830 CMR, § 63.38.7
Affiliate, the meaning as set forth in 15 U.S.C. § 80a-2(a)(3)(c), as may be amended from time to time.
Affiliated Regulated Investment Company (or Affiliated RIC), a regulated investment company that is a shareholder in another regulated investment company; and in common with such other regulated investment company, obtains management or distribution services, as described in 830 CMR 63.38.7(3)(d), from the same provider of such services or a related provider.
Commissioner, the Commissioner of Revenue, or the Commissioner's duly authorized representative.
Corporate Trust, any partnership, association or trust, organized by the execution and delivery of a declaration of trust, the beneficial interest of which is divided into transferable units or shares.
Limited Liability Company, an unincorporated organization formed under M.G.L. c. 156C, and having two or more members or a limited liability company formed under the laws of any other state or foreign country. See M.G.L. c. 156C, § 2.
Mutual Fund Sales, taxable net income derived within the taxable year, directly or indirectly, from the rendering of management, distribution, or administration services to a regulated investment company, including net income received directly or indirectly from trustees, sponsors, and participants of employee benefit plans which have accounts in a regulated investment company. See830 CMR 63.38.7(3)(d).
Mutual Fund Service Corporation, any domestic or foreign corporation, corporate trust, or limited liability company doing business in Massachusetts, which derives more than 50% of its gross income from providing, directly or indirectly, management, distribution or administration services to or on behalf of a regulated investment company, and from trustees, sponsors and participants of employee benefit plans which have accounts in a regulated investment company.
Qualified Employee in Massachusetts, an individual who (i) is employed by a mutual fund service corporation; (ii) works on a full-time basis with a normal work week of 30 or more hours; (iii) at the start of his or her employment does not have a predetermined or specified termination date; (iv) is eligible to receive employee benefits, including, but not limited to, paid holidays, vacation and unemployment benefits; and (v) is subject to Massachusetts income tax withholding. Three or fewer individuals who between them fulfill the requirement of (ii) and who each meet the requirements of (i), (iii), (iv), and (v) shall be counted as one qualified employee.
Qualified Employee Worldwide, an individual who meets the criteria in 830 CMR 63.38.7(2): Qualified Employee in Massachusetts (i) through (iv). Three or fewer individuals who between them fulfill the requirement of 830 CMR 63.38.7(2): Qualified Employee in Massachusetts (ii) and who each meet the requirements of 830 CMR 63.38.7(2): Qualified Employee in
Massachusetts (i), (iii), (iv) and (v) shall be counted as one qualified employee.
Regulated Investment Company (RIC), the meaning as set forth in Section 851 of the Internal Revenue Code, as amended and in effect for the taxable year.
Taxable Net Income, gross income less deductions under M.G.L. c. 63, § 30, adjusted as provided in M.G.L. c. 63, § 38(a).
Example 1: ABC Company has $900,000 of taxable net income from mutual fund sales and its apportionment percentage for this income is 25%. ABC Company also has $100,000 of taxable net income from non-mutual fund sales and its apportionment percentage for this income is 75%. ABC Company's taxable net income from mutual fund sales represents 90% of its total taxable net income and its taxable net income from non-mutual fund sales represents 10% of its total taxable net income.
To determine ABC Company's weighted average apportionment percentage, calculate as follows:
ABC Company would then use this percentage (30%) to calculate the non-income measure of its excise due for that tax year.
The above calculation shall be used when a mutual fund service corporation has taxable net income from mutual fund sales and taxable net income from non-mutual fund sales. When a mutual fund service corporation has a loss from its mutual fund sales business, a loss from its non-mutual fund sales business, or both, the corporation must determine its weighted average apportionment percentage based on the ratio of its gross receipts from its mutual fund sales business to its gross receipts from its non-mutual fund sales business. For purposes of 830 CMR 63.38.7(3)(b), the term "gross receipts" shall mean gross income as defined under M.G.L. c. 63, § 30.
