporations doing business in Massachusetts compute the income measure as follows:

1. Start with federal taxable income before NOL and special deductions (federal Form 1120 Line 28).
2. Apply Massachusetts modifications (Schedule E and Schedule E-1):
   • Add back state income taxes deducted federally (including the 5% Part B equivalent for any state).
   • Add back federal NOL deduction; Massachusetts computes its own NOL separately.
   • Add back federal §168(k) bonus depreciation; Massachusetts decoupled from bonus depreciation under G.L. c. 63 §1 and §38(a).
   • Add back federal §199A QBI (corporations do not get this anyway, but flow-through scenarios may require it).
   • Subtract the dividends-received deduction equivalent (95% on dividends from corporations 15%-owned or more, under G.L. c. 63 §38(a)(1)).
   • Subtract interest from US obligations exempt under federal law (e.g., Treasury bonds).
   • Other adjustments per Schedule E-1 (Subpart F, GILTI inclusion at 5% of GILTI under G.L. c. 63 §38(f), bonus depreciation reversal, §179 conformity to $1.16M for 2025, etc.).
3. Apportion to Massachusetts using the single sales factor (see Section 5).
4. Apply the Massachusetts NOL deduction (Section 7).
5. Multiply Massachusetts taxable net income by 8.0%.

2.2 Financial institutions

Financial institutions (banks, trust companies, savings banks, etc.) are taxed under G.L. c. 63 §2 at 9.0% on net income apportioned to Massachusetts, with their own apportionment formula (receipts-only since 2009). The Form 63 FI applies. This skill flags but does not expand the financial institution regime.

2.3 Manufacturing and R&D classification

A corporation classified as a "manufacturing corporation" or "R&D corporation" under G.L. c. 63 §38C/§42B receives:

• Single sales factor apportionment (historically — now everyone gets this for 2025+).
• Local property tax exemption on machinery used in manufacturing.
• The Investment Tax Credit (3% of qualifying property under G.L. c. 63 §31A).

The single sales factor advantage that drove manufacturer/R&D classification is moot for 2025 since the general formula is now single sales factor. Classification still matters for the ITC and local exemption.

2.4 Minimum excise

Every corporation subject to the excise pays at least $456 (the statutory minimum under G.L. c. 63 §39). This applies even if the corporation has zero income, no Massachusetts property, and minimum tangible nexus, so long as it is qualified or required to qualify to do business in the Commonwealth.

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3. Corporate Excise — the Property or Net Worth Measure

The non-income component is $2.60 per $1,000 (i.e., 0.26%) of either tangible property or net worth, whichever applies, computed under G.L. c. 63 §39(a)(1):

3.1 "Tangible property corporation" vs "intangible property corporation"

A corporation is a tangible property corporation if more than 10% of its total assets (other than securities and intangibles owned by subsidiaries) consist of tangible property situated in Massachusetts and not subject to local property tax. These pay the property measure on taxable Massachusetts tangible property:

• Tangible property in Massachusetts (book value).
• Minus property subject to local property tax (avoiding double tax — locally assessed real estate and locally taxed business personal property are excluded).
• Minus property used in a substantial part of manufacturing.

A corporation is an intangible property corporation ("non-tangibles entity") if the 10% test is not met. These pay the property measure on taxable net worth:

• Total assets minus liabilities (book equity).
• Minus subsidiaries' book value (the "subsidiary deduction") for corporations owning at least 80% of voting stock.
• Apportioned to Massachusetts using the income apportionment factor.

3.2 Rate and computation

Multiply the applicable base (tangible property OR net worth) by $2.60 per $1,000 (= 0.0026 = 0.26%).

3.3 Combined excise

The total corporate excise is the sum of the income measure (Section 2) plus the property/net worth measure (Section 3), with the $456 minimum floor. The two components are additive, not "greater of."

Total excise = max($456, 8.0% × MA net income + $2.60/$1,000 × MA tangible OR net worth)

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4. S-Corporation "Sting Tax"

4.1 Receipts thresholds

S-corporations are generally pass-through for Massachusetts, with the income flowing to shareholders' personal returns. However, G.L. c. 63 §32D imposes an entity-level tax on S-corps with significant Massachusetts receipts:

Total receipts (gross)	Entity-level rate on apportioned income
Less than $6,000,000	0% (no sting tax)
$6,000,000 to $8,999,999	2.0%
$9,000,000 or more	3.0%

The thresholds are gross receipts, not net income — a low-margin business can hit the sting tax with modest profitability. "Total receipts" generally means total sales, services, and other income for the taxable year (before cost of goods sold or expenses).

4.2 Combined group sting tax

For an S-corp that is part of a unitary combined group, the receipts threshold is tested at the combined-group level under G.L. c. 63 §32B and §32D, and the sting tax applies to the S-corp's apportioned share.

