Session Laws

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

SECTION 1. Chapter 63 of the General Laws is hereby amended by striking out sections 1 and 2, as appearing in the 1994 Official Edition, and inserting in place thereof the following three sections:-

Section 1. When used in sections one to two A, inclusive, and section thirty-eight B, the following words shall, unless the context otherwise requires, have the following meaning:

"Billing address", the location indicated in the books and records of the taxpayer on the first day of the taxable year, or on such later date in the taxable year when the customer relationship began, as the address where any notice, statement or bill relating to a customer's account is mailed.

"Borrower or credit card holder located in this commonwealth", (a) a borrower, other than a credit card holder, that is engaged in a trade or business which maintains its commercial domicile in this commonwealth; or (b) a borrower that is not engaged in a trade or business or a credit card holder whose billing address is in this commonwealth.

"Commercial domicile", (a) the headquarters of the trade or business, that is, the place from which the trade or business is principally managed and directed; or (b) if a taxpayer is organized under the laws of a foreign country, or of the Commonwealth of Puerto Rico, or any territory or possession of the United States, such taxpayer's commercial domicile shall be deemed to be the state of the United States or the District of Columbia from which such taxpayer's trade or business in the United States is principally managed and directed. It shall be presumed, subject to rebuttal, that the location from which the taxpayer's trade or business is principally managed and directed is the state of the United States or the District of Columbia to which the greatest number of employees are regularly connected or out of which they are working, irrespective of where the services of such employees are performed, as of the last day of the taxable year.

"Compensation", wages, salaries, commissions and any other form of remuneration paid to employees for personal services that are included in such employee's gross income under the Internal Revenue Code. In the case of employees not subject to the Internal Revenue Code, such as those employed in foreign countries, the determination of whether such payments would constitute gross income to such employees under the Internal Revenue Code shall be made as though such employees were subject to the Internal Revenue Code.

"Credit card", credit, travel or entertainment card.

"Credit card issuer's reimbursement fee", the fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit card has charged merchandise or services to the credit card.

"Employee", with respect to a particular taxpayer, any individual who, under the usual common-law rules applicable in determining the employer-employee relationship, has the status of an employee of that taxpayer.

"Engaged in business in the commonwealth", (a) having a business location in the commonwealth; (b) having employees, representatives or independent contractors conducting business activities on its behalf in the commonwealth; (c) maintaining, renting or owning any tangible or real property in the commonwealth; (d) regularly performing services in the commonwealth; (e) regularly engaging in transactions with customers in the commonwealth that involve intangible property and result in income flowing to the taxpayer from residents of the commonwealth; (f) regularly receiving interest income from loans secured by tangible personal or real property located in the commonwealth; or (g) regularly soliciting and receiving deposits from customers in the commonwealth. With respect to the activities described in clauses (d) to (g), inclusive, activities shall be presumed, subject to rebuttal, to be conducted on a regular basis within the commonwealth, if any of such activities are conducted with one hundred or more residents of the commonwealth during any taxable year or if the taxpayer has ten million dollars or more of assets attributable to sources within the commonwealth, or has in excess of five hundred thousand dollars in receipts attributable to sources within the commonwealth.

"Financial institution", (a) any bank, banking association, trust company, federal or state savings and loan association, including all banks for cooperatives organized under the United States Farm Credit Act of nineteen hundred and thirty-three, whether of issue or not, existing by authority of the United States, or any state, or a foreign country, or any law of the commonwealth; (b) any other institution, association or entity, the deposits or accounts of which are insured under the Federal Deposit Insurance Act or by the Federal Deposit Insurance Corporation, any institution, association or entity, which is a member of a federal Home Loan Bank, excluding corporations described in section one of chapter one hundred and seventy-one, any other bank or thrift institution incorporated or organized under the laws of a state which is engaged in the business of receiving deposits, any corporation organized under the provisions of 12 USC 611-631 and 12 USC 3101; (c) any corporation subject to chapter one hundred and sixty-seven A, or registered under the Federal Bank Holding Company Act of nineteen hundred and fifty-six, or registered as a savings and loan holding company under the Federal National Housing Act, as amended, including any subsidiary which participates in the filing of a consolidated return of income to the federal government; (d) any corporation subject to supervision by the division of banks including but not limited to corporations described in section twenty-four of chapter ninety-three; sections ninety-six to one hundred and four or section one hundred and fourteen C of chapter one hundred and forty; section thirty-eight of chapter one hundred and sixty-seven; section five of chapter one hundred and sixty-seven B; chapter one hundred and sixty-nine A; chapter two hundred and fifty-five B; chapter two hundred and fifty-five C; chapter two hundred and fifty-five D; and chapter two hundred and fifty-five E; or (e) any other corporation organized under the laws of the United States, the commonwealth or any other state or a foreign country which, in substantial competition with financial institutions as defined in any or all of clauses (a) to (d), inclusive, derives more than fifty percent of its gross income, excluding nonrecurring, extraordinary items, from loan origination, from lending activities (including discounting obligations), or from credit card activities; provided, however, that corporations described in section one of chapter one hundred and seventy-one shall be excluded from the definition of financial institution.

