Massachusetts General Laws - Taxation of Incomes - Chapter 62, Section 8

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Taxable income of corporate trusts; application of section; dividends; exemption.

Section 8. (a) A corporate trust engaged within the commonwealth in any business, activity or transaction, whether or not it maintains an office or place of business within the commonwealth, shall be subject to the taxes imposed by this chapter unless exempted pursuant to paragraph (b).

[Second paragraph of paragraph (a) applicable to taxable years beginning on or after January 1, 2004. See 2004, 252, Sec. 67.]

The Massachusetts adjusted gross income of such corporate trust shall be redetermined as if it were a resident natural person; provided, however, that for purposes of any determination involving sections 311, 312, 332 to 338, inclusive or 346 to 368, inclusive, of the Code, any corporate trust shall be treated as a corporation. No deductions or exemptions allowable under Parts A, B or C of section 3 shall be allowed to a corporate trust. The taxable income of each Part shall be the Massachusetts adjusted gross income of such Part allocated or apportioned to Massachusetts in accordance with section 38 of chapter 63.

[Paragraph (b) effective for tax years beginning on or after January 1, 2003. See, 2003, 4, Sec. 86. For text applicable to taxable years beginning on or after January 1, 2004, see below.]

(b) Paragraph (a) shall not apply to a corporate trust which: (i) is a regulated investment company under section 851 of the Code or a real estate investment trust under section 856 of the Code; (ii) is a holding company as hereinafter defined; (iii) is exempt under subdivision (1) or (2) of section 23 of chapter 32; or (iv) has made a valid election for the taxable year to be treated as a real estate mortgage investment conduit, as defined in section 860D of the Code for federal income tax purposes. As used in this paragraph, the term “holding company” shall mean a corporate trust in which 90 per cent of the book value of its assets, at the end of the taxable year, are securities and at least 75 per cent of such securities are issued by affiliates and at least 90 per cent of its Massachusetts gross income is Part A gross income and Part C gross income; the word “affiliate” shall mean a member of an affiliated group as defined under section 1504 of the Code; and the word “securities” shall mean transferable shares of beneficial interest in a corporation or other entity, bonds or debentures of an issuer or notes and other evidences of indebtedness of affiliates.

[Paragraph (b) applicable to taxable years beginning on or after January 1, 2004. See 2004, 262, Sec. 67. For text effective for tax years beginning on or after January 1, 2003, see above.]

(b) Paragraph (a) shall not apply to a corporate trust which: (i) is a regulated investment company under section 851 of the Code or a real estate investment trust under section 856 of the Code; (ii) is exempt under subdivision (1) or (2) of section 23 of chapter 32 ; (iii) has made a valid election for the taxable year to be treated as a real estate mortgage investment conduit, as defined in section 860D of the Code for federal income tax purposes; or (iv) would qualify as a holding company under this paragraph in effect on December 31, 2003 and on such date was a holding company under the Public Utility Holding Company Act of 1935.

(c) Dividends on shares of any corporate trust subject to taxation under this chapter shall be exempt from taxation except as hereinafter provided. Any earnings and profits accumulated prior to taxable years commencing after December thirty-first, nineteen hundred and seventy, and during a period, if any, that such corporate trust was not subject to taxation under this chapter solely by reason of the fact that it had elected not to file with the commissioner an agreement to pay a tax shall be considered tax-free earnings and profits and the amount thereof shall be determined as of the first day of the first taxable year commencing after December thirty-first, nineteen hundred and seventy. Any earnings and profits accumulated for taxable years commencing after December thirty-first, nineteen hundred and seventy, to the extent that such earnings and profits were not subject to tax under this chapter, shall also be considered tax-free earnings and profits. In the case of a corporate trust doing business both within and outside of the commonwealth and subject to tax under this section, dividends received by shareholders who are Massachusetts residents shall be deemed to have been made from tax-free earnings and profits to the extent that the earnings and profits of the trust are not apportioned to the commonwealth and subject to tax under paragraph (a) but such shareholders shall be entitled to credit for income taxes paid to other jurisdictions on such earnings and profits, either by the shareholders or by the corporate trust, as provided under subsection (a) of section 6. Notwithstanding any other provision of this chapter, dividends paid by any corporate trust at any time while it has tax-free earnings and profits, as so determined, shall be deemed to have been made from such tax-free earnings and profits to the extent thereof; and any such dividends deemed to have been made from tax-free earnings and profits shall be includable in Massachusetts gross income, and the deduction provided for in section two (a)(2)(D) shall not apply to such dividends. Except for dividends paid from tax-free earnings and profits, all such dividends shall be exempt from taxation.

Dividends on shares of any corporate trust subject to taxation under this chapter and which is a federal S corporation shall also be exempt from taxation in the manner described above.

Last modified: March 26, 2006