4.3 Property/net worth still applies

S-corps still owe the $2.60 per $1,000 property or net worth measure, plus the $456 minimum, regardless of receipts. The sting tax is in addition.

4.4 Worked sting tax computation

S-corp with $10.5M gross receipts and $1.2M of MA-apportioned income, $400k of MA tangible property:

• Sting tax (income measure for S-corp at the entity level): $1,200,000 × 3.0% = $36,000.
• Property measure: $400,000 × 0.0026 = $1,040.
• Total entity-level Massachusetts excise: $37,040 (well above the $456 minimum).
• Shareholders still report their pro-rata share of S-corp income on Form 1 (residents) or Form 1-NR/PY (non-residents) at 5% plus surtax if applicable. The sting tax paid is not creditable against the shareholders' individual tax; it is a separate entity-level cost.

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5. Apportionment — Single Sales Factor (2025)

5.1 The 2025 change

Prior to tax year 2025, general business corporations used a three-factor formula with double-weighted sales under G.L. c. 63 §38(c):

Apportionment % = (Property + Payroll + 2 × Sales) / 4

Manufacturing corporations, R&D corporations, mutual fund service corporations, and defense corporations already used single sales factor under §38(l). The FY2024 Tax Reform (Chapter 50, Acts of 2023, §§ 27–29) extended single sales factor to all general business corporations effective for tax years beginning on or after January 1, 2025.

Therefore, for the 2025 tax year onward:

Apportionment % = MA Sales / Everywhere Sales

Property and payroll are no longer part of the apportionment fraction (though property is still relevant for the property measure under Section 3, and payroll is relevant for nexus and other purposes).

5.2 Sales factor — what counts

Sales include:

• Tangible personal property: destination sourcing — sales where the property is delivered or shipped to a purchaser in Massachusetts.
• Throwback rule: Massachusetts does not have throwback for tangible property sales to non-taxable jurisdictions (i.e., Massachusetts is a "non-throwback" state for general business — sales "nowhere" are dropped from the numerator).
• Services and intangibles: market-based sourcing under G.L. c. 63 §38(f), as amended in 2014 and refined in subsequent regulations (830 CMR 63.38.1). Receipts are sourced to Massachusetts to the extent the service is delivered to a location in the Commonwealth or, for intangibles, to the extent used in Massachusetts.

5.3 Market-based sourcing — services

Common service sourcing rules:

• Professional services to a business customer: source by the customer's location of use (or principal place of business if use is not determinable).
• Software-as-a-Service (SaaS): typically treated as services or intangibles sourced where the customer uses the software.
• Digital advertising: sourced where the audience is located, with reasonable proxies (regulation 830 CMR 63.38.1(9)).
• Cascading rules: if the location of benefit cannot be reasonably determined, source to the customer's billing address; if still indeterminate, treat as outside the state.

5.4 Special industries

Financial institutions, insurance companies, mutual fund service corporations, defense corporations, ship/airline/pipeline companies, and certain other industries have specialized apportionment formulas that survive the 2025 change. These are outside this skill's scope.

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6. Combined Reporting

6.1 Mandatory water's-edge combination

Massachusetts has required combined reporting for unitary groups since tax year 2009 under G.L. c. 63 §32B. A unitary group is two or more corporations with more than 50% common ownership (direct or indirect) engaged in a unitary business.

The default is water's-edge — the combined return includes US corporations, US 80/20 corporations (corporations with at least 20% of payroll and property outside the US are partially excluded), and certain controlled foreign corporations to the extent of Subpart F and GILTI inclusions.

A group may elect worldwide combination under §32B(g), but this election is binding for 10 years and is rarely made because it includes all foreign affiliates' full income.

6.2 Affiliated group election

Alternatively, a group may elect to include all members of the federal affiliated group (the same group that files a consolidated federal return), even non-unitary members, under §32B(h). This affiliated group election is binding for 10 years.

6.3 Mechanics

Under combined reporting:

• Compute the combined unitary income of the group (eliminating intercompany transactions).
• Apportion the combined income using the combined-group sales factor (each member contributes its everywhere sales to the denominator; only members with Massachusetts nexus apportion the numerator).
• Each taxable member computes its own excise on its apportioned share.
• The combined group files Form 355U.

6.4 Principal Reporting Corporation

The group designates a Principal Reporting Corporation (PRC) that files Form 355U on behalf of all taxable members. Non-taxable members are still listed but do not pay excise.

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7. Net Operating Losses

7.1 Massachusetts-specific NOL

Massachusetts NOLs are computed independently of federal NOLs under G.L. c. 63 §30.5. Modifications under Massachusetts law (no bonus depreciation, separate DRD, etc.) are applied before the NOL is determined.

7.2 Carryforward and carryback

• Carryforward: 20 years.
• Carryback: not permitted.

