[G. L. c. 63, §§ 32-34 academic, because such corporations are without income and their shares have no value; but there are many corporations which have ceased to do any active business but which receive a substantial income from their property and the shares of which are of great value. Under statutes of similar wording it has been held that such corporations are not taxable;' but it is not believed that it was the intention of the legislature to exempt such corporations from taxation under section thirty-two. The phraseology of the statute has however left the matter open to controversy; but in any event it would seem that if a domestic business corporation was not taxable under section thirty-two on the ground that it was not engaged in business it would be subject to the tax on its corporate franchise under the provisions of sections fifty-three and fifty-eight.

Affiliated and Subsidiary Corporations

SECTION 33. If a domestic business corporation which is a subsidiary of a foreign corporation or closely affiliated therewith by stock ownership, is so managed that its books of account do not show its true earnings, it shall pay as a minimum tax under this chapter an amount equal to twenty dollars per thousand on its corporate excess, unless it shall file within the first ten days of April a statement, as of April first, of its net income showing to the satisfaction of the commissioner its true earnings for its last prior fiscal year, eliminating therefrom all payments to such other corporation or its officers in excess of the fair value of the property or services given therefor.

SECTION 34. If two or more domestic business corporations participated in the filing of a consolidated return of income to the federal government, the tax under paragraph (2) of section thirtytwo may, at their option, be assessed upon their combined net income, which tax shall be assessed to all said corporations and collected

Thus in Attorney-General v. Boston & Albany R. R. Co., 233 Mass. 460 (1919) it was held that a railroad company which had leased its entire property to another company, under statutory authority, was not "doing business for profit" within the meaning of a statute imposing a tax. On similar facts it was held that a railroad corporation was not "engaged in business" within the meaning of the federal corporation tax act of 1909, McCoach v. Minehill & Schuylkill Haven R. R. Co., 228 U. S. 295 (1913); and the latter statute was also held inapplicable to a corporation whose only property was a parcel of real estate leased to a single lessee for a long term and whose only activity was to receive and distribute the rent therefrom. Zonne v. Minneapolis Syndicate, 220 U. S. 187 (1911); United States v. Emery, Bird, Thayer Realty Co., 237 U. S. 28 (1915). See also Von Baumbach v. Sargent Land Co., 242 U. S. 503 (1917).

G. L. c. 63, §§ 34, 35]

from any one or more of them. In the case of domestic business corporations thus affiliated and not electing, under the foregoing provision, to be assessed upon their combined net income, and in the further case of one or more domestic business corporations filing with one or more foreign corporations a consolidated return of net income to the federal government, each such domestic business corporation shall file with the commissioner, as a part of its return required by this chapter, a statement of net income in such form as he may prescribe, showing its gross income and deductions in accordance with the law and regulations governing the usual federal returns of corporations not thus affiliated, and the net income thus shown, after making deductions therefrom and additions thereto as provided in paragraph five of section thirty, shall be the "net income" under this chapter.

The provisions of section thirty-three were adopted for the purpose of preventing the evasion of corporation taxes by a method which had become common under the earlier law; the provisions of section thirty-four were adopted for the purpose of permitting corporations, whenever practicable, to use the same material in preparing their returns for the state that was used in their federal returns. A consolidated return cannot however be filed except in the case of two domestic corporations, or of two foreign corporations doing business in this commonwealth and subject to the provisions of this chapter. Even if two corporations elect to file a consolidated return of income, they must each file a separate statement of corporate excess. Corporations which are classed as "personal service corporations" under the federal law and so are not taxable on their income may however use a copy of their statement of income on their federal information returns as a statement of their income on their state returns, either by amending the form provided in the state return or substituting a copy of the corresponding schedule in the federal return.

Returns

SECTION 35. Every domestic business corporation shall, within the first ten days of April, make a return as of April first, sworn to by its treasurer or assistant treasurer, or in their absence or incapacity by any other principal officer, in such form as the commis

[G. L. c. 63, § 35 sioner prescribes, giving (a) a copy of such parts as he may designate of the federal return or returns for the year on the income of which the tax is to be assessed, which it has made singly or with one or more other corporations, (b) such other data as he requires to determine the proportion of net income derived from business carried on within the commonwealth, (c) such information as he requires for the determination of the corporate excess. Whenever the time for filing its federal return has been extended, the commissioner may extend the time for filing such return.

The return of a domestic corporation is in effect divided into three parts. It contains (1) a statement of net income taken from the federal return filed by the corporation, with the corrections required to make the return conform to the state statute.1 (2) A statement similar to that required in returns under the earlier law, in order that the commissioner may determine the corporate excess. (3) In the case of corporations doing business in whole or in part in other states or countries, the information required to enable the commissioner to allocate to Massachusetts only that part of the tax to which that commonwealth is entitled under the law.

