Global Tax Insights
Tax Credits and Incentives for Manufacturers in MassachusettsSeptember 05, 2014
Can your business claim Massachusetts tax benefits for manufacturing – you might be surprised.
Massachusetts has long provided tax benefits to corporations that are engaged in manufacturing activities within the state. The benefits include:
- An Investment Tax Credit of 3%
- A sales and use tax exemption for equipment and supplies used in manufacturing and R&D
- An exemption from local personal property tax
In addition, any corporation engaged in manufacturing will use single sales factor apportionment to determine its Massachusetts taxable income. This can provide a significant tax savings to taxpayers with substantial amounts of payroll and property in Massachusetts.
A corporation can qualify for manufacturing status if at least 25% of its gross receipts are from the sale of products manufactured in Massachusetts. A trend has developed in recent years to broaden the types of businesses that can qualify for manufacturing status.
Courts in Massachusetts have held that a business is not required to perform itself each step in the manufacturing process to be classified as a manufacturer. For example, a business which outsources the actual production of its product, but performs product development and product testing activities, can be classified as a manufacturer.
Another broadening of manufacturing status derives from the definition of “products”. When the Massachusetts sales tax law was changed to tax electronic delivery of prewritten (canned) software, the Department of Revenue said in a public pronouncement that development of prewritten software would be treated as a manufacturing activity. Therefore, many software development companies can be classified as a manufacturer.
Except for the property tax exemption, all of the benefits noted above can be claimed for a current or amended tax return by any corporation engaged in substantial manufacturing in Massachusetts. The property tax exemption is only available to corporations that file Form 355Q and are approved by the Department of Revenue. January 31, 2015 is the deadline for filing Form 355Q to be exempt from personal property tax for the state’s fiscal year beginning July 1, 2015.
To discuss how this might apply to your business or to take full advantage of the tax benefits available for manufacturers in Massachusetts please contact us.