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Corporate Excise DOR Directive 96-2:Creation of Nexus Through the In-State Ownership and Use ofIntangible PropertyMassachusetts Department of Revenue, July 3, 1996ISSUE:Under what circumstances will the in-state ownership and use of intangible property subject a foreign corporation to the corporate excise?DIRECTIVE:A foreign corporation's intangible property used within Massachusetts will subject that corporation to the corporate excise where:(1) The intangible property generates, or is otherwise a source of, gross receipts within the state for the corporation, including through a license or franchise; and(2) The activity through which the corporation obtains such gross receipts from its intangible property is purposeful (e.g., a contract with an in-state company); and(3) The corporation's presence within the state, as indicated by its intangible property and its activities with respect to that property, is more than de minimis.EXPLANATION:Under G.L. c. 63, § 39, a foreign corporation is subject to the corporate excise when,inter alia, it does business in Massachusetts, or owns or uses any part or all of its capital, plant or any other property in the state. The Commissioner construes this provision to the full extent permitted by the Constitution and laws of the United States.The definition of intangible property generally includes, but is not limited to, copyrights, patents, trademarks, trade names, trade secrets, service marks and know-how. However, for purposes of this directive, the Commissioner will treat the license of canned software, transferred on a tangible medium, tobe used for any purpose other than commercial reproduction, as the sale of tangible personal property, not the license of intangible property. A foreign corporation whose in-state activity is described in G.L. c. 63, § 39 is not subject to the Massachusetts corporate excise if such in-state activity is within the confinesof in Public Law 86-272 (i.e., 15 U.S.C. §§ 381 et seq.). Public Law 86-272 precludes the imposition of a corporate tax measured by net income where a foreign corporation'ssoleactivity in Massachusetts is the solicitation of the sale of tangible personal property, provided certain conditions are met. For example, Public Law 86-272 could potentially apply to a foreign corporation's solicitation of sales in Massachusetts of tangible personal property which contains intangible property (such as books, recordings, or canned software). In contrast, the focus of this directive are the transactions where a foreign corporation derives gross receipts from intangible property which is licensed or otherwise transferred for continuing commercial exploitation in the state. These latter transactions are not protected by Public Law 86-272.EXAMPLES:The following examples illustrate the application of this directive. In Examples 1-3, it is presumed that the foreign corporation's presence in Massachusetts, as indicated by its intangible propertyand its activities with respect to that property, is more than de minimis. Moreover, in Examples 1-3 it is presumed that the foreign corporation does not otherwise transact business with respect to, or own property in, the state.
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