"Gross income", gross income as defined under the provisions of the Internal Revenue Code, as amended and in effect for the taxable year, plus the interest from bonds, notes and evidences of indebtedness of any state, including this commonwealth.

"Gross rents", the actual sum of money or other consideration payable for the use or possession of property. "Gross rents" shall include, but not be limited to:

(a) any amount payable for the use or possession of real property or tangible property whether designated as a fixed sum of money or as a percentage of receipts, profits or otherwise;

(b) any amount payable as additional rent or in lieu of rent, such as interest, taxes, insurance, repairs or any other amount required to be paid by the terms of a lease or other arrangement; and

(c) a proportionate part of the cost of any improvement to real property made by or on behalf of the taxpayer which reverts to the owner or lessor upon termination of a lease or other arrangement. The amount to be included in gross rents shall be the amount of amortization or depreciation allowed in computing the taxable income base for the taxable year; provided, however, where a building is erected on leased land by or on behalf of the taxpayer, the value of the land shall be determined by multiplying the gross rent by eight and the value of the building shall be determined in the same manner as if owned by the taxpayer.

(d) the following shall not be included in the term "gross rents":

(i) reasonable amounts payable as separate charges for water, steam, and electric service furnished by the lessor;

(ii) reasonable amounts payable as service charges for janitorial services furnished by the lessor;

(iii) reasonable amounts payable for storage, provided such amounts are payable for space not designated and not under the control of the taxpayer; and

(iv) that portion of any rental payment which is applicable to the space subleased from the taxpayer and not used by it.

"Loan", any extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of such extension of credit from another. Loans include participations, syndications and leases treated as loans for federal income tax purposes. Loans shall not include: properties treated as loans under section 595 of the Internal Revenue Code; futures or forward contracts; options; notional principal contracts such as swaps; credit card receivables, including purchased credit card relationships; non-interest bearing balances due from depository institutions; cash items in the process of collection; federal funds sold; securities purchased under agreement to resell; assets held in a trading account; securities; interests in a REMIC as defined in section 860D of the Internal Revenue Code, or other mortgage-backed or asset-backed security; and other similar items.

"Loan secured by real property", a loan in which fifty percent or more of the aggregate value of the collateral, when valued at fair market value as of the time the original loan was incurred, was real property.

"Merchant discount", the fee or negotiated discount charged to a merchant by the taxpayer for the privilege of participating in a program whereby a credit card is accepted in payment for the merchandise or services sold to the card holder.

"Net income", gross income, other than ninety-five percent of dividends received in any taxable year beginning on or after January first, nineteen hundred and ninety-nine from or on account of the ownership of any class of stock if the financial institution owns fifteen percent or more of the voting stock of the institution paying the dividend, less the deductions, but not the credits allowable under the provisions of the Internal Revenue Code, as amended and in effect for the taxable year. For taxable years beginning on or after January first, nineteen hundred and ninety-nine, the provisions of section two hundred and ninety-one of said Code shall not apply; and the provisions of section one hundred and seventy-one (a)(2) and two hundred and sixty-five of said Code shall only apply to the extent that the income to which the deductions relate is excludable from gross income. Deductions with respect to the following items, however, shall not be allowed except as otherwise provided:

(a) dividends received, except as otherwise provided;

(b) losses sustained in other taxable years; or

(c) taxes on or measured by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business and capital stock taxes imposed by any state.

"Participation", an extension of credit in which an undivided ownership interest is held on a pro rata basis in a single loan or pool of loans and related collateral. In a loan participation, the creditor originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

"Person", an individual, estate, trust, partnership, corporation and any other business entity.

"Principal base of operations", with respect to transportation property means the place of more or less permanent nature from which said property is primarily directed or controlled. With respect to an employee, the "principal base of operations" means the place of more or less permanent nature from which the employee primarily (1) starts his work and to which he customarily returns in order to receive instructions from his employer or (2) (if (1) is not applicable) communicates with his customers or other persons, or (3) (if (1) and (2) are both not applicable) performs any other functions necessary to the exercise of his trade or profession.