(Massachusetts decoupled from federal §172 mechanics. The TCJA 80%-of-taxable-income limitation on post-2017 NOL deductions is followed by Massachusetts under G.L. c. 63 §30.5(d).)

7.3 Combined group NOLs

NOLs incurred during a combined-reporting year belong to the group and may be applied against future combined-group income. Pre-combination NOLs of a member generally remain that member's own and may be applied only against that member's apportioned share of future combined income (limited under §32B(e)).

7.4 Section 382 conformity

Massachusetts conforms to federal §382 limitations on NOLs after an ownership change.

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8. Filing and Estimated Payments

8.1 Returns and due dates

Entity	Form	Due date
C corporation	Form 355	15th day of 4th month after year-end (April 15 for calendar-year filers)
S corporation	Form 355S	15th day of 3rd month after year-end (March 15 for calendar-year filers)
Combined group	Form 355U	Same as C corp (April 15)
Pass-through (partnership)	Form 3	March 15
PTE election	Form 63D-ELT	March 15 (S-corps and partnerships)
Individual	Form 1 / Form 1-NR/PY	April 15

8.2 Extensions

Automatic 6-month extension for corporations on payment of the minimum or estimated balance due (Form 355-7004). Automatic 6-month extension for individuals on Form M-4868 with payment of estimated balance.

8.3 Estimated tax — corporations

Corporations expecting to owe more than $1,000 in excise must make quarterly estimated payments. The schedule is:

Installment	Due	Cumulative % of required annual payment
1st	15th day of 3rd month	40%
2nd	15th day of 6th month	65%
3rd	15th day of 9th month	80%
4th	15th day of 12th month	100%

In per-installment terms: 40 / 25 / 15 / 20 — note the 40/25/25/10 simplification cited in policy summaries is the rounded "front-loaded" pattern. The statutory schedule under G.L. c. 63B is 40% by Q1, 65% cumulative by Q2, 80% by Q3, 100% by Q4 — so individual installments are 40, 25, 15, and 20 percent of the required annual payment. Practitioners should follow Form 355-ES instructions.

Safe harbors:

• 100% of the prior year's excise (if the prior year was a full 12 months and showed positive liability), or
• 100% of the current year's actual liability.

Underpayment penalties accrue under G.L. c. 62C §32; compute on Form M-2220.

8.4 Estimated tax — individuals

Individuals expecting to owe more than $400 in Massachusetts tax (Part B plus surtax) must make estimated payments on Form 1-ES quarterly: April 15, June 15, September 15, January 15. Safe harbors are 80% of current-year tax or 100% of prior-year tax (110% if prior-year MA AGI > $150,000).

8.5 PTE election filing

A pass-through entity electing the PTE tax under G.L. c. 63D files Form 63D-ELT (annual election plus quarterly estimated). The election is made on or before the original due date and is irrevocable for the year.

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9. Individual 4% Surtax (Article 44 — Fair Share Amendment)

9.1 Constitutional basis

Article 44 of the Amendments to the Constitution of the Commonwealth, as amended by ballot question on November 8, 2022 (the "Fair Share Amendment"), imposes an additional 4% tax on the portion of an individual's annual taxable income in excess of $1,000,000 (in 2023 dollars), with an annual adjustment for inflation. The amendment took effect for tax years beginning on or after January 1, 2023.

9.2 Inflation indexing

The $1,000,000 threshold is adjusted each year for inflation by the same chained-CPI methodology used for federal individual brackets. Published thresholds:

Tax year	Threshold
2023	$1,000,000
2024	approximately $1,053,750
2025	approximately $1,083,150 (verify against DOR's annual technical information release)

The DOR publishes the exact figure each year in a Technical Information Release (TIR), typically late in the calendar year. Always verify the current threshold from the most recent TIR before relying on a number.

9.3 Rate stack

For tax year 2025, the Massachusetts individual rate structure is:

Income type	Rate
Wages, business income, interest (Part B 5% income)	5.0%
Long-term capital gains (Part C — held >1 year)	5.0%
Short-term capital gains (Part A — held ≤1 year)	8.5%
Collectibles and pre-1996 installment gains	12.0%
Dividends	5.0%
4% surtax	additional 4% on aggregate taxable income above the threshold

The surtax sits on top of the underlying rate. So a long-term capital gain that pushes a taxpayer over the threshold is taxed at 5% + 4% = 9% effective. Wage income over the threshold is taxed at 5% + 4% = 9% effective. Short-term capital gain over the threshold is taxed at 8.5% + 4% = 12.5% effective.

9.4 Aggregation rule — surtax is on total taxable income

The 4% surtax is computed on total Part A + Part B + Part C taxable income combined, not on a single category. So an individual with $700,000 of wages and $500,000 of long-term capital gain has $1,200,000 of aggregate taxable income; if the 2025 threshold is $1,083,150, the surtax base is $1,200,000 − $1,083,150 = $116,850, and the surtax is $116,850 × 4% = $4,674.

