Massachusetts Sourcing Formula Constitutional: Supreme Court

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By Jennifer McLoughlin

Massachusetts’ single-sales factor apportionment formula for multistate manufacturing corporations doesn’t discriminate against interstate commerce, according to the Massachusetts Supreme Judicial Court.

In a Jan. 12 decision, the court ruled that the apportionment formula within the Massachusetts corporate excise tax statute isn’t a dormant commerce clause violation under the U.S. Constitution—either on its face or as applied in the case. The decision found against biotech company Genentech, Inc., which challenged the constitutionality of the statutory single-factor apportionment formula as applied Genentech, Inc. v. Massachusetts Comr. of Rev. , Mass., No. SJC-12083, 1/12/17 .

Affirming the lower Appellate Tax Board’s decision, the court likewise agreed that the company qualified as a manufacturing corporation for the tax years at issue (1998 through 2004).

Treats Everyone The Same

Massachusetts amended its apportionment formula for manufacturing corporations in 1995, moving away from an earlier three-factor formula to the single-sales apportionment formula.

Genentech argued the single-factor approach was unconstitutional because it discriminated against the company and unconstitutionally burdened interstate commerce, wasn’t fairly apportioned in relation to the company’s activities in Massachusetts and wasn’t “‘fairly related to the services provided by the State.’”

Unpersuaded by the company’s arguments—which largely centered on the allegations of discrimination—the court noted that “what the commerce clause forbids as discriminatory is a State tax measure that ‘tax[es] a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.’”

The single-factor apportionment formula “uses the same apportionment formula to tax every multistate manufacturing corporation’s income generated from its sales in the Commonwealth, treating every corporation, whether foreign or domestic, exactly the same,” according to the opinion. “More to the point, the formula treats the income from every sales transaction involving manufactured goods exactly the same, no matter where the corporation’s manufacturing operations may be located.”

To contact the reporter on this story: Jennifer McLoughlin in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

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