The Massachusetts Appellate Tax Board (“ATB”) has once again issued a Findings of Fact and Report upholding a Department assessment on the basis that a taxpayer’s intercompany obligations under a cash management system were not bona fide debt. The most recent decision, issued September 4, 2015, is Staples, Inc. and Staples Contract and Commercial, Inc. v Commissioner.1 As with other recent true debt cases, a Department audit resulted in two related assessment issues: (1) a denial of an interest deduction for interest obligations accruing under the cash management system for purposes of the income measure of the corporate excise tax; and (2) the elimination of the liability under the cash management system, resulting in an increase in net worth for purposes of the non-income measure of the corporate excise tax.

Importantly, the ATB’s decision to uphold the assessment for purposes of the non-income measure of the corporate excise means that the “true debt” issue continues to be relevant for companies with cash management systems (and other intercompany obligations), even for years after combined reporting was adopted in Massachusetts.

For more details regarding the Staples case, Legislative efforts to correct this issue, and additional analysis, see our prior quarterly update.