The DOR's position (TIR 23-12 and subsequent guidance) is that the surtax allocates pro-rata across categories of income for purposes of computing where the "excess over the threshold" comes from, but the practical computation is simply: aggregate taxable income minus threshold times 4%.

9.5 Residency and sourcing

• Massachusetts residents: surtax applies to worldwide taxable income above the threshold.
• Non-residents and part-year residents: surtax applies to Massachusetts-source taxable income above the threshold, measured on Form 1-NR/PY. The threshold itself is not prorated for part-year residents; the full threshold applies, but only Massachusetts-source income counts toward both the threshold and the surtax base.

For non-residents, Massachusetts-source income includes:

• Compensation for services performed in Massachusetts.
• Income from a trade or business with Massachusetts situs.
• Distributive shares from partnerships and S-corps to the extent of Massachusetts-apportioned income.
• Gains from sales of Massachusetts real property.
• Gains from sales of partnership interests where the partnership holds Massachusetts real property (under G.L. c. 62 §5A as amended).

9.6 Married filing jointly vs separately

Massachusetts generally requires married couples to file consistently with their federal status. The $1,083,150 threshold (2025) is not doubled for joint filers — it is a single threshold applied to the combined joint return. Married couples filing separately each apply the threshold to their own return, which can create a "marriage penalty" relative to a separate-filer pair.

Tax planning: couples with combined income above the threshold but each spouse below have no efficient way to avoid the surtax via separate filing unless their unconventional facts allow it, because MA generally requires consistent federal/state filing status.

9.7 Estimated payments and withholding

Employers withholding Massachusetts income tax do not adjust automatically for the surtax; high earners should:

• Submit a revised M-4 with additional withholding, or
• Make quarterly estimated payments on Form 1-ES.

DOR Circular M (the wage withholding tables) does include an optional 9% supplemental rate for high earners as of 2024.

9.8 Capital gains planning

Because the surtax is on aggregate taxable income for the year, large one-time capital gains can push a taxpayer over the threshold even if their ordinary income is normally below it. Planning approaches:

• Spread realizations across multiple tax years (sell tranches in different calendar years).
• Installment sales under §453 to spread gain (Massachusetts follows federal installment treatment for most purposes).
• Like-kind exchanges under §1031 (real property only) to defer gain.
• Opportunity zone investments under §1400Z — Massachusetts conforms to the federal OZ deferral mechanism for non-corporate taxpayers.
• Charitable contributions in the same year to reduce taxable income — though MA does not allow an itemized charitable deduction at the state level for most taxpayers (the temporary 2024 charitable deduction restored under the FY2024 Tax Reform applies but does not interact with capital gain in a straightforward way; treat conservatively and check current TIR).
• PTE election at the entity level (Section 10) to convert what would be a pass-through gain into entity-level tax with a credit, which can reduce surtax exposure for the owner if the entity is appropriately structured.

9.9 Surtax does not apply to PTE election base

A taxpayer whose pass-through entity makes the PTE election (Section 10) pays the entity-level 5% on its share of qualified income. The owner receives a refundable credit equal to the PTE tax paid on their behalf, and the income flows through but is offset by the credit. The DOR's position (TIR 21-9 as updated) is that the PTE tax is computed on the entity's income at 5% without surtax, regardless of the owner's individual income level. This is one of the principal planning attractions of the PTE election for high earners.

However, the owner's individual return still includes the underlying flow-through income and that income still counts toward the owner's surtax threshold — the credit offsets the 5% liability, but if the owner is over $1,083,150 of total Massachusetts taxable income, the surtax still applies to the excess. So the PTE election saves federal SALT-cap dollars but does not itself avoid the state-level surtax.

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10. PTE Election under G.L. c. 63D

10.1 Statutory framework

Chapter 39 of the Acts of 2021 enacted G.L. c. 63D, creating an elective entity-level tax on pass-through entities for tax years beginning on or after January 1, 2021. The election was made retroactive to take advantage of the federal SALT cap workaround approved by IRS Notice 2020-75.

10.2 Eligible entities

• S corporations.
• Partnerships (including LLCs taxed as partnerships).
• Single-member LLCs are not eligible (the owner files individually).

10.3 Rate and base

The PTE entity pays 5% of "qualified income" — generally the entity's income attributable to qualified members (Massachusetts resident individuals, estates, and trusts, plus non-resident individuals to the extent of their Massachusetts-source income).

C-corp partners and tax-exempt partners are excluded from the PTE base; their share remains with them.

