The Reed Smith State Tax Group’s Massachusetts tax practice has extensive experience in corporate excise tax and sales tax matters and represents clients in tax planning, audits, refund claims, mediation, and appeals before the Office of Appeals and Appellate Tax Board. Our clients include leading firms in the financial, telecommunications, computer services, and pharmaceutical industries. We regularly assist clients is resolving complex issues involving apportionment, nonapportionable income, debt classification, and combined reporting.
Our commitment to obtaining the best results for clients includes exploring alternative, proactive means of resolving issues, with the Massachusetts Department of Revenue (the Department), including voluntary disclosure and the Department's early mediation program, as well as providing clients with insights on cutting-edge issues derived from our growing database of unpublished documents.
Here are some of the Massachusetts issues and opportunities that we have recently worked on for our clients:
Corporate Excise Tax
- Taxpayers with otherwise closed tax years can make adjustments to those years that can increase net operating losses and credits available for carryforward into later years. We obtained several million dollars in relief for a Fortune 500 technology company by applying the Department’s published apportionment position to increase available net operating losses and recalculating research and investment tax credits. Contact us about conducting an analysis of your net operating loss and credit carryforwards.
- The Department often takes the position that indebtedness to affiliates is not “true debt,” resulting in an increase in net worth for corporate excise tax purposes. We have represented taxpayers in appeals involving intercompany indebtedness, and have experience building a record to demonstrate that intercompany obligations are, in fact, “true debt.”
- Financial institutions that purchase loans may be entitled to source all such loans outside Massachusetts for apportionment purposes, including, in some circumstances, loans where the borrower or security is located in Massachusetts.
- Corporations classified as financial institutions are not subject to the net worth-based component of the corporate excise tax and apportion net income using an industry-specific formula. Corporations that have "captive" finance companies in their affiliated group may qualify as financial institutions, potentially resulting in substantial tax savings. We have obtained significant settlements on this issue several taxpayers.
- Holders of REMIC residual interests with excess inclusion income should be able to exclude such income when computing net income for Massachusetts corporate excise tax purposes. We recently obtained a significant settlement on this issue at the Appellate Tax Board for a major financial institution.
- Goodwill resulting from “pushed-down” purchase accounting adjustments should be excluded from net worth for corporate excise tax purposes. We recently obtained refunds for a Fortune 500 manufacturer on this issue.
- Under Massachusetts statute, receipts from services are sourced to the location where the service is delivered. Notwithstanding the statutory rule, under the Department's regulations, certain categories of receipts, including brokerage receipts and receipts from professional services, are sourced to the customer location, even when the service is delivered elsewhere. Taxpayers sourcing receipts to the customer location may be entitled to refunds.
- Massachusetts has a “throwout” rule for receipts from sales of services in states where the taxpayer is not “subject to tax.” Under Massachusetts’ expansive nexus rules, most taxpayers are subject to tax in all states in which they make sales. Thus, taxpayers that have applied the throwout rule may be entitled to refunds.
- Taxpayers classified as manufacturing corporations are entitled to use a single-sales factor apportionment formula and claim investment tax credits for investments in capital assets located in Massachusetts. These benefits can be substantial for corporations with offices, plants or other operations in Massachusetts. The Department of Revenue generally takes an expansive view of what constitutes manufacturing. Corporations that use contract manufacturers to produce the products that they design, as well as corporations that act as “captive” distribution companies for affiliated manufacturers can qualify as manufacturing corporations.
- The Department often disregards the separate existence of captive insurance companies and, on audit, includes the income of such insurance companies in the combined corporate excise tax calculation of the affiliated business corporations. If the captive insurer qualifies as an insurance company for federal income tax purposes these adjustments are contrary to Massachusetts law. We have successfully challenged these adjustments for multiple clients.
- Multistate businesses that paid Massachusetts sales tax on software purchases may be entitled to a refund on the portion of the purchase price attributable to usage outside of Massachusetts. We can work with your vendors to obtain these refunds.
Alternative Dispute Resolution
- Our focus is on achieving the best results for our clients in an efficient and low-profile manner. In some cases, that requires considering options outside the traditional administrative and judicial appeal processes.
- We have represented multiple Fortune 500 companies in successfully resolving multimillion dollar corporate excise tax issues through the Department’s pre-assessment mediation program. In each case, the company obtained the desired result, while avoiding the publicity and cost of extended litigation.
- The Department operates a voluntary disclosure program specifically aimed at resolving uncertain tax issues in an expedited manner, prior to audit. We have assisted clients in navigating this program, allowing them to release reserves booked under ASC 740.
Massachusetts State Tax Intelligence
Our team devotes significant resources to develop and maintain a Massachusetts unpublished document database – giving us an inside look at the Department’s audit policies, implementation of new tax legislation, and other regulatory developments, as well as cutting-edge issues raised in cases pending at the Appellate Tax Board. With this information, we help our clients identify new issues, plan around tax traps, and take advantage of hidden opportunities to minimize their taxable exposure.