Massachusetts Supreme Judicial Court Finds In Favor of VAS Holdings Based on Argument Raised in Amicus Brief Filed on Behalf of ACTC
Boston, MA - On May 16, 2022, the Massachusetts Supreme Judicial Court (“SJC”) issued its decision in the highly anticipated tax case VAS Holdings & Investments LLC v. Commissioner of Revenue, SJC-13139. At issue was whether Massachusetts was permitted to tax a nondomiciliary corporation on capital gain from the sale of an investment interest in an LLC that operated in Massachusetts, even though there was no unitary relationship between the taxpayer and the business in which it had invested. Basing its decision on issues first raised in an amicus brief drafted and filed by Sullivan attorneys on behalf of the American College of Tax Counsel (“ACTC”), the SJC wrote “we conclude that the commissioner lacked the requisite statutory authority and reverse the decision of the board.”
Richard Jones, Caroline Kupiec and David Nagle wrote the influential brief in collaboration with ACTC tax lawyers. The full brief can be found here.
The parties to the case, VAS Holdings & Investments LLC (“VASHI”) and the Commissioner of Revenue (“Commissioner”) focused their arguments on the constitutionality of the tax—specifically, whether the absence of a unitary relationship means that the tax failed to satisfy the Due Process Clause and Commerce Clause’s requirement that there be a sufficient connection between the taxpayer’s income and the taxing state.
The question of whether Massachusetts had the statutory authority to impose the tax was raised in the ACTC’s amicus brief, which argued that regardless of constitutionality, the imposition of the tax was not authorized by any Massachusetts tax statute or regulation because those authorities explicitly adhere to the unitary business principle and do not adopt any alternative measure based solely on the investee’s presence. The SJC agreed and adopted this argument as the basis for its decision. The SJC found that Massachusetts’ “statutes establish that the Legislature has chosen to adhere to the unitary business principle in formulating its taxing policy” and “[r]egulations promulgated in conformity with these statutes similarly reflect an adherence to the unitary business principle.” Thus, the SJC concluded that Massachusetts lacked the requisite statutory authority to impose the tax, rendering the assessment invalid.
The SJC also stated that if Massachusetts law had authorized the tax, it would have been constitutionally permissible.
The full SJC decision can be found here.
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