Magazine article The CPA Journal

Massachusetts Apportionment Regulations Cause Problems

Magazine article The CPA Journal

Massachusetts Apportionment Regulations Cause Problems

Article excerpt

The recently released Massachusetts final corporate apportionment regulations may create significant net worth taxes for corporate real estate investment trusts (REITs) doing business in Massachusetts.

The Department of Revenue (DOR) took a 180-degree turn between the first draft of the regs and the final regs that were just released. The first draft of the corporate apportionment regulation released last year allowed the "lookthrough" approach for corporate REITS with investments in partnerships. The final regulation, however, requires that a majority interest in a partnership be recast as an equity investment in certain circumstances. It is this change that could create tax problems for REITs that own real estate through partnership interests rather than directly.

Massachusetts generally imposes a "balance sheet" tax at the rate of $2.60 per $1,000 of apportioned net worth or Massachusetts tangible property not subject to local property taxes. Investments in real property are excludable from the tax measure. Futhermore, Massachusetts has traditionally taken the position that a GAAP balance sheet should be used for purposes of calculating the balance sheet tax.

For corporate REITs that own a majority interest in a partnership, GAAP generally requires that the REIT and the partnership prepare consolidated financial statements which treat the assets and liabilities of the partnership as direct assets and liabilities of the REIT with an offsetting liability owed to the minority partners. …

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