Tax Insight

Massachusetts ATB rules that P.L. 86-272 insulates protected income from combined group apportionment inclusion

Insight
5 minute read
August 06, 2026

What happened?

The Massachusetts Appellate Tax Board (ATB) agreed with the taxpayer that a unitary combined group member that is protected by P.L. 86-272 may not have its sales included in the apportionment calculation for taxable group members. Rejecting precedent from other states, the ATB concluded that by including the protected group member’s sales in the apportionment factor, “Massachusetts has done indirectly what it cannot do directly.”

In addition, the ATB upheld the Massachusetts rule that considers the joint activities of a corporation engaged in manufacturing activities and a related combined group member selling the property so manufactured for the purpose of determining the appropriate method of apportioning income to be used by the combined group member selling the manufactured goods.

[Smithfield Packaged Meats Corp. v. Commissioner of Revenue, Mass. Appellate Tax Bd., Docket No. C344811, 7/22/2026]

Why is it relevant?

While P.L. 86-272 restricts states from imposing income-based taxes on out-of-state businesses that limit their in-state activity to solicitation of sales of tangible personal property, many combined reporting states (such as Massachusetts) employ the “Finnigan” rule to include destination receipts in the numerator of the combined group’s sales factor (or the sales factor of taxable members of the combined group) notwithstanding a group member’s P.L. 86-272 protection. This decision provides a potential refund opportunity for combined groups with members protected by P.L. 86-272 that make sales into Massachusetts.

Actions to consider

Taxpayers that filed a Massachusetts combined report that includes members protected by P.L. 86-272 whose Massachusetts destined sales were assigned to the taxable members of the combined group under an application of the Finnigan rule may consider filing amended returns to claim refunds.

Note that amended returns must be filed within three years of the date that the original return was filed and include a statement explaining the reason why the return has been amended. If the Massachusetts Department of Revenue appeals the Smithfield Packaged Meats decision, it is unclear how the Department will treat the amended returns pending the appeal.