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Significant Massachusetts Tax Developments Over the Last Year

Posted on Aug. 10, 2020
Philip S. Olsen
Philip S. Olsen

Philip S. Olsen is a tax attorney at the Boston law firm of Davis Malm, where he focuses on state and local tax consulting and litigation. He has over 25 years’ experience litigating and resolving major tax controversies before courts and administrative boards. He can be contacted at

In this article, Olsen reviews recent Massachusetts tax developments regarding COVID-19, corporate excise taxation, sales and use taxation, and personal income taxation.


The natural inclination in the current environment is to hunker down, do the best you can, and hope for better times. State revenue departments, tax tribunals, and courts soldier on as bleak revenue projections harbinger increased activity on the state and local tax fronts. We are experiencing the calm before the storm.

In Massachusetts, while there has been no recent litigation activity, and work-at-home orders have mostly remained in place, the Department of Revenue and the Appellate Tax Board (ATB) have continued to issue decisions, rulings, and tax releases addressing several interesting state tax issues. Following are significant Massachusetts tax developments that have occurred over the last year.


The DOR has promulgated several administrative releases on the COVID-19 front. Technical Information Releases 20-2, 20-5, and 20-7 provide penalty relief for late return filing and payment. Technical Information Release 20-9 explains the impact of selected provisions of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) on Massachusetts individual and corporate tax laws.

Also, the DOR promulgated an emergency regulation that sets forth the sourcing rules for income earned by a nonresident employee who telecommutes for an in-state business from a location outside the state because of the COVID-19 state of emergency in Massachusetts.

Many businesses have implemented mandatory telecommuting requirements for their employees. Under M.G.L. c. 62, section 5A(a), income of a nonresident derived from a trade or business, including employment, carried on in the commonwealth is sourced to Massachusetts. Under the emergency rule, all compensation received for personal services performed by a nonresident who, before the Massachusetts COVID-19 state of emergency was an employee engaged in performing services in Massachusetts, and who, during the emergency is performing services from a location outside Massachusetts due solely to the Massachusetts COVID-19 state of emergency, will continue to be treated as Massachusetts-source income subject to personal income tax. Noting that other states have adopted similar sourcing rules, a resident employee suddenly working in Massachusetts because of the COVID-19 pandemic who continues to incur an income tax liability in another state because of that state’s sourcing rule will be eligible for a credit for taxes paid to that other state under M.G.L. c. 62, section 6(a).1

Corporate Excise Tax Litigation

In SynQor Inc., the ATB held that some proceeds received by SynQor because of litigation in Texas were properly attributable to Massachusetts for sales apportionment purposes. SynQor initiated litigation against several defendants for unauthorized use of its patents and was awarded lost profits, royalties, and other damages.

During the years at issue, the DOR’s apportionment regulation provided that “gross receipts from the enforcement of legal rights by taxpayers domiciled in Massachusetts are presumed to be attributable to Massachusetts regardless of the forum through which a claim may be pursued.”

SynQor was headquartered in Massachusetts. The ATB ruled that the receipts at issue constituted gross receipts from the enforcement of legal rights and were therefore presumed to be attributable to Massachusetts based on SynQor’s commercial domicile. The decision of the ATB has been appealed.

The regulation at issue was amended in 2014, so it has little precedential value. But the case illustrates court deference to the commissioner of revenue’s regulations and discusses regulatory presumptions and what taxpayers must do to rebut a presumption.2

Although the case of Board of Assessors of Boston v. Commissioner of Revenue and Veolia Energy Boston is a local property tax case, it addresses whether a corporation is considered a manufacturer, which has corporate excise implications. The taxpayer owned and operated a district energy system network in Boston providing steam to over 250 commercial, healthcare, government, institutional, and hospital customers. Veolia had been formally classified as a manufacturing corporation by the commissioner since 1989, rendering much of Veolia’s personal property exempt from local property tax. Boston, unhappy with losing revenue, challenged Veolia’s classification, arguing that Veolia’s production of steam did not constitute manufacturing under the statute and regulation.3

The ATB determined that Veolia’s activities of transforming raw water, fuel, and chemicals into usable thermal energy in the form of steam constituted manufacturing because they involved a series of complex physical and chemical processes. Boston filed a notice of appeal but, thereafter, voluntarily dismissed it.4

Next up, the case of VAS Holdings and Investments bears watching because it offers the ATB a rare opportunity to decide whether affiliated corporations are unitary. Massachusetts has been a unitary taxation state since 2009, but cases involving unitary issues have been few and far between.

