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

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Credit against amount of excise due; research expenses.

Section 38M. (a) A domestic or foreign corporation shall be allowed a credit against its excise due under this chapter equal to the sum of ten percent of the excess, if any, of the qualified research expenses for the taxable year, over the base amount; and fifteen percent of the basic research payments determined under subsection (e)(1)(A) of section forty-one of the Federal Internal Revenue Code. The terms, “qualified research expenses”, “base amount”, “qualified organization base period amount”, “basic research”, and any other terms affecting the calculation of said credit shall, unless the context otherwise requires, have the same meanings as under said section forty-one of said Code as amended and in effect on August twelfth, nineteen hundred and ninety-one but shall only apply to expenditures for research conducted in the commonwealth. In determining the amount of the credit allowable under this section, the commissioner of revenue may aggregate the activities of all corporations that are members of a controlled group of corporations, as defined by subsection (f)(1)(A) of section forty-one of said Code, and in addition may aggregate the activities of all entities, whether or not incorporated, that are under common control, as defined by subsection (f)(1)(B) of section forty-one of said Code.

(b) For purposes of section thirty, the deduction from gross income that may be taken with respect to any expenditures qualifying for a credit under said section forty-one of said Code as amended and in effect on August twelfth, nineteen hundred and ninety-one shall be based upon its cost less the credit allowable hereunder; provided, however, that subsection (c) of section two hundred and eighty C of said Code shall not apply.

(c) The credit allowed hereunder for any taxable year shall not reduce the excise to less than the amount due under subsection (b) of section thirty-two, subsection (b) of section thirty-nine, or section sixty-seven and under any act in addition thereto.

(d) The credit allowed under this section is limited to one hundred percent of a corporation’s first twenty-five thousand dollars of excise, as determined before the allowance of any credits, plus seventy-five percent of the corporation’s excise, as so determined in excess of twenty-five thousand dollars. The commissioner of revenue shall promulgate regulations similar to those authorized under section 38(c)(2)(B) of the Internal Revenue Code for purposes of apportioning the twenty-five thousand dollars amount among members of a controlled group. Nothing in this section shall alter the provisions of section thirty-two C, as it affects other credits under this chapter.

(e) In the case of corporations filing a combined return of income under section thirty-two B, a credit generated by an individual member corporation under the provisions of this section shall first be applied against the excise attributable to that company under section thirty-two or thirty-nine, subject to the limitations of paragraphs (c) and (d). A member corporation with an excess research and development credit may apply its excess credit against the excise of another group member, to the extent that such other member corporation can use additional credits under the limitations of said paragraphs (c) and (d). Unused, unexpired credits generated by a member corporation shall be carried over from year to year by the individual corporation that generated the credit. Nothing in this section shall alter the provisions of paragraph (h) of section thirty-one A.

(f) Any corporation entitled to a credit under this section for any taxable year, may carry over and apply to its excise for any one or more of the next succeeding fifteen taxable years, the portion, as reduced from year to year, of its credit which exceeds its excise for the taxable year. Any corporation may carry over and apply to its excise for any subsequent taxable year the portion of those credits, as reduced from year to year, which were not allowed by paragraph (d).

(g) The commissioner of revenue shall promulgate such regulations as are necessary to implement this section.

(h) The provisions of this section shall apply to expenditures incurred on or after January first, nineteen hundred and ninety-one; in the case of any taxable year which begins before January first, nineteen hundred and ninety-one, and ends before December thirty-first, nineteen hundred and ninety-one, the base amount and the qualified organization base period amount with respect to such taxable year shall be the amount which bears the same ratio to the base amount and the qualified organization base period amount for such year, determined without regard to this paragraph, as the number of days in such taxable year on or after January first, nineteen hundred and ninety-one, bears to the total number of days in that taxable year.

(i) (1) The credit allowed by this section, at the election of the taxpayer in accordance with regulations promulgated by the commissioner of revenue, may be applied separately with respect to (A) the qualified research expenses and the gross receipts of the taxpayer attributable to defense related activities; and (B) the qualified research expenses and the gross receipts of the taxpayer attributable to other activities.

(2) For purposes of this subsection, defense related activities shall mean any activity carried out in this commonwealth, relating to the business of researching, developing and producing for sale pursuant to a contract or subcontract thereof, of:

(A) any arm, ammunition, or implement of war designated in the munitions list published pursuant to section 38 of the Arms Export Act, 22 U.S.C. 2778, but only to the extent that such property is specifically designed, modified, or equipped for military purposes, or

(B) equipment for the National Aeronautics and Space Administration.

(3) This subsection shall apply to taxable years beginning on or after January first, nineteen hundred and ninety-five.

Last modified: March 26, 2006