By Robert P. Merten III and Prentiss Willson

Massachusetts has published its final revised market-sourcing regulation (830 CMR 63.38.1), effective for tax years beginning on or after January 1, 2014. The final revisions to these rules, among other things, conform the regulation with recent state law amendments requiring taxpayers to use market-based sourcing principles in determining the sales factor for apportioning income for sales of other than tangible personal property, and to include a large number of examples to help illustrate and explain the application of the revised regulation. Of particular note, the final revisions expand the categories of services (specifically, to include professional services) for which taxpayers will be permitted to use a rule of extrapolation. This “extrapolation rule” allows taxpayers with insufficient information regarding a sale’s delivery location to approximate the location based on sales in which the taxpayer does have sufficient information.

The Massachusetts market-sourcing regulation developments have been closely watched in the tax world and are proving to be highly influential. Indeed, the Multistate Tax Commission (MTC) approved a model market-sourcing drafting project in July 2014 to implement changes to the sourcing of sales of other than tangible personal property under Section 17 of the Multistate Tax Compact (UDITPA). The project working group has been using the Massachusetts regulation as a starting point for model drafting and discussions. This MTC working group meets on a weekly basis to discuss this project. These discussions are open to the public. MTC Section 17 Model Marketing-Sourcing Regulations.