Massachusetts tax law was changed for tax years beginning on or after January 1, 2014 to require a multi-state taxpayer to apportion their receipts from services based on where the service was delivered. Or stated another way, where the benefit of the service is received. This is referred to as market based sourcing and is becoming more common within the states. Prior to 2014, receipts from services were sourced based on where the costs to generate the receipts were incurred. This is a dramatic change to the apportionment calculation and may have a significant impact, positive or negative, on multi-state business that have receipts from services.
The Massachusetts DOR has issued a Proposed Regulation to implement the new apportionment sourcing rules for market based sourcing. These rules are extremely complex and require careful analysis for application to each taxpayer’s specific facts. The sourcing methodology is different for different types of services, whether the services are delivered by physical or electronic means and whether the customer is an individual or a business. In many cases, taxpayers may be required to extract information from their accounting system which is not readily available and will require creation of custom reports.
For more information about the specifics of these new apportionment provisions and how they may impact your Massachusetts tax please contact Randy Smith, Shareholder.