"Real property owned" and "tangible personal property owned", real and tangible personal property respectively, (1) on which the taxpayer may claim depreciation for federal income tax purposes, or (2) property to which the taxpayer holds legal title and on which no other person may claim depreciation for federal income tax purposes, or could claim depreciation if subject to federal income tax. Real and tangible personal property do not include coin, currency, or property acquired in lieu of or pursuant to a foreclosure.

"Regular place of business", an office at which the taxpayer carries on its business in a regular and systematic manner and which is consistently maintained, occupied and used by employees of the taxpayer.

"State", a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States; any foreign country; or a political subdivision of any of the foregoing.

"Syndication", an extension of credit in which two or more persons fund and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

"Taxable", (a) that a taxpayer is subject in another state to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business, a corporate stock tax, including a bank shares tax, a single business tax, or an earned surplus tax, or any tax which is imposed upon or measured by net income; or (b) that another state has jurisdiction to subject the taxpayer to any of such taxes regardless of whether, in fact, the state does or does not.

"Taxable year", any fiscal or calendar year or period for which the taxpayer is required to make a return to the federal government; or the period for which a return is made by the taxpayer, if a return is made (1) for a period less than twelve months, or (2) for a period for which no return to the federal government is required.

"Taxpayer", a financial institution engaged in business in the commonwealth.

"Transportation property", vehicles and vessels capable of moving under their own power, including, but not limited to, aircraft, trains, water vessels and motor vehicles, as well as any equipment or containers attached to such property, such as rolling stock, barges, trailers or the like.

Section 2. (a) Except as provided in subsection (b), every financial institution engaged in business in the commonwealth shall pay, on account of each taxable year, an excise measured by its net income determined to be taxable under section two A at the following rate: taxable years beginning on or after January first, nineteen hundred and ninety-five but before January first, nineteen hundred and ninety-six, twelve and thirteen hundredths percent; on or after January first, nineteen hundred and ninety-six but before January first, nineteen hundred and ninety-seven, eleven and seventy-two hundredths percent; on or after January first, nineteen hundred and ninety-seven but before January first, nineteen hundred and ninety-eight, eleven and thirty-two hundredths percent; on or after January first, nineteen hundred and ninety-eight but before January first, nineteen hundred and ninety-nine, ten and ninety-one hundredths percent; on or after January first, nineteen hundred and ninety-nine, ten and one-half percent; provided, however, that the excise imposed hereunder shall be no less than four hundred and fifty-six dollars.

(b) Any corporation taxable under this section and described in clause (c), (d) or (e) of the definition of "financial institution" in section one, but not described in clause (a) or (b) of said definition, shall pay on account of each taxable year beginning on or after January first, nineteen hundred and ninety-five an excise measured by its net income determined to be taxable under section two A at the rate of ten and one-half percent; provided, however, that the excise imposed hereunder shall be no less than four hundred and fifty-six dollars.

(c) The commissioner is hereby authorized to adjust the net income of any taxpayer in accordance with the provisions of and the rules and regulations under section 482 of the Internal Revenue Code, as amended from time to time.

Section 2A. The commissioner shall determine the part of the net income of a financial institution derived from business carried on within the commonwealth as follows:

(a) If the financial institution does not have income from business activity which is taxable in another state, the whole of its net income shall be taxable under section two. For purposes of this section, a financial institution is taxable in another state as defined in the definition of "taxable" in section one.

(b) If the financial institution has income from business activity which is taxable both within and without this commonwealth, its net income shall be apportioned to this commonwealth by multiplying its net income by the apportionment percentage. The apportionment percentage is determined by adding the taxpayer's receipts factor, property factor and payroll factor together and dividing the sum by three. If one of the factors is missing, the two remaining factors are added and the sum is divided by two. If two of the factors are missing, the remaining factor is the apportionment percentage. If all three factors are missing, the whole of the financial institution's net income shall be taxable under section two. A factor is missing if both its numerator and denominator are zero, but it is not missing merely because its numerator is zero.

(c) Each factor shall be computed according to the method of accounting, cash or accrual basis, used by the taxpayer for federal income tax purposes for the taxable year.

(d) The receipts factor is a fraction, the numerator of which is the receipts of the taxpayer in the commonwealth during the taxable year and the denominator of which is the receipts of the taxpayer within and without the commonwealth during the taxable year. The method of calculating receipts for purposes of the denominator is the same as the method used in determining receipts for purposes of the numerator. As used in this subsection, "receipts" shall mean gross income, including net taxable gain on disposition of assets and money market transactions in the regular course of the financial institution's trade or business. The numerator of the receipts factor shall include, but not be limited to, the following receipts attributable to the commonwealth:

(i) the numerator of the receipts factor includes receipts from the lease or rental of real property owned by the taxpayer if the property is located within the commonwealth or receipts from the sublease of real property if the property is located within the commonwealth.

