Massachusetts Electric Company v. Commissioner of Revenue

Appellate Tax Board Docket No. C310170 (February 24, 2016)  

The Appellant, Massachusetts Electric Company (“MEC”), was a Massachusetts public utility company that was subject to the tax imposed on utility corporations by G.L. c. 63, § 52A. In 2008, following a severe ice storm, certain parts of Massachusetts were declared federal disaster areas.  As a result, MEC suffered a loss to its electric transmission and distribution property which was deductible as a disaster loss under § 165 of the Internal Revenue Code.  Under I.R.C. § 165, a disaster loss may be deducted for federal purposes in the taxable year in which it occurs or the taxpayer may elect to take the deduction “for the tax year immediately preceding the taxable year in which the disaster occurred.” I.R.C. § 165(i)(1).  At the state level, § 52A defines net income as: “…the gross income from all sources . . . less the deductions, but not credits, allowable under the provisions of the Federal Internal Revenue Code... Deductions with respect to … losses sustained in other taxable years… shall not be allowed”. 

The issue presented was whether MEC was entitled to a deduction for the disaster loss for taxable year 2007, even though the loss occurred in taxable year 2008.  MEC argued that the language referencing “losses sustained in other taxable years”, disallowed by § 52A(b)(ii), did not include disaster losses allowed by I.R.C. § 165. Alternatively, MEC urged the Board to respect the fiction created by § 165 that the loss was deemed to have occurred in the previous year and therefor was “sustained” in 2007 for purposes of § 52A. 

The Appellate Tax Board rejected both arguments based on the express language of the statute. While § 52A generally incorporated deductions allowable under the provisions of the Code, it specifically excluded “losses sustained in other taxable years”. 

Moreover, because there were no restrictions or qualifiers placed on the word “losses”,  the Board concluded that the state legislature clearly intended to exclude all types of losses sustained in other tax years, including disaster losses under I.R.C. § 165.  When the language of a statute is clear and unambiguous, it is conclusive as to legislative intent and must be followed. Pyle v. School Commission, 423 Mass. 283, 285 (1996)(citing Allen v. Commissioner of Corps. & Taxation, 272 Mass. 502, 508 (1930). 

The precedential impact of this decision is minimal because the Massachusetts public utility tax was repealed for tax years beginning on or after January 1, 2014.  Entities that formerly were subject to the excise under G.L. c. 63, § 52A are now subject to a corporate excise under G.L. c. 63, § 39, the corporate excise imposed on business corporations, and may carry forward post-2013 net operating losses incurred as a business corporation.  However, the case does contain a good discussion of instances where a fiction created under federal tax law may be recognized for Massachusetts purposes. 

While the substantive decision of the MEC appeal may no longer have a broad impact on taxpayers, there are two points from the opinion worth noting.  First, the case illustrates the deference accorded by the Appellate Tax Board, and Massachusetts courts in general, to the language of a particular statute.  State tax cases routinely involve questions of statutory construction or interpretation.  In these cases, more often than not, Massachusetts courts will look no further than the language of the statute in determining legislative intent.  As noted in the cases cited in the decision, courts must follow the language of statute “when its language is plain and unambiguous, and its application would not lead to an absurd result, or contravene the Legislature's clear intent”.  Commissioner of Revenue v. Cargill, Inc., 429 Mass. 79, 82 (1999). 

Second, in order to expedite the appeal process, the Appellate Tax Board encourages parties to narrow the number of contested legal and factual issues whenever possible.  If the parties can agree that there are no material facts in dispute, an appeal can be submitted to the Board for disposition by summary judgment.  From an economic and strategic standpoint, summary judgment can be the best option in many tax appeals.  The Massachusetts Rules of Civil Procedure, including Rule 56 which governs summary judgment, do not directly apply to proceedings before the Board.  However, Rule 22 of the Board’s Rules of Practice and Procedure provides that “[i]ssues sufficient in themselves to determine the decision of the Board or to narrow the scope of the hearing may be separately heard and disposed of in the discretion of the Board.”  The Board treats motions brought under Rule 22 as motions for summary judgment and will look to Rule 56 for guidance when there is no genuine issue of material fact and a party is entitled to judgment as a matter of law.