Tax Alert: Massachusetts to Allow "FAS 109" Deduction for Public Companies
6/11/2009
On July 3, 2008, Massachusetts enacted "An Act Relative to Tax
Fairness and Business Competitiveness" ("the Act"), providing sweeping changes to Massachusetts tax laws. Among other changes, the Act requires affiliated corporations that are engaged in a single unitary operation to file combined returns for tax years beginning on or after January 1, 2009. Although prior to this change the State had a combined return provision, it was not a full combined provision in that the income of the includable companies were only combined after allocation and apportionment was performed separately by each company.
Recognizing the potential accounting impact on deferred tax balances arising from the new combined reporting requirement, the State will allow certain corporate taxpayers a "FAS 109 deduction." This deduction enables corporations that have an increase to their net deferred tax liability, as a result of the new combined reporting requirements, to recognize a deferred tax asset that offsets some or all of the increase to their net deferred tax liability.
The taxpayers eligible for the FAS 109 deduction are publicly traded companies, including affiliated corporations participating in the filing of a publicly traded company's financial statements prepared in accordance with GAAP, as of July 3, 2008.
To claim this deduction, the principal reporting corporation must electronically file (via the State’s website at www.mass.gov/dor) a statement with the Massachusetts Department of Revenue on or before July 1, 2009. The statement must specify the total amount of the deduction along with other required information and supporting calculations. Once submitted, taxpayers may only amend the statement after July 1, 2009, to reduce the deduction.
The FAS 109 deduction is available over the seven-year period of the combined group’s taxable year beginning on or after January 1, 2012. The amount of the annual deduction is one-seventh of the lesser of:
(1) The amount necessary to offset the increase in net deferred tax liability resulting from the new combined reporting requirements without regard to this deduction; and
(2) The “Massachusetts tax basis modification,” which is the aggregate adjusted book basis of the combined group's nontaxable members' eligible assets less the aggregate adjusted tax basis of the combined group's nontaxable members' eligible assets. Eligible assets are those tangible or intangible assets that are subject to the Massachusetts cost recovery rules and are placed in service prior to July 3, 2008.
For more information on this or other tax matters, please contact Ernest Barbaris, CPA, MST, a J.H. Cohn partner and director of the Firm's State and Local Tax Group, or your J.H. Cohn professional at 877-704-3500.
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