(ii) (A) Except as described in subparagraph (B), the numerator of the receipts factor includes receipts from the lease or rental of tangible personal property owned by the taxpayer if the property is located within this commonwealth when it is first placed in service by the lessee.

(B) Receipts from the lease or rental of transportation property owned by the taxpayer are included in the numerator of the receipts factor to the extent that the property is used in the commonwealth. The extent an aircraft will be deemed to be used in the commonwealth and the amount of receipts that is to be included in the numerator of the commonwealth's receipts factor is determined by multiplying all the receipts from the lease or rental of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in the commonwealth and the denominator of which is the total number of landings of the aircraft. If the extent of the use of any transportation property within the commonwealth cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

(iii) (A) The numerator of the receipts factor includes interest and fees or penalties in the nature of interest from loans secured by real property if the property is located within the commonwealth. If the property is located both within the commonwealth and one or more other states, the receipts described in this subsection are included in the numerator of the receipts factor if more than fifty percent of the fair market value of the real property is located within the commonwealth. If more than fifty percent of the fair market value of the real property is not located within any one state, then the receipts described in this subsection shall be included in the numerator of the receipts factor if the borrower is located in the commonwealth.

(B) The determination of whether the real property securing a loan is located within the commonwealth shall be made as of the time the original agreement was made and any and all subsequent substitutions of collateral shall be disregarded.

(iv) The numerator of the receipts factor includes interest and fees or penalties in the nature of interest from loans not secured by real property if the borrower is located in the commonwealth.

(v) The numerator of the receipts factor includes net gains from the sale of loans. Net gains from the sale of loans includes income recorded under the coupon stripping rules of section 1286 of the Internal Revenue Code.

(A) The amount of net gains, but not less than zero, from the sale of loans secured by real property included in the numerator is determined by multiplying such net gains by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (iii) and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(B) The amount of net gains, but not less than zero, from the sale of loans not secured by real property included in the numerator is determined by multiplying such net gains by a fraction the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (iv) and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(vi) The numerator of the receipts factor includes interest and fees or penalties in the nature of interest from credit card receivables and receipts from fees charged to card holders, such as annual fees, if the billing address of the card holder is in the commonwealth.

(vii) The numerator of the receipts factor includes net gains, but not less than zero, from the sale of credit card receivables multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (vi) and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(viii) The numerator of the receipts factor includes all credit card issuer's reimbursement fees multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (vi) and the denominator of which is the taxpayer's total amount of interest and fees or penalties in the nature of interest from credit card receivables and fees charged to card holders.

(ix) The numerator of the receipts factor includes receipts from merchant discount if the commercial domicile of the merchant is in the commonwealth. Such receipts shall be computed net of any card holder charge backs, but shall not be reduced by any interchange transaction fees or by any issuer's reimbursement fees paid to another for charges made by its card holders.

(x) (A) (1) The numerator of the receipts factor includes loan servicing fees derived from loans secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (iii) and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans secured by real property.

(2) The numerator of the receipts factor includes loan servicing fees derived from loans not secured by real property multiplied by a fraction, the numerator of which is the amount included in the numerator of the receipts factor pursuant to paragraph (iv) and the denominator of which is the total amount of interest and fees or penalties in the nature of interest from loans not secured by real property.

(B) In circumstances in which the taxpayer receives loan servicing fees for servicing either the secured or unsecured loans of another, the numerator of the receipts factor shall include such fees if the borrower is located in the commonwealth.

(xi) The numerator of the receipts factor includes receipts from services not otherwise apportioned under this section if the service is performed in the commonwealth. If the service is performed both within and without the commonwealth, the numerator of the receipts factor includes receipts from services not otherwise apportioned under this section, if a greater proportion of the income-producing activity is performed in the commonwealth, than in any other state, based on costs of performance.

(xii) (A) Interest, dividends, net gains, but not less than zero, and other income from investment assets and activities and from trading assets and activities shall be included in the receipts factor. Investment assets and activities and trading assets and activities include but are not limited to: investment securities; trading account assets; federal funds; securities purchased and sold under agreements to resell or repurchase; options; futures contracts; forward contracts; notional principal contracts such as swaps; equities; and foreign currency transactions. With respect to the investment and trading assets and activities described in clauses (1) and (2), the receipts factor shall include the amounts described in said clauses (1) and (2).

(1) The receipts factor shall include the amount by which interest from federal funds sold and securities purchased under resale agreements exceeds interest expense on federal funds purchased and securities sold under repurchase agreements.

(2) The receipts factor shall include the amount by which interest, dividends, gains and other income from trading assets and activities, including, but not limited to, assets and activities in the matched book, in the arbitrage book and foreign currency transactions, exceed amounts paid in lieu of interest, amounts paid in lieu of dividends, and losses from such assets and activities.