VAS Holdings and Investments LLC realized a gain on the disposition of its 50 percent interest in Cloud 5 LLC in 2013. The taxpayers argued that they were not taxable in Massachusetts on the gain from the sale because VAS and Cloud 5 were not unitary under either the “three hallmarks” test (economies of scale, centralization of management, and functional integration) or the “operational function” test (whether the asset sold was used in operating the business or was merely an investment). The commissioner argued that the Massachusetts taxes were constitutional because the apportionment was based solely on Cloud 5’s payroll and property. Thus, a unitary relationship was not required. Alternatively, the commissioner claimed that VAS and Cloud 5 were unitary because VAS was entirely passive and derived all its income from Cloud 5. On April 29, 2019, the ATB issued a decision in favor of the commissioner. Both parties requested that the ATB issue findings of fact and a report explaining its decision.5

Corporate Excise Administrative Matters

The DOR revised its net operating loss regulation to reflect statutory and other changes since the regulation was promulgated in 1993. The updates extend the carryforward period from five years to 20 years. The start-up corporation NOL deduction has been rendered obsolete, and references to that method are largely eliminated. Finally, the new regulation simplifies the carryforward calculation for losses applicable to corporations that have periods when they are not subject to Massachusetts taxation.6

Next, the DOR issued guidance on applying IRC section 163(j) interest expense limitations. The federal Tax Cuts and Jobs Act amended section 163(j) to limit the deductibility of net business interest expense to 30 percent of a taxpayer’s adjusted taxable income. The release states that Massachusetts will generally follow the federal limit on the deductibility of interest expense with modifications. It further explains general calculation rules for the business interest expense limitation, applicability of the business interest expense limitation to members of a Massachusetts combined group, the carryforward of business interest expense, and the interaction of other Massachusetts limitations with the business interest expense limitation.7

Sales and Use Tax Litigation

On February 5 the Supreme Judicial Court affirmed the ATB’s decision for the commissioner in the Citrix Systems sales tax case. In Massachusetts, custom software is generally exempt from sales tax while standardized software is generally taxable.

At the trial level, the ATB held that Citrix’s online products constituted standardized software, and the transfers of rights to use the software installed on a remote server were taxable transfers. The ATB further found that the sales at issue were of tangible personal property and not services.

The court affirmed the ATB’s determination that Citrix’s sales of online software offerings represented the taxable sale of prewritten computer software in accordance with M.G.L. c. 64H section 1. The court rejected Citrix’s argument that its subscription fees were not taxable transfers of property because customer transactions did not involve the transfer of software title or possession and, therefore, its charges were for nontaxable services.8

Next, New Cingular Wireless is one of several actions filed in various states following a class action settlement seeking refunds of sales tax wrongfully collected on data charges in violation of state tax laws and the Internet Tax Freedom Act (ITFA). On June 21, 2018, the ATB issued a decision in favor of New Cingular Wireless (NCW) concluding that the data charges were subject to Massachusetts sales and use tax as telecommunications services, but that the ITFA prohibited Massachusetts from subjecting the charges to tax. Specifically, the ATB found the charges were for internet access and that NCW had complied with the accounting rule provision of the ITFA; and NCW complied with the screening software provision of the ITFA.

The commissioner appealed the decision and the appeals court heard oral arguments September 16, 2019. The commissioner’s argument focused primarily on the screening software issue. Internet access providers are required “at the time of entering into an agreement with a customer” to offer “screening software that is designed to permit the customer to limit access to material on the Internet that is harmful to minors.” Internet access providers who fail to meet this requirement are ineligible to claim the protection of the ITFA, and data charges are then subject to tax. The ATB had held that it was not fatal to NCW’s compliance with the ITFA screening software provision that the screening features were not compatible with all devices sold by NCW.9

Sales Tax Administrative Matters

Effective October 1, 2019, remote retailers and marketplace facilitators having or facilitating more than $100,000 of sales in Massachusetts in the prior or current tax year are subject to sales tax registration, collection, and remittance requirements. A marketplace facilitator is “a person that contracts with a marketplace seller to facilitate sales of tangible personal property or services on behalf of the marketplace seller through a marketplace operated by such person.” The DOR’s regulation explains the new requirements and provides examples demonstrating the application of the new requirements for both marketplace facilitators and remote sellers.10

Personal Income Tax Litigation

In Pogorelc v. Commissioner of Revenue, the Massachusetts Appeals Court applied the “duty of consistency” doctrine for the first time. Although not previously applied in Massachusetts law, the duty of consistency is well established in federal tax law.