Example 2: XYZ Company has a $70,000 loss from its mutual fund sales business and its apportionment percentage for this income is 25%. XYZ Company also has a $50,000 loss from its non-mutual fund sales business and its apportionment percentage for this income is 75%. Because XYZ Company has a loss from both its mutual fund sales and non-mutual fund sales businesses, its weighted apportionment percentage must be determined by reference to its respective gross receipts from its mutual fund sales and non-mutual fund sales businesses. XYZ Company has $2,200,000 in gross receipts from its mutual fund sales business and $300,000 in gross receipts from its non-mutual fund sales business. Therefore, XYZ Company has gross receipts from its mutual fund sales business that represent 88% of its total gross receipts and gross receipts from its non-mutual fund business that represent 12% of its total gross receipts.
To determine XYZ Company's weighted average apportionment percentage, calculate as follows:
XYZ Company would then use this percentage (31%) to calculate the non-income measure of its excise due for that tax year.
Example 3: Fund Corporation has a $25,000 loss from its mutual fund sales business and its apportionment percentage for this income is 30%. Fund Corporation also has $75,000 of taxable net income from its non-mutual fund sales business and its apportionment percentage for this income is 70%. Because Fund Corporation has a loss from its mutual fund sales business, its weighted apportionment percentage must be determined by reference to its respective gross receipts from its mutual fund sales and non-mutual fund sales businesses. Fund Corporation has $2,700,000 in gross receipts from its mutual fund sales business and $300,000 in gross receipts from its non-mutual fund sales business. Therefore, Fund Corporation has gross receipts from its mutual fund sales business that represent 90% of its total gross receipts and gross receipts from its non-mutual fund business that represent 10% of its total gross receipts.
To determine Fund Corporation's weighted average apportionment percentage, calculate as follows:
Fund Corporation would then use this percentage (34%) to calculate the non-income measure of its excise due for that tax year.
For purposes of this calculation, mutual fund sales by a mutual fund service corporation are assigned to Massachusetts based on the domicile of the RIC's shareholders of record. The domicile of a shareholder of record is generally the shareholder's mailing address on the records of the RIC. Notwithstanding 830 CMR 63.38.7(4)(c):
Example: ABC is a mutual fund service corporation. ABC provides management services to a number of RICs (the ABC Funds) that are marketed to the public as being part of an identifiable mutual fund group sponsored by ABC or related entities. The ABC Funds invest cash in IFunds, another RIC within the ABC group of funds. IFunds specializes in investing in various short-term money-market and similar instruments. ABC, or a related service provider, provides management services to IFunds. The management fee income received by ABC, or such related provider, that is attributable to management services rendered to IFunds and that is characterized as mutual fund sales income shall be assigned to Massachusetts based on the domicile of IFunds' shareholders of record. Where any such shareholder of record is an ABC Fund that is an affiliated RIC, then to the extent of the IFund shares owned by such ABC Fund, the shareholders of record of such shares shall be presumed to be the shareholders of such ABC Fund, in proportion to their holdings in such ABC Fund. Thus, if an ABC Fund, qualifying as an affiliated RIC, held 100,000 shares in IFunds, and if 10% of the shares of such ABC Fund were held by shareholders having Massachusetts mailing addresses, then 10,000 shares of IFunds held by such ABC Fund would be assigned to Massachusetts.
Notwithstanding any other provisions of 830 CMR 63.38.7, the provisions of 830 CMR 63.38.7(4)(c) shall apply to taxable years beginning on or after January 1, 2006.
XYZ Financial Services ("XYZ") is a mutual fund service corporation that meets the job growth requirement of 830 CMR 63.38.7(5). For the 1998 taxable year, XYZ has $400,000 of gross income derived from brokerage services and $2,000,000 of gross income derived from mutual fund sales. The gross income derived from mutual fund sales consists of fees received from the RIC's described in the table below. The table also provides the average number of shares held by shareholders domiciled in Massachusetts and average number of total shares for each RIC for the taxable year.