(B) The numerator of the receipts factor includes interest, dividends, net gains, but not less than zero, and other income from investment assets and activities and from trading assets and activities described in subparagraph (A) that are attributable to the commonwealth.

(1) The amount of interest, dividends, net gains, but not less than zero, and other income from investment assets and activities in the investment account to be attributed the commonwealth and included in the numerator is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the average value of such assets which are properly assigned to a regular place of business of the taxpayer within the commonwealth and the denominator of which is the average value of all such assets.

(2) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to the commonwealth and included in the numerator is determined by multiplying the amount described in clause (1) of subparagraph (A) from such funds and such securities by a fraction, the numerator of which is the average value of federal funds sold and securities purchased under agreements to resell which are properly assigned to a regular place of business of the taxpayer within the commonwealth and the denominator of which is the average value of all such funds and such securities.

(3) The amount of interest, dividends, gains and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book and foreign currency transactions, but excluding amounts described in clause (1) or (2) attributable to the commonwealth and included in the denominator is determined by multiplying the amount described in clause (2) of subparagraph (A) by a fraction, the numerator of which is the average value of such trading assets which are properly assigned to a regular place of business of the taxpayer within the commonwealth and the denominator of which is the average value of all such assets.

(4) For purposes of this paragraph, average value shall be determined using the rules for determining the average value of tangible personal property set forth in paragraphs (ii) and (iii) of subsection (e).

(C) In lieu of using the method set forth in subparagraph (B), the taxpayer may elect, or the commissioner may require in order to fairly represent the business activity of the taxpayer in the commonwealth, the use of the method set forth in this subparagraph.

(1) The amount of interest, dividends, net gains, but not less than zero, and other income from investment assets and activities in the investment account to be attributed to the commonwealth and included in the numerator is determined by multiplying all such income from such assets and activities by a fraction, the numerator of which is the gross income from such assets and activities which are properly assigned to a regular place of business of the taxpayer within the commonwealth and the denominator of which is the gross income from all such assets and activities.

(2) The amount of interest from federal funds sold and purchased and from securities purchased under resale agreements and securities sold under repurchase agreements attributable to the commonwealth and included in the numerator is determined by multiplying the amount described in clause (1) of subparagraph (A) from such funds and such securities by a fraction, the numerator of which is the gross income from such funds and such securities which are properly assigned to a regular place of business of the taxpayer within this commonwealth and the denominator of which is the gross income from all such funds and such securities.

(3) The amount of interest, dividends, gains and other income from trading assets and activities, including but not limited to assets and activities in the matched book, in the arbitrage book and foreign currency transactions, but excluding amounts described in clause (1) or (2), attributable to the commonwealth and included in the numerator is determined by multiplying the amount described in clause (2) of subparagraph (A) by a fraction, the numerator of which is the gross income from such trading assets and activities which are properly assigned to a regular place of business of the taxpayer within the commonwealth and the denominator of which is the gross income from all such assets and activities.

(D) If the taxpayer elects or is required by the commissioner to use the method set forth in subparagraph (C), it shall use this method on all subsequent returns unless the taxpayer receives prior permission from the commissioner to use, or the commissioner requires, a different method.

(E) The taxpayer shall have the burden of proving that an investment asset or activity or trading asset or activity was properly assigned to a regular place of business outside of the commonwealth by demonstrating that the day-to-day decisions regarding the asset or activity occurred at a regular place of business outside the commonwealth. Where the day-to-day decisions regarding an investment asset or activity or trading asset or activity occur at more than one regular place of business and one such regular place of business is in the commonwealth and one such regular place of business is outside the commonwealth, such asset or activity shall be considered to be located at the regular place of business of the taxpayer where the investment or trading policies or guidelines with respect to the asset or activity are established. Unless the taxpayer demonstrates to the contrary, such policies and guidelines shall be presumed to be established at the commercial domicile of the taxpayer.

(xiii) All receipts which would be assigned under this section to a state in which the taxpayer is not taxable shall be included in the numerator of the receipts factor, if the taxpayer's commercial domicile is in the commonwealth.

(e) The property factor is a fraction, the numerator of which is the average value of real property and tangible personal property rented to the taxpayer that is located or used within the commonwealth during the taxable year, the average value of the taxpayer's real and tangible personal property owned that is located or used within the commonwealth during the taxable year, and the average value of the taxpayer's loans and credit card receivables that are located within the commonwealth during the taxable year, and the denominator of which is the average value of all such property located or used within and without the commonwealth during the taxable year.

(i) The property factor shall include only property the income or expenses of which are included, or would have been included if not fully depreciated or expensed, or depreciated or expensed for a nominal amount, in the computation of the apportionable income base of the taxable year.