10.4 Election mechanics

• Annual election: made on Form 63D-ELT by the original due date of the return (not the extended due date). Once made, irrevocable for the year.
• Estimated payments: required quarterly using Form 63D-ELT-ES. Standard 25/25/25/25 schedule.
• Owner credit: each qualified member receives a refundable Massachusetts personal income tax credit equal to 90% of their pro-rata share of the PTE tax paid (under G.L. c. 63D §6 — note the 90% factor, not 100%; this is a deliberate haircut introduced to keep the workaround revenue-neutral; some practitioners advocate for federal aggregation positions to recover the lost 10% but the DOR's position is the 90% credit is the available state benefit).

Update: Chapter 50 of the Acts of 2023 increased the credit from 90% to 100% for tax years beginning on or after January 1, 2023. Verify against the current Form 63D-ELT instructions before relying. For 2025 returns the 100% credit applies.

10.5 Federal mechanics — the SALT cap workaround

By electing the PTE tax, the entity deducts the state tax as an ordinary business expense at the federal level (not a §164 itemized deduction subject to the $10,000 SALT cap). The deduction reduces federal taxable income for all partners/shareholders pro rata. At the state level, the owners receive a refundable credit, so the net Massachusetts liability is unchanged — the federal benefit is the savings on the federal §164 cap.

10.6 Interaction with surtax

As noted in Section 9.9, PTE income flows through to the owner's individual return and counts toward the surtax threshold. The PTE election does not avoid the surtax; it reduces federal tax, not state tax. Owners should still plan for the 4% surtax on any qualifying excess.

10.7 Composite filing and PTE election

Massachusetts permits non-resident composite returns under G.L. c. 62B §6 and 830 CMR 62B.2.2. Composite filing and PTE election are not mutually exclusive; many partnerships file both — composite for non-resident reporting and PTE election for the SALT workaround. Note that composite returns historically charged a higher non-resident rate; check current TIR for interactions.

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11. Nexus

11.1 Income tax nexus — corporations

Public Law 86-272 protections still apply in Massachusetts for sales of tangible personal property. However, Massachusetts adopted the Multistate Tax Commission's revised PL 86-272 statement (effective 2022) narrowing protection for online activities (cookies, app downloads, web chat for non-product purposes, etc.). Practitioners should expect that any non-de-minimis online business with Massachusetts customers creates income tax nexus.

Beyond PL 86-272, Massachusetts asserts economic nexus for income tax purposes:

• Bright-line threshold: $500,000 of Massachusetts sales in the year (830 CMR 63.39.1, adopting Capital One-style factor presence).
• 25 or more employees in MA.
• Owned or leased property in MA exceeding $50,000.

Meeting any of these creates nexus.

11.2 Combined-group nexus

Members of a unitary combined group with Massachusetts nexus are taxable in Massachusetts; members without independent nexus are non-taxable members but still report on Form 355U for income measurement purposes.

11.3 Individual nexus — residency

Massachusetts residents are taxable on worldwide income. Residency tests:

• Domiciled in Massachusetts and not a non-resident for the entire year, or
• Statutory resident: maintaining a permanent place of abode in Massachusetts and spending more than 183 days in the Commonwealth during the year.

For surtax purposes, residency is determined under the same standards.

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12. Penalties and Interest

• Late filing: 1% per month, max 25% (G.L. c. 62C §33(a)).
• Late payment: 1% per month, max 25% (§33(b)).
• Underpayment of estimated tax: computed on Form M-2220 (corporate) or Form M-2210 (individual). Interest rate is the federal short-term rate + 4% (set quarterly).
• Substantial understatement: 20% under G.L. c. 62C §35A for understatements exceeding 10% of tax or $1,000.
• Fraud: 50% of underpayment.

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13. Worked Examples

Example A — Small Massachusetts C corporation

Facts: Boston-based C-corp software vendor. Tax year 2025. Federal taxable income (Form 1120 Line 28) = $850,000. Massachusetts modifications: add back $42,000 of state income tax deducted federally; add back $30,000 of bonus depreciation excess over MACRS; no DRD adjustments. The corporation has $4M of sales, $3.2M sourced to Massachusetts customers (services, sourced under market-based rules). Massachusetts tangible property: $180,000 of equipment located in Boston (not subject to local property tax because it's office furniture and a small portion exempt from local personal property tax for non-manufacturing). Net worth (book equity): $1.4M. The corporation is not a manufacturing or R&D corporation.

Step 1 — Massachusetts net income:

Federal taxable income (Line 28):              $850,000
Add back state income tax:                       42,000
Add back bonus depreciation excess:              30,000
Massachusetts net income before apportionment:  $922,000

Step 2 — Apportionment (single sales factor):

MA sales / Everywhere sales = $3,200,000 / $4,000,000 = 80.0%

Step 3 — Apportioned MA income:

$922,000 × 80.0% = $737,600

Step 4 — Income measure:

$737,600 × 8.0% = $59,008

Step 5 — Property/net worth measure:

The corporation has $180,000 of MA tangible property; the assets are dominantly intangible (software, accounts receivable, cash). Total assets ~$1.6M; tangible MA property = $180,000 = 11.25% of assets — over the 10% threshold, so this is a tangible property corporation.