In preparing the table of assets and liabilities there is no requirement that the two columns balance: that is, if the net assets exceed the par value of the capital stock outstanding the difference need not be entered as surplus, and if the net assets are less than the par value of the capital stock the difference need not be entered as "good will." If good will is entered in excess of its actual value, the only result will be that the corporation will pay more taxes than the law requires.

A corporation is not exonerated from filing a return by reason of the fact that it has received no income during the taxable year. There is ordinarily no difficulty in filing a return of income within the specified time, since the year to which it relates ended three months previously, and a return of income has already been filed with the federal authorities. The statute however in respect to the information required for determining the corporate excess demands what is often impossible, by requiring the filing of a balance sheet as of the first day of April within the first ten days of that month. In cases where an extensive 1G. L. c. 63, §30, cl. 5, supra, page 545.

G. L. c. 63, §§ 35, 36]

inventory must be taken, the time is often too short. While the commissioner appears to have no power to extend the time for filing a return, unless an extension has been granted for filing the federal return, he may exercise the discretion granted him by section forty-nine of abating the penalty for a late return, and this discretion is usually exercised whenever there are reasonable grounds for the delay.

Returns are required to be accompanied by such memoranda, supporting schedules, and other statements as are called for by the forms or by the instruction sheets which are distributed with them.

Prior to 1913 there was no provision in the law that the tax returns of a corporation should not be open to public inspection, and such returns were frequently offered in evidence as an admission by the corporation of the values stated therein, .and were held to be competent for that purpose, although a statement of the value of the capital stock was not competent evidence of the value of the property of the corporation, because the value of the stock is dependent upon other elements. In 1903 it was provided by statute that returns should be open only to the inspection of the commissioner and such other officers of the commonwealth as should have occasion to inspect them for the purpose of assessing or collecting taxes, and it was held that returns filed while that statute was in force could not be introduced in court in any case other than a criminal proceeding directly involving the integrity of the return. In the business corporation tax act of 1919 no provision was included with respect to the privacy of returns, and it would seem that the return of a business corporation filed since 1919 can be used in evidence against the corporation filing it in any case in which it is material.

5

Effect of Correction of Federal Return

SECTION 36. If the assessment made by the federal government is based upon a net income greater or less than the net income returned

2 Brackett v. Commonwealth, 223 Mass. 119, 126 (1916).

Union Glass Co. v. Somerville, 228 Mass. 202 (1917).

*St. 1903, c. 437, §48. This provision was continued in St. 1909, c. 490, III, §40 and St. 1914, c. 198, §6.

Brackett v. Commonwealth, 223 Mass. 119, 126 (1916); Union Glass Co. v. Somerville, 228 Mass. 202 (1917).

[G. L. c. 63, §§ 36, 37 by said corporation, or if an additional assessment is at any time made on the ground that the net income was incorrectly returned in the first instance, or if, after the tax as assessed is paid to the federal government, any part of such tax is refunded, the corporation, within ten days after the receipt of such notice of said fact, shall make return on oath to the commissioner of the amount by which the net income originally returned differs from the net income on which the tax was computed by the federal government upon the latest determination by it of the proper tax, and of the facts giving rise to the difference. If upon such facts an additional tax is due the commonwealth, the commissioner shall assess the additional tax, and the corporation shall, within thirty days after receipt of notice from the commissioner of the amount thereof, pay such additional tax. If upon said facts a less tax is due the commonwealth than that paid by the corporation, the state treasurer shall, upon certification of the commissioner, repay within thirty days such difference without any further statutory appropriation therefor.

Income Allocable in Entirety

SECTION 37. The commissioner shall determine, in the manner provided in this and the following section, the part of the net income of a domestic corporation derived from business carried on within the commonwealth. The following classes of income shall be allocated as follows:

(a) Interest and dividends which would be taxable under section one of chapter sixty-two, if received by an inhabitant of the commonwealth, shall be allocated to this commonwealth.

(b) Gains realized from the sale of capital assets, if such assets consist of intangible property or if they consist of real estate or tangible personal property situated in the commonwealth, shall be allocated to this commonwealth.

(c) Gains received from the sale of capital assets, if such assets consist of real estate or tangible personal property situated outside the commonwealth, shall not be allocated in any part to this commonwealth.

This and the following section set forth the manner in which the legislature has dealt with the difficult problem of allocating to Massachusetts only that part of the income of a domestic corporation to which this commonwealth is fairly entitled. Prob