(ii) (A) The value of real property and tangible personal property owned by the taxpayer is the original cost or other basis of such property for federal income tax purposes without regard to depletion, depreciation or amortization.

(B) Loans are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a loan is charged off in whole or in part for federal income tax purposes, the portion of the loan charged off is not outstanding. A specifically allocated reserve established pursuant to regulatory or financial accounting guidelines which is treated as charged-off for federal income tax purposes shall be treated as charged-off for purposes of this section.

(C) Credit card receivables are valued at their outstanding principal balance, without regard to any reserve for bad debts. If a credit card receivable is charged-off in whole or in part for federal income tax purposes, the portion of the receivable charged-off is not outstanding.

(iii) The average value of property owned by the taxpayer is computed on an annual basis by adding the value of the property on the first day of the taxable year and the value on the last day of the taxable year and dividing the sum by two. If averaging on this basis does not properly reflect average value, the commissioner may require averaging on a more frequent basis. The taxpayer may elect to average on a more frequent basis. When averaging on a more frequent basis is required by the commissioner or is elected by the taxpayer, the same method of valuation must be used consistently by the taxpayer with respect to property within and without the commonwealth and on all subsequent returns unless the taxpayer receives prior permission from the commissioner or the commissioner requires a different method of determining average value.

(iv) (A) The average value of real property and tangible personal property that the taxpayer has rented from another and which is not treated as property owned by the taxpayer for federal income tax purposes, shall be determined annually by multiplying the gross rents payable during the taxable year by eight.

(B) Where the use of the general method described in this subsection results in inaccurate valuations of rented property, any other method which properly reflects the value may be adopted by the commissioner or by the taxpayer when approved in writing by the commissioner. Once approved, such other method of valuation must be used on all subsequent returns unless the taxpayer receives prior approval from the commissioner or the commissioner requires a different method of valuation.

(v) (A) Except as described in subparagraph (B), real property and tangible personal property owned by or rented to the taxpayer is considered to be located within the commonwealth if it is physically located, situated or used within the commonwealth.

(B) Transportation property is included in the numerator of the property factor to the extent that the property is used in the commonwealth. The extent an aircraft will be deemed to be used in the commonwealth and the amount of value that is to be included in the numerator of the commonwealth's property factor is determined by multiplying the average value of the aircraft by a fraction, the numerator of which is the number of landings of the aircraft in the commonwealth and the denominator of which is the total number of landings of the aircraft everywhere. If the extent of the use of any transportation property within the commonwealth cannot be determined, then the property will be deemed to be used wholly in the state in which the property has its principal base of operations. A motor vehicle will be deemed to be used wholly in the state in which it is registered.

(vi) (A) (1) A loan is considered to be located within the commonwealth if it is properly assigned to a regular place of business of the taxpayer within the commonwealth.

(2) A loan is properly assigned to the regular place of business with which it has a preponderance of substantive contacts. A loan assigned by the taxpayer to a regular place of business without the commonwealth shall be presumed to have been properly assigned if:

(a) the taxpayer has assigned, in the regular course of its business, such loan on its records to a regular place of business consistent with federal or state regulatory requirements;

(b) such assignment on its records is based upon substantive contacts of the loan to such regular place of business; and

(c) the taxpayer uses said records reflecting assignment of loans for the filing of all state and local tax returns for which an assignment of loans to a regular place of business is required.

(3) The presumption of proper assignment of a loan provided in clause (2) of subparagraph (A) may be rebutted upon a showing by the commissioner, supported by a preponderance of the evidence, that the preponderance of substantive contacts regarding such loan did not occur at the regular place of business to which it was assigned on the taxpayer's records. When such presumption has been rebutted, the loan shall then be located within the commonwealth if (a) the taxpayer had a regular place of business within the commonwealth at the time the loan was made; and (b) the taxpayer fails to show, by a preponderance of the evidence, that the preponderance of substantive contacts regarding such loan did not occur within the commonwealth.

(B) In the case of a loan which is assigned by the taxpayer to a place without the commonwealth which is not a regular place of business, it shall be presumed, subject to rebuttal by the taxpayer on a showing supported by the preponderance of evidence, that the preponderance of substantive contacts regarding the loan occurred within the commonwealth if, at the time the loan was made the taxpayer's commercial domicile, as defined in section one, was within the commonwealth.