Property measure: $180,000 × $2.60/$1,000 = $468

Step 6 — Total excise:

Income measure: $59,008
Property measure:    468
Total:           $59,476
Compare to minimum: $456
Excise:          $59,476 (well above minimum)

Form 355 Line 9 (excise): $59,476.

The corporation files Form 355 by April 15, 2026. Required estimated payments during 2025: 40% by March 15 = $23,790; 25% by June 15 = $14,869; 15% by September 15 = $8,921; 20% by December 15 = $11,895.

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Example B — S-corp crossing the sting tax threshold

Facts: Cambridge S-corp consulting firm. Tax year 2025. Total receipts (gross) = $10,200,000 (services billed). Federal ordinary business income (Form 1120-S Line 21) = $1,800,000. MA modifications: add back $40,000 of bonus depreciation, $0 state tax. Two equal individual shareholders, both Massachusetts residents, each receiving $900,000 of K-1 ordinary income. MA-source services = 95% (all clients are Massachusetts-headquartered). Apportionment = 95%. Tangible MA property = $90,000 of office equipment (not under 10% test — total assets are predominantly intangible). Net worth = $2,200,000.

Step 1 — Sting tax threshold check:

Total receipts: $10,200,000 — over $9,000,000 → sting tax rate = 3.0%

Step 2 — MA apportioned income:

$1,800,000 federal Line 21 + $40,000 bonus depreciation = $1,840,000 MA income
$1,840,000 × 95% apportionment = $1,748,000

Step 3 — Sting tax (income measure for S-corp at entity level):

$1,748,000 × 3.0% = $52,440

Step 4 — Property/net worth measure (S-corps still pay this):

Total assets are intangible-heavy; $90,000 of tangible / ~$2.4M total = 3.75% — under 10%, so the S-corp is an intangible property corporation ("non-tangibles entity") and pays the net worth measure.

Net worth: $2,200,000
Subsidiary deduction: $0
Apportioned net worth: $2,200,000 × 95% = $2,090,000
Net worth measure: $2,090,000 × $2.60/$1,000 = $5,434

Step 5 — Total entity-level Massachusetts excise:

Sting tax:        $52,440
Net worth meas.:    5,434
Minimum check:        456
Total excise:    $57,874

Step 6 — Shareholders' individual returns:

Each shareholder reports $900,000 of K-1 ordinary income (subject to MA modifications at the entity level; the bonus depreciation addback has already increased the MA K-1 income for each shareholder by $20,000 each).

Each shareholder reports $920,000 of MA K-1 income on Form 1. Adding wages of, say, $250,000, total MA Part B income = $1,170,000.

Part B 5% tax: $1,170,000 × 5% = $58,500
Surtax base (assume 2025 threshold $1,083,150):
   $1,170,000 − $1,083,150 = $86,850
Surtax: $86,850 × 4% = $3,474
Total individual MA tax: $58,500 + $3,474 = $61,974

Step 7 — PTE election planning consideration:

If the S-corp had elected PTE under c. 63D for 2025:

PTE base (qualified income to qualified members): $1,748,000 × 100% MA-resident = $1,748,000
PTE tax: $1,748,000 × 5% = $87,400
Each shareholder's credit: $87,400 / 2 = $43,700 (refundable, 100% under 2025 rules)

Each shareholder's personal MA tax stays at $61,974 (no change to surtax exposure — see Section 9.9), but the credit of $43,700 makes the net Massachusetts liability $61,974 − $43,700 = $18,274 owed by the shareholder; the entity has paid the rest. At the federal level, the $87,400 PTE tax is deducted on Form 1120-S as an ordinary business expense, reducing federal K-1 income by $43,700 per shareholder — saving roughly $43,700 × 37% = $16,169 each in federal tax (assuming top bracket), or $32,338 total for the two owners.

Note: the sting tax of $52,440 is separate from and additional to the PTE election; the entity pays both. The PTE election does not offset the sting tax.

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Example C — High-income individual with capital gain and the 4% surtax

Facts: Massachusetts resident individual. Tax year 2025. Single filer. Income:

• Wages: $400,000.
• Long-term capital gain from sale of stock held 5 years: $900,000.
• Short-term capital gain from a separate trade: $80,000.
• Interest and dividends: $30,000.
• No itemized federal deductions that flow to MA (MA does not allow most itemized deductions; standard MA deductions for FICA up to ~$2,000 and rental deduction up to $4,000 apply).

Total taxable income: $400,000 + $900,000 + $80,000 + $30,000 = $1,410,000.

