Sullivan Files Amicus Brief with MA Supreme Judicial Court on Behalf of the American College of Tax Counsel

Press Release
January 18, 2022

Boston, MA - Sullivan was pleased to file an amicus curiae brief on behalf of the American College of Tax Counsel (ACTC) in VAS Holdings and Investments LLC (VASHI) v. Commissioner of Revenue, pending before the Massachusetts Supreme Judicial Court. The important and closely-watched case raises fundamental questions concerning the constitutional limitations on states’ abilities to tax out-of-state corporations’ capital gains. 

"The lower court in this case upheld Massachusetts’ tax of an out-of-state entity that had no connection with Massachusetts, other than owning a passive investment interest in an in-state business,” said Rich Jones, leader of Sullivan's Tax Practice. “If allowed to stand, the opinion would upset well-established constitutional principles and could lead to chaos, where even small individual stock market investors could end up owing tax in every state.”

The brief was written by Jones, Caroline Kupiec and David Nagle, in collaboration with several ACTC tax lawyers. The full text of the brief can be found here


At issue in the case is whether Massachusetts can tax VASHI, a nondomiciliary S corporation, on 100% of the capital gain it realized upon selling its member interest in a Massachusetts-based LLC absent a unitary business relationship between VASHI and the LLC and where VASHI conducted no activities in Massachusetts. The Massachusetts Commissioner of Revenue (Commissioner) claimed that the investee-LLC’s connections to the Commonwealth afforded Massachusetts the constitutional right to apportion 100% of VASHI’s capital gains to Massachusetts under an "investee apportionment" methodology. The taxpayer countered that Massachusetts could not tax VASHI’s capital gain absent a unitary business relationship between VASHI and the Massachusetts-based LLC, as VASHI had no other connections with the Commonwealth. In 2019, the Appellate Tax Board (ATB) agreed with the Commissioner and upheld the assessment, finding VASHI’s “almost singular focus on the unitary business principal . . . too narrow."

Brief Overview

Our brief asserts that the ATB’s holding runs counter to long-standing Supreme Court jurisprudence limiting the states’ abilities to tax extraterritorial values. That precedent establishes that the Due Process and Commerce Clauses preclude a state from taxing the capital gain that a nondomiciliary investor realizes upon its sale of a business interest absent relation to a unitary business that the taxpayer-investor conducts within and without the taxing state. 

Additionally, the brief points out that even if "investee apportionment" were constitutionally permissible, it is still not authorized under Massachusetts law. Rather, Massachusetts’ statutes, regulations, and other guidance adhere to the unitary business principle as the linchpin of apportionability.

From a policy perspective, the brief cautions that if "investee apportionment" were sanctioned and adopted, it "would expose Massachusetts business and resident to other states’ taxes when investing in our-of-state companies. For example, if a Massachusetts business or resident invests in General Motors stock, then pursuant to the investee apportionment methodology, gain upon the sale of that stock would be taxable by Michigan, or perhaps any other state in which General Motors does business, even if the seller never engaged in any activities outside of Massachusetts."

Oral argument was held on January 5, 2022.

Richard Jones, Caroline Kupiec, and David Nagle represent ACTC. 

About the American College of Tax Counsel
The American College of Tax Counsel is a nonprofit association of tax attorneys in private practice, in law school teaching positions, and in government, who are recognized for their excellence in tax practice and for their substantial contributions and commitment to the legal profession. One of the chief purposes of the College is to provide a mechanism for input by tax attorneys into the development of U.S. tax laws and policy. 

About Sullivan
Sullivan & Worcester (Sullivan) is a leading AmLaw 200 law firm with over 200 attorneys in Boston, London, New York, Tel Aviv and Washington, DC. Sullivan’s clients, including Fortune 500 companies and emerging businesses, rely on Sullivan’s strategic vision, comfort with complexity and intense focus on results. As a global law firm, Sullivan’s reach extends beyond the United States. Sullivan has represented clients around the world and has a deep bench for working on a variety of matters and issues affecting clients globally.

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