(C) To determine the state in which the preponderance of substantive contacts relating to a loan have occurred, the facts and circumstances regarding the loan at issue shall be reviewed on a case-by-case basis and consideration shall be given to such activities as the solicitation, investigation, negotiation, approval and administration of the loan. The terms "solicitation", "investigation", "negotiation", "approval" and "administration" are defined as follows:

(1) "Solicitation" is either active or passive. Active solicitation occurs when an employee of the taxpayer initiates the contact with the customer. Such activity is located at the regular place of business which the taxpayer's employee is regularly connected with or working out of, regardless of where the services of such employee were actually performed. Passive solicitation occurs when the customer initiates the contact with the taxpayer. If the customer's initial contact was not at a regular place of business of the taxpayer, the regular place of business, if any, where the passive solicitation occurred is determined by the facts in each case.

(2) "Investigation" is the procedure whereby employees of the taxpayer determine credit-worthiness of the customer as well as the degree of risk involved in making a particular agreement. Such activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of such employees were actually performed.

(3) "Negotiation" is the procedure whereby employees of the taxpayer and its customer determine the terms of the agreement such as the amount, duration, interest rate, frequency of repayment, currency denomination and security required. Such activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of such employees were actually performed.

(4) "Approval" is the procedure whereby employees or the board of directors of the taxpayer make the final determination whether to enter into the agreement. Such activity is located at the regular place of business which the taxpayer's employees are regularly connected with or working out of, regardless of where the services of such employees were actually performed. If the board of directors makes the final determination, such activity is located at the commercial domicile of the taxpayer.

(5) "Administration" is the process of managing the account. This process includes bookkeeping, collecting the payments, corresponding with the customer, reporting to management regarding the status of the agreement and proceeding against the borrower or the security interest if the borrower is in default. Such activity is located at the regular place of business which oversees this activity.

(vii) For purposes of determining the location of credit card receivables, credit card receivables shall be treated as loans and shall be subject to the provisions of paragraph (vi).

(viii) A loan that has been properly assigned to a state shall, absent any change of material fact, remain assigned to said state for the length of the original term of the loan. Thereafter, said loan may be properly assigned to another state if said loan has a preponderance of substantive contact to a regular place of business there.

(f) The payroll factor is a fraction, the numerator of which is the total amount paid in the commonwealth during the taxable year by the taxpayer for compensation and the denominator of which is the total compensation paid both within and without the commonwealth during the taxable year. The payroll factor shall include only that compensation which is included in the computation of the net income to be apportioned for the taxable year.

(i) Payments made to any independent contractor or any other person not properly classified as an employee shall be excluded from both the numerator and the denominator of the factor.

(ii) Compensation is paid in the commonwealth if any one of the following tests, applied consecutively, is met:

(A) The employee's services are performed entirely within the commonwealth;

(B) The employee's services are performed both within and without the commonwealth, but the service performed without the commonwealth is incidental to the employee's service within the commonwealth. The term "incidental" means any service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction.

(C) Some of the employee's services are performed in this commonwealth and:

(1) the employee's principal base of operations is within the commonwealth; or

(2) there is no principal base of operations in any state in which some part of the services are performed, but the place from which the services are directed or controlled is in the commonwealth; or

(3) the principal base of operations and the place from which the services are directed or controlled are not in any state in which some part of the service is performed but the employee's residence is in the commonwealth.

(g) If the provisions of subsections (a) to (f), inclusive, are not reasonably adapted to approximate the net income derived from business carried on within the commonwealth, a financial institution may apply to the commissioner, or the commissioner may require the financial institution, to have its income derived from business carried on within this commonwealth determined by a method other than that set forth in subsections (a) to (f), inclusive. Such application shall be made by attaching to its duly-filed return a statement of the reasons why the financial institution believes that the provisions of this section are not reasonably adapted to approximate its net income derived from business carried on within this commonwealth and a description of the method sought by it. A financial institution which so applies shall, upon receipt of a request therefor from the commissioner, file with the commissioner, under oath of its treasurer, a statement of such additional information as the commissioner may require.

If, after such application by the financial institution, or after the commissioner's own review, the commissioner determines that the provisions of subsections (a) to (f), inclusive, are not reasonably adapted to approximate the financial institution's net income derived from business carried on within the commonwealth, the commissioner shall by reasonable methods determine the amount of net income derived from business activity carried on within the commonwealth. The amount thus determined shall be the net income taxable under section two and the foregoing determination shall be in lieu of the determination required by subsections (a) to (f), inclusive. If an alternative method is used by the commissioner hereunder, the commissioner, in his discretion, with respect to the two next succeeding taxable years, may require similar information from such financial institution if it shall appear that the provisions of subsections (a) to (f), inclusive, are not reasonably adapted to approximate for the applicable year the financial institution's net income derived from business carried on within this commonwealth and may again by reasonable methods determine such income.

SECTION 2. Section 30 of said chapter 63, as so appearing, is hereby amended by striking out, in line 13, the word "or" and inserting in place thereof the following word:- , to.

