The Massachusetts Appellate Tax Board (ATB) found that an out-of-state footwear company qualified as a “manufacturing corporation” for purposes of the state corporate excise (income) tax despite outsourcing the manufacturing of its shoes to third parties. The consequence of the “manufacturing corporation” classification was that the taxpayer had to use a single-sales factor apportionment formula rather than a three-factor apportionment formula, comprised of payroll, property, and sales. See G.L. c. 63, § 38(l)(2).
The ABT concluded that the taxpayer was a “manufacturing corporation” because it engaged in manufacturing “in substantial part.” See G.L. c. 63, § 38(l)(1). Specifically, the taxpayer designed, developed, and oversaw the production of its footwear. The company created detailed design specifications and prototypes, which were then manufactured by third-party factories. Employees of the taxpayer were also involved in various stages of the production process, including quality assurance and fit testing.
For tax years beginning on and after January 1, 2025, all corporations with income from business activity both within and without Massachusetts are required to use a single-factor formula based on sales. See St. 2023, c. 50, § 31. Taxpayers with significant payroll and property in Massachusetts, which outsource but are involved in the manufacturing of their products, should consider whether they too qualified as “manufacturing corporation,” required to use the single sales factor formula, for prior years.
Skechers USA, Inc. v. Commissioner of Revenue, No. C344671, 2025 WL 1460059 (May 5, 2025).