Step 1 — Compute Part B 5% tax (wages, interest, dividends, long-term gain):

The long-term capital gain is Part C — taxed at 5%. Interest and dividends are Part B — 5%. Wages are Part B — 5%. So:

5% Part B + Part C income: $400,000 + $30,000 + $900,000 = $1,330,000
5% tax:                    $1,330,000 × 5% = $66,500

Step 2 — Compute Part A short-term gain at 8.5%:

Short-term gain: $80,000
8.5% tax:        $80,000 × 8.5% = $6,800

Step 3 — Compute 4% surtax:

Aggregate taxable income = $1,410,000. 2025 threshold = $1,083,150 (illustrative; verify against most recent TIR).

Excess over threshold: $1,410,000 − $1,083,150 = $326,850
Surtax:                 $326,850 × 4% = $13,074

Step 4 — Total Massachusetts tax:

5% Part B + C tax:  $66,500
8.5% Part A tax:      6,800
4% surtax:           13,074
Total MA tax:       $86,374

Effective rate analysis:

• Average effective MA rate: $86,374 / $1,410,000 = 6.13%.
• On the $326,850 of "excess" income, the marginal MA rate is 5% (or 8.5% for short-term gain) + 4% surtax = 9% (or 12.5%).
• This is roughly 1.8 percentage points higher than the pre-2023 5% flat tax for high earners on the excess portion.

Step 5 — Planning if the long-term gain could be deferred:

If the taxpayer instead sold the stock in two tranches — $450,000 long-term gain in 2025 and $450,000 long-term gain in 2026 — with no other income changes:

2025 taxable income: $400,000 + $450,000 + $80,000 + $30,000 = $960,000
2025 surtax: $0 (below $1,083,150 threshold)
2025 MA tax: ($400,000 + $30,000 + $450,000) × 5% + $80,000 × 8.5%
           = $880,000 × 5% + $80,000 × 8.5%
           = $44,000 + $6,800 = $50,800

2026 taxable income (assume similar profile, threshold ~$1,113,000 for 2026):
  $400,000 wages + $450,000 LTCG + $30,000 int/div + $0 STCG = $880,000
2026 surtax: $0 (below threshold)
2026 MA tax: $880,000 × 5% = $44,000

Total over two years: $50,800 + $44,000 = $94,800 vs. single-year tax of $86,374 + 2026 baseline tax on wages alone of $400,000 × 5% + $30,000 × 5% = $21,500, total $107,874.

So splitting the gain across years saves $107,874 − $94,800 = $13,074 — exactly the surtax amount, as expected. This is the textbook surtax-mitigation case for a one-time gain. The trade-off is time-value-of-money on deferred federal capital gains tax, but for a Massachusetts-resident high earner, the state surtax savings often justify the deferral.

Step 6 — Verification: total tax against simple stack:

Total MA tax = (Total income × base rate) + surtax
            = ($1,330,000 × 5%) + ($80,000 × 8.5%) + ($326,850 × 4%)
            = $66,500 + $6,800 + $13,074
            = $86,374  ✓

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14. Quick-Reference Tables

14.1 Rates summary (tax year 2025)

Item	Rate / Amount
C-corp excise — income measure	8.0%
C-corp excise — property/net worth measure	$2.60 per $1,000 (0.26%)
C-corp minimum excise	$456
Financial institution excise	9.0%
S-corp sting tax — $6M–$9M	2.0%
S-corp sting tax — $9M+	3.0%
Individual Part B (wages, interest, dividends)	5.0%
Individual Part C (long-term capital gain)	5.0%
Individual Part A (short-term capital gain)	8.5%
Individual Part A (collectibles, pre-1996 installment gain)	12.0%
4% surtax threshold (2025, approximate)	$1,083,150
4% surtax rate	4.0% (additional)
PTE entity tax	5.0%
PTE owner credit	100% of pro-rata share (2023+)

14.2 Apportionment formula evolution

Years	General business formula	Manufacturing/R&D formula
Pre-1996	Equal-weighted three-factor	Equal-weighted three-factor
1996–2024	Double-weighted sales (Sales×2 + Property + Payroll) / 4	Single sales factor
2025+	Single sales factor	Single sales factor

14.3 Filing calendar (calendar-year taxpayer, tax year 2025)

Date	Filing
March 15, 2025	First corporate estimate (40% of 2025 liability); S-corp Form 355S; partnership Form 3; PTE Form 63D-ELT
April 15, 2025	Corporate Form 355; individual Form 1; individual first estimate for 2026
June 15, 2025	Second corporate estimate (cumulative 65%); second individual estimate
September 15, 2025	Third corporate estimate (cumulative 80%); third individual estimate; corporate extended return (Form 355 + extension) for FY2024 calendar year
December 15, 2025	Fourth corporate estimate (cumulative 100%)
January 15, 2026	Fourth individual estimate for 2025
March 15, 2026	First 2026 corporate estimate; 2025 S-corp / partnership / PTE returns
April 15, 2026	2025 corporate Form 355; 2025 individual returns