SECTION 3. Said section 30 of said chapter 63, as so appearing, is hereby further amended by inserting after the word "year", in line 15, the following words:- , nor to corporations subject to tax under section two.

SECTION 4. Said section 30 of said chapter 63, as so appearing, is hereby further amended by striking out, in line 32, the words "or to" and inserting in place thereof the following word:- , to.

SECTION 5. Said section 30 of said chapter 63, as so appearing, is hereby further amended by inserting after the word "year", in line 35, the following words:- nor to such corporations, associations or organizations subject to tax under section two.

SECTION 6. Said chapter 63 is hereby further amended by striking out section 38B, as so appearing, and inserting in place thereof the following section:-

Section 38B. (a) Every financial institution, domestic business corporation or foreign corporation which is engaged exclusively in buying, selling, dealing in, or holding securities on its own behalf and not as a broker, except securities of a DISC, and is not a bank holding company under the Internal Revenue Code, as amended and in effect for the taxable year, and, which either applies to the commissioner to be classified as a security corporation before the end of the taxable year and is so classified, or has been so classified by the commissioner for a prior taxable year and such classification has not been revoked before the end of the taxable year, shall pay, on account of each taxable year, an excise equal to one and thirty-two one hundredths percent of the gross income, as defined in section thirty, received by such corporation during the taxable year or four hundred and fifty-six dollars, whichever is greater.

(b) Every financial institution, domestic business corporation or foreign corporation which is engaged exclusively in buying, selling, dealing in, or holding securities on its own behalf and not as a broker, except securities of a DISC, and is a bank holding company under the Internal Revenue Code, as amended and in effect for the taxable year, and which either applies to the commissioner to be classified as a security corporation before the end of the taxable year and is so classified, or has been so classified by the commissioner for a prior taxable year and such classification has not been revoked before the end of the taxable year, shall pay, on account of such taxable year, an excise equal to thirty-three one hundredths percent of the gross income, as defined in section thirty, received by such corporation during the taxable year or four hundred and fifty-six dollars, whichever is greater.

(c) Any corporation taxable under this section shall not be subject to the excise imposed by section two, thirty-two or thirty-nine.

SECTION 7. Any financial institution which was taxed under the provisions of chapter sixty-two or of sections thirty to forty-two, inclusive, of chapter sixty-three of the General Laws for its taxable year beginning during nineteen hundred and ninety-four shall continue to be so taxed and shall not be taxable as a financial institution until the taxable year beginning on or after January one, nineteen hundred and ninety-nine.

SECTION 8. (a) The department of revenue shall report to the joint committee on taxation and the house and senate committees on ways and means, on or before July fifteenth of each year, the following aggregate information for domestic and foreign financial institutions: the number of entities apportioning income and the various apportionment methods approved, total gross income reported, total net income reported, total deductions reported, total net income apportioned within and without the commonwealth, the net revenue impact by reason of such apportionment, the net revenue impact by reason of the expanded definition of "financial institution", the net revenue impact by reason of the rate reduction, and the total number of returns audited pursuant to subsection (b).

(b) The department of revenue shall conduct audits of at least fifty percent of financial institutions which are taxed pursuant to this act or after the effective date of this act. The department shall conduct audits on these financial institutions for taxable years ending on or after December thirty-first, nineteen hundred and ninety-five through December thirty-first, nineteen hundred and ninety-seven.

SECTION 9. A special commission is hereby established to study the advantages and disadvantages of requiring affiliated financial institutions that are members of a unitary business to file a combined tax return, notwithstanding whether each such affiliate independently has nexus with Massachusetts. The commission shall include the senate and house chairs of the joint committee on taxation, the senate and house chairs of the joint committee on banks and banking, the chairs of the senate and house committees on ways and means, one senator appointed by the minority leader of the senate, and one representative appointed by the minority leader of the house. The commission shall study the following: whether such a requirement would be consistent with a neutral tax system; whether it would be equitable to multi-state institutions as well as to those operating only in Massachusetts; whether it would be fair to impose this requirement on financial institutions although it is not imposed on other industries; and what would be the revenue implications of such a requirement. In examining revenue implications, the commission shall examine the degree to which unitary businesses, in the financial services sector, are able to allocate income in such a manner that affiliates located in the commonwealth report income less than the amount that would be attributed to business in the commonwealth if the unitary business were required to file a combined return. The department of revenue shall provide all assistance and information requested by said commission consistent with law, including confidentiality provisions. The commission shall file a report of its findings with the clerks of the house of representatives and senate on or before December thirty-first, nineteen hundred and ninety-six.

SECTION 10. This act shall take effect for taxable years beginning on or after January first, nineteen hundred and ninety-five.