Tax ARTICLE - Summary of Massachusetts Letter Ruling 06-6:

Manufacturing Corporation Classification

Facts:
Letter Ruling 06-6 (issued on April 24, 2006) deals with the manufacturing classification of a limited liability company (the "LLC") that was the successor entity to a corporation (the "Corporation") that had previously been classified as a manufacturing corporation in Massachusetts. The LLC purchased all of the assets of the Corporation, continued the same manufacturing activities and employed all of the same employees, including management. For Federal and Massachusetts income tax purposes, LLC elected to be taxed as a corporation (generally, a Limited Liability Company cannot claim manufacturing classification unless it elects to be taxed as a corporation). In all regards, LLC appeared to be acting exactly as its predecessor, the Corporation, which had manufacturing status under Massachusetts law. Therefore, LLC did not reapply for manufacturing classification after it purchased the business of the Corporation.

Law and Analysis:
Pursuant to the Massachusetts Department of Revenue’s Manufacturing Corporations Regulation, 830 CMR 58.2.1(3), “[a] corporation may be classified as a manufacturing corporation for any calendar year under G.L. c. 58, § 2, in which it is in existence and is engaged in manufacturing as defined in 830 CMR 58.2.1(6), as of January 1 of that year.” 830 CMR 58.2.1(7)(a) provides that “[a]ny corporation seeking manufacturing corporation classification must file a completed application with the Commissioner.” 830 CMR 58.2.1(8)(a) further provides that “[a] corporation classified as a manufacturing corporation must reapply for manufacturing corporation classification by filing a new application on Form 355Q on or before December 31 of the year in which it:

1. changes its name,
2. undergoes a merger or consolidation,
3. is revived as a corporation after dissolving,
4. reregisters with the Secretary of State after withdrawing from Massachusetts under G.L. c. 181, § 16, or
5. undergoes a material change in its activities.”

LLC asserted that none of the events triggering the reapplication requirement set out in 830 CMR 58.2.1(8)(a) had transpired. However, from the facts presented, the D.O.R. stated that it was evident that LLC was a successor to and distinct entity from Corporation with a different FID number. As such, LLC could not simply rely on the manufacturing classification accorded to another entity. Consistent with case law and prior public written statements issued by the Department, a new application for manufacturing corporation classification was required.

Conclusion:
Any corporation that experiences any of the events listed in 830 CMR 58.2.1(8)(a) must reapply for manufacturing status by December 31 of the tax year in which the change occurred.

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