Fund | Fees | Shares Held By MA Shareholders | Total Shares |
Growth | $1,000,000 | 100 | 400 |
Income | $ 500,000 | 100 | 200 |
International | $ 500,000 | 50 | 200 |
XYZ has $1,000,000 in allowable deductions for the taxable year. $200,000 of these deductions are directly traceable to its brokerage services. $500,000 are directly traceable to its mutual fund sales. The remaining $300,000 deductions are not directly traceable to either XYZ's brokerage services or mutual fund sales and are therefore considered other allowable deductions.
XYZ must apportion its taxable net income derived from mutual fund sales to Massachusetts as follows.
Step 1: Determine Taxable Net Income from Mutual Fund Sales
$2,000,000 - $500,000 = $1,500,000
Step 2: Determine Sales Factor .
Growth Fund | = $1,000,000 |
Income Fund | = $ 500,000 |
International Fund | = $ 500,000 |
$250,000 + $250,000 + $125,000 = $625,000
Step 3: Apportion Taxable Net Income Derived from Mutual Fund Sales to Massachusetts.
$1,250,000 x 31.25% = $ 390,625
Example. Mutual Funds, Inc. is a calendar year taxpayer. It is the parent corporation of three subsidiary corporations, Global Securities, Investments USA, and Investments International, all of which participate in the filing of a Massachusetts combined return ("the MFI Group"). Because these corporations participate in the filing of a combined return, they compute their base period employment level on a combined group basis. The MFI Group has 1000 qualified employees on January 1, 1996. This number is the MFI Group's base period employment level. On December 31, 1997, the MFI Group has 1070 qualified employees. The MFI Group meets the job growth requirement for the 1997 taxable year because its employment level exceeds its jobs commitment level of 1050 (105% of 1000).
On June 30, 1998, Mutual Funds, Inc. sells Investments International, whose base period employment level is 100, to an unrelated mutual fund service corporation based in New York, which has no plans to layoff or relocate any employees and does not do so. The MFI Group adjusts its base period employment level due to this corporate restructure to 900. On December 31, 1998, the MFI Group has 1001 employees. The MFI Group meets the job growth requirement for the 1998 taxable year because its employment level exceeds its job commitment level of 990 (110% of 900).
On September 15, 1998, Standard and Poor's 500 Stock Index is 865.27. On September 15, 1999, Standard and Poor's 500 Stock Index is 626.65, a 27.57% decrease. An adverse economic condition exists with respect to the MFI Group for its 1999 taxable year because the decrease in the Index exceeds 10%. On December 31, 1999, the MFI Group has only 1010 qualified employees. The MFI Group fails to meet its jobs commitment level of 1035 for 1999 (115% of 900). The MFI Group may nevertheless use the single sales factor apportionment formula set forth in 830 CMR 63.38.7(4)(a) because it can demonstrate that its failure to meet its jobs commitment level was a direct result of an adverse economic condition that occurred that year.
On December 31, 2000, the MFI Group has 1047 qualified employees. Because the MFI Group demonstrated adverse economic conditions in its 1999 taxable year, it may reduce its jobs commitment level for the 2000 taxable year by 5% of its base period employment level. Thus the MFI Group's job commitment level for the 2000 taxable year is 1035 (115% of 900) and not 1080 (120% of 900), as would be the case in the absence of adverse economic conditions. The MFI Group meets the job growth requirement for the 2000 taxable year because its employment level exceeds its job commitment level.
830 CMR, § 63.38.7
Amended: 10/6/2006 (Sections 2, 4)
Amended: 11/28/08 (Sections (3)(a) and (3)(b))
REGULATORY AUTHORITY
830 CMR 63.38.7: M.G.L. c. 14, § 16(1); M.G.L. c. 62C, § 3; M.G.L. c. 63, § 38(m)