Massachusetts General Laws - Taxation of Corporations - Chapter 63, Section 38C

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Manufacturing and research and development corporations.

Section 38C. A corporation organized under or subject to chapter 156D and a limited liability company organized under chapter 156C which is not classified as a partnership and has elected to be taxed as a corporation separate from its members for federal income tax purposes which is engaged in manufacturing in the commonwealth, or in research and development in the commonwealth shall, for the purposes of this chapter, be deemed to be a domestic business corporation or a domestic research and development corporation. A domestic manufacturing corporation shall be taxed in the same manner and shall have the same duties under this chapter and chapter 62C as a domestic business corporation, except insofar as the determination of the excise under this chapter may be affected by reason of the exemption from local taxation of the machinery of a domestic manufacturing corporation.

A domestic research and development corporation for the purposes of this section is one whose principal activity in the commonwealth is research and development and which, during the taxable year, derives more than 2/3 of its receipts attributable to the commonwealth from the activity or incurs more than 2/3 of its expenditures attributable to the commonwealth, allocable to such activity; provided however, that a corporation that qualifies as a domestic research and development corporation only by reason of its expenditures shall not be entitled to the credit provided in section 31A by virtue of its qualification as a domestic research and development corporation. A corporation that is engaged in research and development and that conducts manufacturing activities shall exclude expenditures related to manufacturing from total expenditures for the purpose of assessing whether 2/3 of expenditures are allocable to research and development, whether or not the manufacturing activities of the corporation are substantial. Receipts from research and development shall include receipts from the provision of research and development services and from royalties or fees derived from the licensing of patents, know-how or other technology developed from research and development. For purposes of this section, research and development shall include experimental or laboratory activity having as its ultimate goal the development of new products, the improvement of existing products, the development of new uses for existing products and the development or improvement of methods for producing products, and shall not include testing or inspection for quality control purposes, efficiency surveys, management studies, consumer surveys or other market research, advertising or promotional activities or research in connection with literacy, historical or similar projects.

Last modified: March 26, 2006