June 19, 1992
TO: TAX COMMITTEE NO. 24-92
ACCOUNTING/TREASURERS COMMITTEE NO. 29-92
MASSACHUSETTS MEMBERS
RE: PROPOSED MASSACHUSETTS REGULATIONS ON TAXATION OF FOREIGN
CORPORATIONS
__________________________________________________________
The Massachusetts Department of Revenue has issued proposed
regulations which set forth the circumstances under which
Massachusetts has jurisdiction to tax a foreign corporation. The
state’s tax jurisdiction under the excise on foreign corporations
(the state’s equivalent of a corporate income tax) will be
construed as extending to the limits permitted by the
Constitution and laws of the United States, unless a specific
statutory exclusion applies. Engaging in certain activities
enumerated in 830 CMR 69.39.1(4) will subject the foreign
corporation to Massachusetts tax jurisdiction unless certain
exceptions apply.
Among the activities which would give Massachusetts tax
jurisdiction (and which could be applicable to regulated
investment companies ("RICs")) are qualifying to do business in
Massachusetts or actually doing business there, including the
buying, selling or procuring of services and the exercise or
enforcement of contract rights. Thus, for example, the
Commonwealth might assert that a non-Massachusetts RIC with
Massachusetts service providers (such as the investment advisor,
transfer agent, custodian, etc.) was subject to the excise
because of the procuring of services in Massachusetts and the
enforcement, if necessary, of the contracts between the RIC and
any service providers.
The proposed regulations set forth several examples which
illustrate various nexus determinations. The entity in Example
9, on page 19 of the proposed regulations, appears intended to be
a RIC, although the facts do not precisely describe the actual
operation of a RIC. It is currently unclear how this example can
be reconciled with the recent Massachusetts Letter Ruling 91-2
(See Institute Memorandum to Tax Committee No. 6-92, dated
February 10, 1992), which held that a foreign RIC was not subject
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to tax because the procuring of services through the hiring of
the investment advisor, transfer agent, etc. was insufficient to
give the state jurisdiction over the foreign RIC.
We will keep you informed of developments.
David J. Mangefrida Jr.
Assistant Counsel - Tax
Attachment