Massachusetts Taxation of Non-residents - January 2004

Massachusetts has changed the way it taxes income of a Non-resident to include all income effectively connected with any trade or business, regardless of the year in which the income was actually received. Therefore, even if you move to another state any income that originated from Massachusetts employment or business in prior years will be subject to tax in Massachusetts. Examples include:

• Severance payments, accumulated sick leave and non-qualified benefits earned from Massachusetts employment is subject to Massachusetts tax, even if the recipient is not a resident.

• Sales of Massachusetts partnership and S corporation interests by non-residents will be subject to Massachusetts tax based on the average amount of business conducted in Massachusetts. Therefore, if 40% of the business was allocated to Massachusetts during the time of ownership, 40% of any gain will be subject to tax in Massachusetts.

• Sales of C corporations by owners are subject to Massachusetts tax; based on the appreciation during the time they were Massachusetts residents, even if they later become domiciled in another state.

• Income received from a covenant not to compete will be subject to Massachusetts tax if it relates to a Massachusetts business, even should that person move to another state.

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