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15. Provenance

15.1 Primary statutory authority

• G.L. c. 63 §§ 1–80 — Massachusetts corporate excise (the omnibus chapter).
• G.L. c. 63 §2 — Financial institution excise (9% rate).
• G.L. c. 63 §30 — Definitions for corporate excise (including "domestic corporation," "foreign corporation," "tangible property corporation," "intangible property corporation").
• G.L. c. 63 §30.5 — Net operating loss rules.
• G.L. c. 63 §31A — Investment Tax Credit (3% for manufacturing/R&D).
• G.L. c. 63 §32B — Combined reporting requirement.
• G.L. c. 63 §32D — S-corp sting tax.
• G.L. c. 63 §38 — Apportionment, single sales factor (as amended for 2025).
• G.L. c. 63 §38(c) — Apportionment formula change (FY2024 Tax Reform).
• G.L. c. 63 §38(f) — Market-based sourcing for services and intangibles.
• G.L. c. 63 §39 — Excise computation and minimum.
• G.L. c. 63 §42B — R&D corporation classification.
• G.L. c. 63D §§ 1–9 — Pass-through entity election (enacted Chapter 39, Acts of 2021; amended Chapter 50, Acts of 2023).
• G.L. c. 62 §§ 1–6 — Personal income tax (Part A, B, C definitions and rates).
• G.L. c. 62 §4 — Income tax rates.
• G.L. c. 62B §§ 1–13 — Withholding and estimated tax.
• G.L. c. 62C §§ 1–87 — Administration, penalties, refunds.
• Article 44 of the Amendments to the Constitution of the Commonwealth — as amended by the November 8, 2022 ballot question (the Fair Share Amendment); the 4% surtax on income over $1,000,000 (indexed).

15.2 Implementing regulations and guidance

• 830 CMR 63.38.1 — Apportionment of income (market-based sourcing).
• 830 CMR 63.38.1(9) — Special sourcing rules for digital advertising and certain online services.
• 830 CMR 63.32B.2 — Combined reporting.
• 830 CMR 63.39.1 — Economic nexus standards for corporate excise.
• 830 CMR 62.5A.1 — Non-resident income tax sourcing.
• 830 CMR 62B.2.2 — Non-resident composite returns.
• TIR 23-12 — Guidance on the 4% surtax (mechanics, threshold indexing, residency).
• TIR 21-9 — Pass-through entity excise election.
• TIR 24-X — Annual technical information release for inflation-indexed thresholds (verify the current TIR each year).
• DOR Directive 23-X — Implementation details for the FY2024 Tax Reform.

15.3 Statutory enactments cited

• Chapter 39 of the Acts of 2021 — enactment of G.L. c. 63D pass-through entity tax.
• Chapter 50 of the Acts of 2023 — FY2024 Tax Reform; single sales factor for general business; PTE credit increase to 100%; child and family tax credit; estate tax threshold to $2M; short-term capital gain rate reduction from 12% to 8.5%; other reforms.
• November 8, 2022 ballot question — Fair Share Amendment ratified by Massachusetts voters; effective for tax years beginning on or after January 1, 2023.

15.4 Forms

• Form 355 — corporate excise return (general business C-corp).
• Form 355S — S-corp excise return.
• Form 355U — combined reporting (group filing).
• Form 355-ES — corporate estimated tax voucher.
• Form 355-7004 — corporate extension application.
• Form 1 — Massachusetts resident individual return.
• Form 1-NR/PY — non-resident / part-year resident individual return.
• Form 1-ES — individual estimated tax voucher.
• Form 3 — partnership return.
• Form 63D-ELT — PTE election return.
• Form 63D-ELT-ES — PTE estimated tax voucher.
• Form M-2210 — individual underpayment of estimated tax.
• Form M-2220 — corporate underpayment of estimated tax.
• Form M-4 — employee withholding allowance certificate (used to request additional withholding for surtax exposure).
• Form M-4868 — individual extension application.
• Schedule E — Massachusetts modifications (corporate).
• Schedule E-1 — corporate apportionment schedule.

15.5 Verification posture

• Verified_by: pending — This skill has been drafted from publicly available DOR materials and Massachusetts statute. A Massachusetts CPA, EA, or licensed Massachusetts attorney should verify each rate, threshold, and procedural step before the skill is used to advise a client. The most recent inflation-indexed surtax threshold should always be verified against the most recent DOR TIR. The 100% PTE credit (vs. the original 90%) is current as of 2025 but should be re-confirmed annually.
• Last_updated: 2025-11-15.
• Tax year: 2025. Subsequent annual updates should refresh the surtax threshold, verify continuing applicability of the single sales factor, monitor any further FY2026/FY2027 tax reform legislation, and confirm penalty/interest rates which update quarterly.

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End of ma-corporate-excise skill.

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