On his 2007 Massachusetts personal income tax return, David Pogorelc deducted losses realized upon the disposition of an interest in a disregarded LLC. In 2011 he reported gains realized upon the subsequent sale of the principal asset held by the LLC. Pogorelc argued that he should not have realized a loss in 2007 because this transaction was a merely “fictional” sale under Rev. Rul. 99-5.

The appeals court affirmed the ATB’s finding that Pogorelc properly treated the 2007 transaction as a deemed sale of assets and properly realized a capital gain on the 2011 transaction. However, the court went beyond the ATB’s rationale and stated that Pogorelc was estopped from raising his challenge by the duty of consistency. This duty prevents a taxpayer who has already benefited from taking a position on a tax issue from later taking an inconsistent position on the same issue to further his benefit. It arises when:

  • the taxpayer made a representation for tax purposes in one year;

  • the commissioner has acquiesced to or relied on that representation for that year; and

  • after the statute of limitations bars correction of that representation, the taxpayer attempts to recharacterize the situation in such a way that harms the commissioner.11

In Paul Lowry v. Commissioner of Revenue, the ATB held that the Texas margin tax (TMT) paid by a partnership for the taxpayer did not qualify for the credit under M.G.L. c. 62, section 6(a), for taxes paid to other jurisdictions “on account of any item of Massachusetts gross income.”12 The ATB ruled that the Texas tax was imposed on an approximation of the value of the right to do business in Texas, and the fact that it was based on items included in gross income for federal and Massachusetts tax purposes did not change its character.


Regardless of the challenging times, tax administration and enforcement will continue to move forward. The DOR has several administrative projects in the works. Items under review include business interest expense limitations, the economic development incentive program, the Brownfields tax credit, and an update to the computer services and products regulation. On the litigation front, the state appeals court is considering how sales tax on software used in multiple locations may be apportioned while the ATB will soon issue a decision addressing the types of activities a corporation must undertake to be entitled to classification as a manufacturing corporation.


1 830 Mass. Code Regs. 62.5A.3 (Emergency): Massachusetts Source Income of Non-Residents Telecommuting due to COVID-19 (July 21, 2020).

2 SynQor Inc. v. Commissioner of Revenue, No. C331460 (Mass. App. Tax Bd. Oct. 2, 2019).

3 830 Mass. Code Regs. 58.2.1(6).

4 Board of Assessors of the City of Boston v. Commissioner of Revenue, Veolia Energy Boston Inc., Intervenor, No. C331142 (Mass. App. Tax Bd. May 30, 2019).

5 VAS Holdings and Investments LLC v. Commissioner of Revenue, Nos. C332269 and C332270 (Mass. App. Tax Bd. Apr. 29, 2019).

6 830 Mass. Code Regs. 63.30.2: Net Operating Loss Deductions and Carryforward (Mar. 20, 2020).

7 Massachusetts DOR, Technical Information Release 19-17, “Application of IRC Section 163(j) Interest Expense Limitation to Corporate Taxpayers” (Dec. 18, 2019).

8 Citrix Systems Inc. v. Commissioner of Revenue, 484 Mass. 87 (2020), Docket Nos. C321160 and C325421 (Mass. App. Tax Bd. Nov. 2, 2018).

9 New Cingular Wireless PCS LLC v. Commissioner of Revenue, Docket No. 2018-P-1317, No. C321816 (Mass. App. Tax Bd. June 21, 2018).

10 830 Mass. Code Regs. 64H.1.9: Remote Retailers and Marketplace Facilitators (Dec. 13, 2019).

11 Pogorelc v. Commissioner of Revenue, No. 2019-P-0141 (Mass. Ct. App. July 15, 2020), Docket No. C328710 (Mass. App. Tax Bd. Oct. 4, 2018).

12 Lowry v. Commissioner of Revenue, No. C330919 (Mass. App. Tax Bd. May 5, 2020).


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