(1)
General. If an airline has income derived from
business carried on both within and outside Massachusetts, the Commissioner
shall determine the amount of the airline's income derived from business
carried on within Massachusetts pursuant to M.G.L. c. 63, § 38, and
applicable regulations, in particular
830 CMR
63.38.1, except to the extent that
830 CMR
63.38.1 and the applicable regulations are
modified pursuant to 830 CMR
63.38.2. 830 CMR
63.38.2, has been issued pursuant
to the commissioner's authority under M.G.L. c. 63, § 38(j).
830 CMR 63.38.2 states rules for determining the property
factor and the payroll factor of the apportionment formula that applies to
airlines, because the apportionment provisions of M.G.L. c. 63, § 38 are
not reasonably adapted under the Apportionment of Income regulation,
830 CMR
63.38.1, to approximate the net income
derived from business carried on within Massachusetts by an airline with
respect to the property and payroll factors. The rules for determining the
sales factor for an airline under the Apportionment of Income regulation,
830 CMR
63.38.1(9), particularly at
830 CMR
63.38.1(9)(d)4.b.iii.,
however, are reasonably adapted to approximate such income with respect to the
sales factor, and are thus not restated in 830 CMR 63.38.2. See
also,
830 CMR
63.38.1(9)(d)1.h.
("Industry-specific Alternative Apportionment Rules").
Once the property and payroll factors of the apportionment
formula for an airline are determined under the provisions of 830 CMR 63.38.2,
a taxpayer will use those factors in calculating its apportionment percentage
under M.G.L. c. 63, § 38, and the applicable regulations.
A taxpayer may have characteristics of an airline, a courier
and package delivery service, as defined in
830
CMR 63.38.4, and/or a motor carrier, as
defined in
830 CMR
63.38.3, as in the example of a taxpayer that
accepts and delivers a package using both air and ground transportation. In
such cases, the Apportionment of Income of Courier and Package Delivery
Services regulation,
830
CMR 63.38.4, applies.
(2)
Definitions.
Aircraft Ready for Flight, aircraft in
the possession of the airline that are available for service on its
routes.
Airline, any business entity that, for
compensation, transports passengers or freight by air.
Departure, a take-off by an aircraft
with passengers or freight.
Flight Personnel, the air crew aboard
an aircraft assisting in the operations of the aircraft or the welfare of
passengers while in the air.
Nonflight Personnel, all employees
other than flight personnel.
(3)
Determining Property and
Payroll Factors for Airline Corporations.
(a)
Property Factor.
An airline's property factor is a fraction, the numerator and denominator of
which are determined according to 830 CMR
63.38.2(3)(a)1. through 5.
1. The denominator of the property factor is
the average value of all of the airline's real and tangible personal property
owned, rented, or leased, and used during the taxable year. All property values
are determined according to the rules of M.G.L. c. 63, § 38, and
830 CMR
63.38.1.
2. The numerator of the property factor shall
be the sum of the following two amounts:
a.
the average value of the real and tangible personal property of the airline,
other than aircraft ready for flight, situated in Massachusetts; and
b. the average value of the aircraft ready
for flight owned or rented and used by the airline in Massachusetts.
3. The average value of the
aircraft ready for flight owned or rented and used by the airline in
Massachusetts shall be computed separately for each type of aircraft operated
by the airline. For each type of aircraft, the value shall consist of the total
average value of that type of aircraft ready for flight owned by the airline,
multiplied by the percentage of departures of the airline, of that aircraft
type, taking place within Massachusetts.
4. Property in the possession of an airline
under the terms of a lease, which is treated as a lease for federal income tax
purposes by operation of provisions contained or previously contained in
26
U.S. Code § 168 (the Internal Revenue Code), shall be treated as owned,
not rented, by the airline.
5.
Example 1. During the taxable year, Wingit Airways
owned real and tangible personal property, other than aircraft ready for
flight, with an average value of $20,000,000. Of this property, a portion with
an average value of $10,000,000 was located in Massachusetts. Wingit also owned
ten Boeing 727-200s and five Lockheed L1011-500s. The total average value of
the 727-200s ready for flight was $90,000,000 and the total average value of
the L1011-500s ready for flight was $150,000,000. Wingit's 727-200s made 2,000
departures during the taxable year, of which 1,000 occurred in Massachusetts,
and Wingit's L1011-500s made 1200 departures during the taxable year, of which
800 occurred in Massachusetts. The numerator of Wingit's property factor
consists of $10,000,000 (the average value of the airline's real and tangible
personal property other than aircraft ready for flight located in
Massachusetts) plus $45,000,000 (the total average value of Wingit's 727-200s
ready for flight, multiplied by the proportion of the airline's departures of
that aircraft type occurring in Massachusetts, namely 50%) plus $100,000,000
(the total average value of Wingit's L1011-500s ready for flight, multiplied by
the proportion of the airline's departures of that aircraft type occurring in
Massachusetts, namely 66.67%). The denominator of the property factor is
$260,000,000, the total value of Wingit's real and tangible personal property,
including aircraft ready for flight. Thus, Wingit's property factor equals:
$10,000,000 + $45,000,000 + $100,000,000, / $260,000,000
or .5962.
(b)
Payroll Factor.
An airline's payroll factor is a fraction, the numerator and denominator of
which are determined according to 830 CMR
63.38.2(3)(b)1. through 4.
1. The denominator of the payroll factor is
the total compensation paid by the airline during the taxable year.
2. The numerator of the payroll factor is the
sum of the following two amounts:
a. the
compensation paid in Massachusetts to nonflight personnel during the taxable
year; and
b. the compensation paid
in Massachusetts to flight personnel during the taxable year.
3. The compensation paid in
Massachusetts to flight personnel shall be computed by multiplying the
airline's total payroll for flight personnel by the percentage of the airline's
aircraft departures occurring in Massachusetts weighted, in a manner similar to
that described in 830 CMR
63.38.2(3)(a), by the values of the aircraft types
operated by the airline.
4.
Example 2. Wingit Airways, the airline described in
Example 1, had a total payroll for nonflight personnel during the taxable year
of $25,000,000, of which $10,000,000 was paid to nonflight personnel based in
Massachusetts. The airline had a total payroll for flight personnel of
$20,000,000. Based on the aircraft values and departure figures set forth in
Example 1, 60.44% of Wingit's payroll for flight personnel, or $12,088,000, was
paid in Massachusetts. Specifically:
90,000,000 [total value of 727-200s]
240,000,000 [total value of aircraft ready for flight]
x 50% percentage of 727-200s departing from Massachusetts] =
.1875
plus
150,000,000 [total value of L1011-500s] / 240,000,000 [total
value of aircraft ready for flight]
X 66.67% [percentage of L1011-500s departing from
Massachusetts] = .4167
Equals .6042
Thus, Wingit's payroll factor equals:
$10,000,000 [nonflight in MA]+ $12,084,000 [flight in MA] /
$25,000,000 [total nonflight personnel] + $20,000,000 [total flight]
or .4908.
(4)
Determining the Sales Factor
for Airlines. The sales factor of an airline shall be determined
according to the rules generally applicable to corporations under the
Apportionment of Income regulation.
See generally
830 CMR
63.38.1(9).
See
also
830 CMR
63.38.1(9)(d)4.b.iii.
("Transportation and Delivery Services"),
830 CMR
63.38.1(9)(d)1.h.
("Industry-specific Alternative Apportionment Rules").
(5)
Effective Date.
830 CMR
63.38.2, is effective for taxable years beginning on or after January
1, 2014.
