General

(a) Massachusetts source income is generally taxable to non-residents. 830 CMR 62.5A.1 sets forth detailed rules for the taxation of this income. Massachusetts source income includes items of gross income derived from or effectively connected with any trade or business, including any employment, carried on by the taxpayer in Massachusetts, whether or not the non-resident is actively engaged in a trade or business or employment in Massachusetts in the year in which the income is received; the participation in any lottery or wagering transaction in Massachusetts; or the ownership of any interest in real or tangible personal property located in Massachusetts. All types of income, including investment income, derived from or effectively connected with the carrying on of a trade or business within Massachusetts are Massachusetts source income. The term may include gain from the sale of a business or of an interest in a business, distributive share income, separation, sick or vacation pay, deferred compensation and nonqualified pension income not prevented from state taxation by the laws of the United States, and income from a covenant not to compete. For rules that apply to non-resident members of professional athletic teams, see 830 CMR 62.5A.2.

Certain types of income received by non-residents from sources within Massachusetts are excluded from taxation, such as non-business-related interest, dividends and gains from the sale or exchange of intangibles that are not derived from or effectively connected with the carrying on of a trade or business, and certain qualified pension income.

Massachusetts source income derived from pass-through entities, such as partnerships, trusts, estates, limited liability companies (LLCs), or S corporations, generally is also subject to Massachusetts income taxation for non-residents. The activities of a pass-through entity are attributed to its owners, including non-resident partners, members, or shareholders. Thus, if a non-resident has an ownership interest in a pass-through entity that is engaged in the conduct of a trade or business in Massachusetts, or derives income from the ownership of real or tangible personal property in Massachusetts, the non-resident is treated as if conducting those activities in his or her individual capacity.

The income of a pass-through entity that derives from or is effectively connected with the conduct of a trade or business or the ownership of real or tangible personal property in Massachusetts retains its character as it passes through a tiered structure of pass-through entities before becoming income to the non-resident. Thus, income that is derived from a trade or business does not convert to non-business-related income as it passes through a series of entities. Similarly, Massachusetts source income of any pass-through entities engaged in a unitary business that conducts a trade or business in Massachusetts is taxable to a non-resident member to the extent it would be taxable if received directly by the non-resident.

In the case of multi-tiered unitary businesses where at least one entity in the structure is engaged in the conduct of a trade or business or the ownership of real or tangible personal property in Massachusetts, and income derived from one or more members of the unitary business is taxable in another state, the group of entities must apportion its income, as determined under this regulation.

When a non-resident earns or derives income from sources both in Massachusetts and elsewhere, only that portion of the income earned or derived from Massachusetts is taxed. The types of deductions and exemptions available to a non-resident with respect to Massachusetts source income are generally the same as those granted to a resident.

All transactions involving the taxation of non-residents are subject to the sham transaction rule, as defined in this regulation.

To the extent that any rule in this regulation conflicts with that in another regulation, such as 830 CMR 62.17A.1, "Massachusetts Taxation of S Corporations and their Shareholders," the most recently promulgated rule applies.

(b) 830 CMR 62.5A.1 is organized as follows:

1. General. 2. Definitions. 3. Income Subject to Massachusetts Income Tax. 4. Income Not Subject to Massachusetts Income Tax. 5. Rules for Apportionment of Income for Non-Resident Individuals Working in Massachusetts. 6. Rules for Apportionment of Income to Massachusetts for Non-Resident Members of Pass-Through Entities. 7. Exemptions. 8. Deductions. 9. Estates of Non-resident Decedents. 10. Non-resident Trusts. 11. Returns. 12. Effective Dates.