AA-1: Application for Section 42 Method of Apportionment (2024)

Who files this form

Corporations seeking permission to use an alternative apportionment method under Massachusetts General Laws chapter 63, section 42 apply using Form AA-1. Before applying, the corporation must file a return and pay the tax using the statutory method.

You do not need to apply if you are already permitted to use the apportionment method. For example, a section 38 manufacturer does not need this application to use the single-sales factor method allowed under section 38(l)(2).

What you'll need

Include these materials with Form AA-1:

• A statement, supported by detailed facts, explaining why the statutory allocation and apportionment rules do not reasonably approximate the corporation’s Massachusetts income. You must provide clear and cogent evidence that statutory apportionment does not fairly represent the extent of your business activity in Massachusetts.
• A detailed description and written explanation of the proposed alternative method, plus a tax computation using that method.
• Documentation supporting the figures used, including their origin, nature and relationship to the overall result.
• The corporation’s return, which must be submitted with the application.

Have the corporation’s tax-year information, business code number from its U.S. return, federal identification number, name and principal-office addresses ready. The form includes signature fields for the responsible corporate officer and paid preparer.

An authorized representative or employee designated to discuss the application must submit a properly completed Power of Attorney, Form M-2848.

How to file

Complete Form AA-1, attach the required explanations and supporting materials, and have the responsible corporate officer sign the declaration. The application must be submitted with the return.

Electronic filing: Taxpayers filing an electronic return may submit Form AA-1 electronically with the return filing and electronic payment. The form refers taxpayers to TIR 21-9 for more information about electronic filing and payment requirements.

Mail: Send the application and return to:

Massachusetts Department of Revenue

Rulings and Regulations Bureau

PO Box 9566

Boston, MA 02114

Make any check or money order payable to the Commonwealth of Massachusetts.

Common mistakes

• Using the alternative method before obtaining permission. An applicant must first file a return and pay the tax using the statutory method.
• Submitting the application separately from the return. The form states that the application must be submitted with the return.
• Letting the application arrive too late. The application will not be considered if the Commissioner receives it after the return’s due date, taking valid extensions into account.
• Assuming no response means approval. If the Commissioner does not act within nine months of filing, the application is deemed denied unless the Commissioner and applicant agree in writing to extend the decision period.

Questions people ask

Do I need Form AA-1 for a method I am already allowed to use?

No. A taxpayer does not need to apply for alternative apportionment to use an otherwise permitted method.

What must I show to support my request?

You must show, with clear and cogent evidence, that income attributed to Massachusetts using statutory apportionment does not fairly represent the extent of your business activity in Massachusetts. You must also explain and document the proposed alternative method and calculate the tax under it.

What happens if the Commissioner does not respond?

The application is deemed denied if the Commissioner does not act within nine months of filing. You and the Commissioner may agree in writing to extend the time for a decision.

Can the Commissioner ask for more information?

Yes. The form states that the Commissioner may request additional information from the applicant.

Official sources

• https://www.mass.gov/lists/dor-tax-forms-and-instructions