What is the Massachusetts franchise tax?

Instead of a typical franchise tax system, Massachusetts uses the Corporate Excise Tax. Most for-profit corporations doing business in Massachusetts pay this, whether they're based there or not, and whether they're profitable or not.

Even if your calculated tax equals zero, you still owe a minimum of $456. That's the entry fee for doing business in Massachusetts, no matter how your year went. The Massachusetts Department of Revenue describes this as a combination of both an income tax and a privilege tax. 

Who must file Massachusetts’ franchise tax?

Massachusetts generally imposes the corporate excise on entities that are taxed as corporations for federal purposes (including corporations and LLCs that elect corporate status) when they have Massachusetts nexus. 

LLCs and LLPs that are taxed as partnerships or disregarded entities are not subject to the corporate excise, though they may still have other Massachusetts tax obligations.

Whether you owe more than the minimum $456 depends on entity type, nexus, and federal tax elections, but the filing obligation starts as soon as you cross the state's jurisdictional threshold.

Nexus is created when a corporation has sufficient connection to Massachusetts under state law and regulations, which can include in-state property, payroll, employees, or meeting Massachusetts economic nexus thresholds for sales or other factors, even without physical presence.

Massachusetts franchise tax filing requirements

When you form a corporation or elect corporate tax treatment in Massachusetts, you need to report to the Department of Revenue (DOR) every year. 

Required documentation

Most C corporations file Form 355, the Massachusetts Corporate Excise Tax Return. S corporations use Form 355S, which follows the same structure but applies S-corp tax rules. Corporations that reasonably expect to owe more than $1,000 of corporate excise for the year must make quarterly estimated payments, typically using Form 355-ES through MassTaxConnect or approved software.

Massachusetts may require you to provide information from your federal return (Form 1120 or 1120-S) and related schedules, so you should prepare those first and have them available.

Filing fees and costs

For most taxable corporations, Massachusetts corporate excise is the greater of:

• The income measure,
• The non-income (property/net-worth) measure, or
• The statutory minimum excise of $456.

There is no separate filing fee for the corporate excise return, although other state filings (like corporate annual reports with the Secretary of the Commonwealth) do have their own fees. 

Certain tax-exempt organizations that file only on unrelated business income are subject to different rules and may not owe the minimum excise.

Due dates and deadlines

Massachusetts tax deadlines don't follow federal patterns, and the Department of Revenue takes these dates seriously. Missing deadlines triggers immediate penalties and interest, making it essential to understand your specific filing requirements and payment schedule.

Extension and payment rules:

• Automatic extension: 6 months to file (not to pay)
• Extension payment requirement: Must pay 50% of the expected tax or minimum excise (or meet the alternative prior-year safe harbor) by the original due date
• Estimated payments: Required when expecting to owe more than $1,000 annually

Meeting these deadlines every year keeps you in good standing and prevents daily monetary penalties that accumulate quickly once a deadline passes. Use Form 355-ES for estimated payments or submit through MassTaxConnect to avoid mailing complications.

Tax calculation

Massachusetts doesn't use a single formula. Instead, it requires you to run separate tests and then pay for the one that yields the highest number. Those tests are the income measure, the non-income measure, and the flat minimum tax.

Start with the income measure. Take your federal taxable income, adjust for any Massachusetts add-backs or subtractions, and multiply the Massachusetts portion by 8%. If you operate in multiple states, only a portion of your net income is taxable here. 

Next, calculate the non-income measure. Find the greater of your taxable tangible personal property in Massachusetts or your taxable net worth apportioned to Massachusetts. Multiply that figure by $2.60 for every $1,000 of value. The rate and base are fixed annually by the state budget process. Some special entities, including financial institutions and manufacturers, may have different rates.

Suppose your company has a Massachusetts-apportioned net income of $900,000, a Massachusetts tangible property of $2 million, and a Massachusetts-apportioned net worth of $5 million.

• Income measure: $900,000 × 8% = $72,000. 
• Non-income measure: the larger property base is $5 million (net worth). $5,000,000 ÷ 1,000 × $2.60 = $13,000. 
• Minimum tax: $456

Since $72,000 is the largest amount, that's your excise due.

How to file

Massachusetts now requires most corporations and financial institutions to file and pay corporate excise electronically through MassTaxConnect or approved third-party software, under TIR 21-9. The corporate excise forms themselves are labeled "CAUTION: This tax return must be filed electronically." Paper filing is limited to rare exceptions such as hardship cases.

In practice, filing means:

• Registering or logging into MassTaxConnect and adding a Corporate Excise account.
• Selecting the appropriate return (Form 355 for C-corps, 355S for S-corps, etc.), entering income and non-income measure data, and uploading Massachusetts schedules (such as Schedule B for balance sheet items and Schedule E for apportionment).
• Reviewing the system's calculation of the income measure, non-income measure, and minimum excise, and then submitting payment electronically (including estimated payments when required).
• Downloading your confirmation page for your records.

Penalties and compliance

Filing your Massachusetts corporate excise return on time preserves your right to operate and shields you from costly penalties.

Massachusetts takes compliance seriously, and consequences escalate quickly with continued non-compliance.

• Late filing penalties: Can reach up to 25% of the tax due, with rates of approximately 1% per month or fraction thereof
• Late payment interest: Accrues daily from the original due date, compounding even with automatic extensions
• Underpayment penalties: Additional fees for insufficient quarterly estimated payments beyond state tolerance levels
• Lost good standing: "Not in good standing" status blocks financing, state contracts, and court access in Massachusetts
• Administrative dissolution: Forced shutdown strips legal existence, requiring costly reinstatement with accumulated back taxes and fees
• Ongoing minimum tax: $456 annual excise continues accruing until formal dissolution, regardless of business activity

File through MassTaxConnect before your deadline, pay the full amount due, and maintain quarterly estimates to avoid penalties, preserve good standing, and keep your focus on running the business instead of writing checks to the Department of Revenue.

Exceptions and special cases

Most corporations fall under Massachusetts' standard corporate excise rules, but certain entities qualify for special treatment or outright exemption. Understanding these carve-outs matters because the Department of Revenue won't apply them automatically.

Tax-exempt entities include:

• Nonprofits
• LLCs and LLPs

• Insurance companies

Any exemption depends on proper entity classification with the Massachusetts authorities. Mislabeling your entity or activities can trigger back taxes, penalties, and interest accumulating from when you should have been filing.

Additional state taxes

The corporate excise represents just one piece of Massachusetts' tax structure. Businesses operating here also face: 

• Sales tax 
• Employment taxes 
• Individual income obligations that flow through pass-through entities. 

Extensions and amendments

Missed the April 15 deadline? For calendar-year C-corporations, Massachusetts grants an automatic 6-month extension to October 15 if you pay by April 15 the required amount (generally at least 50% of the total tax due or the $456 minimum excise, subject to DOR's safe-harbor rules). 

Fiscal-year filers get a similar 6-month extension measured from their normal due date. No payment, no valid extension. An extension only protects you from late-filing penalties; interest and late-payment penalties can still apply to underpaid tax.

Amendments work differently. If you discover an error or get a federal audit adjustment, file an amended Form 355 (or 355S for S corporations) immediately. Use the same form as your original return, check the "Amended" box, explain the changes concisely, and attach any revised schedules plus your amended federal Form 1120.

Automate your Massachusetts franchise tax compliance

While Discern can't help with Massachusetts franchise tax filings, our comprehensive compliance management system covers annual report filings for all 51 U.S. jurisdictions. 

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