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Massachusetts Court Holds Department of Revenue’s Guidance to Be Unreasonable

Northeastern University, the Trustees of Boston University, Wellesley College and 131 Willow Avenue, LLC prevailed in their appeal of the Massachusetts Department of Revenue’s (the Department) rejection of their Brownfields tax credit applications in Massachusetts Superior Court. 131 Willow Avenue, LLC v. Comm’r of Revenue, 2015 WL 6447310 (2015). The taxpayers argued, and the court agreed, that the Department improperly denied their applications based on the unlawful use of Directive 13-4 issued by the commissioner of revenue (the Commissioner). At issue was the validity of Directive 13-4’s prohibition on nonprofit and transfer Brownfields tax credit applicants from receiving or transferring credits based on documentation submitted in a taxable year that commenced before the effective date of a 2006 amendment expanding the Brownfields tax credit statute to include nonprofit organizations and allow for credit transfers. The court held that the directive was “unreasonable and [the Department’s] denial of the applications based on that directive was unlawful.” (more…)




A Year’s Review of Massachusetts Tax Cases

Allied Domecq Spirits & Wines USA, Inc. v. Comm’r of Revenue, 85 Mass. App. Ct. 1125 (2014)

In a unique case, the Massachusetts Appeals Court affirmed a ruling of the Appellate Tax Board (ATB) that two corporations could not be combined for corporation excise tax purposes for 1996 through 2004. The distinctive aspect of this case was that a company was found not to have nexus with Massachusetts even though it rented property in the state and had employees in the state. If the company had been found to have nexus, it could have applied its losses to offset the income of an affiliated Massachusetts taxpayer in a combined report. The Appeals Court pointed to factual findings of the ATB that the transfer of employees located in Massachusetts to the company “had no practical economic effect other than the creation of a tax benefit and that tax avoidance was its motivating factor and only purpose.” The Massachusetts Supreme Judicial Court denied the taxpayer further review on August 1, 2014. Although this case is notable because the sham transaction doctrine rarely, if ever, has been applied to find that a company did not have nexus, a similar factual scenario likely would not occur today because Massachusetts adopted full unitary combination in 2009.

First Marblehead Corp. v. Comm’r of Revenue, 470 Mass. 497, 23 N.E.3d 892 (2015)

In a case that attracted the attention of, and an amicus brief from, the Multistate Tax Commission, the Supreme Judicial Court addressed how the property factor of a taxpayer subject to the Financial Institution Excise Tax (FIET) should be apportioned. The taxpayer, Gate Holdings, Inc. (Gate), had its commercial domicile in Massachusetts and held interests in a number of Delaware statutory trusts that purchased student loan portfolios. Below, the ATB held that Gate’s loans should be assigned to Massachusetts, resulting in a 100-percent property factor for apportionment purposes. The Supreme Judicial Court agreed and interpreted the Massachusetts sourcing provisions at issue, which are based on a model from the Multistate Tax Commission and incorporate the Solicitation, Investigation, Negotiation, Approval and Administration (SINAA) rules, as sourcing Gate’s loans to Massachusetts where Gates had its commercial domicile. The Supreme Judicial Court’s decision may be of interest in Massachusetts and other states because several states have adopted sourcing rules for financial institutions that are based on the Multistate Tax Commission’s model.

Genentech, Inc. v. Comm’r of Revenue, Mass. App. Tax Bd., Docket No. C282905, C293424, C298502, C298891 (2014)

The ATB held that Genentech, Inc., a biotechnology company, was engaged in substantial manufacturing and thus required to use single sales factor apportionment. Genentech is appealing the ruling.

National Grid Holdings, Inc. v. Comm’r of Revenue, Mass. App. Tax Bd., Docket No.  C292287; C292288; C292289 (2014); National Grid USA Service v. Comm’r of Revenue, Mass. App. Tax Bd., Docket No. C314926 (2014)

The ATB addressed whether an international utility corporation’s deferred subscription arrangements constituted debt for corporate excise purposes. The ATB held that it did not. In reaching its decision, [...]

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