Massachusetts - Working draft regulations outline market-based sourcing rules

April 2014


UPDATE: The comment period deadline has been extended from May 1 to May 19, 2014.

The Massachusetts Department of Revenue recently released a working draft regulation that would revise its apportionment regulation (830 CMR 63.38.1) to provide specific market-based rules regarding the apportionment of receipts from services and concerning transactions involving intangible property. Tax practitioners have eagerly awaited the Department’s interpretive guidance since Massachusetts enacted market-based sourcing last summer, effective for tax years beginning on or after January 1, 2014. Prior to the statutory change, Massachusetts apportioned these receipts under a ‘cost of performance’ methodology.

A wide array of taxpayers will be subject to this change, including corporations, S corporations, and partnerships (as well as their nonresident owners). The rules set forth in the working draft are certainly complex and will likely create challenges for many taxpayers, both in interpretation and in collecting the necessary information to comply properly.

The Department has requested that comments to the draft be submitted by May 1, 2014.

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