Massachusetts Court Holds Department of Revenue’s Guidance to Be Unreasonable
Northeastern University, the Trustees of Boston University, Wellesley College and 131 Willow Avenue, LLC prevailed in their appeal of the Massachusetts Department of Revenue’s (the Department) rejection of their Brownfields tax credit applications in Massachusetts Superior Court. 131 Willow Avenue, LLC v. Comm’r of Revenue, 2015 WL 6447310 (2015). The taxpayers argued, and the court agreed, that the Department improperly denied their applications based on the unlawful use of Directive 13-4 issued by the commissioner of revenue (the Commissioner). At issue was the validity of Directive 13-4’s prohibition on nonprofit and transfer Brownfields tax credit applicants from receiving or transferring credits based on documentation submitted in a taxable year that commenced before the effective date of a 2006 amendment expanding the Brownfields tax credit statute to include nonprofit organizations and allow for credit transfers. The court held that the directive was “unreasonable and [the Department’s] denial of the applications based on that directive was unlawful.”
The statutory and regulatory scheme at issue was as follows. The Massachusetts statutes provide that a taxpayer “which commences and diligently pursues an environmental response action on or before August 5, 2018, and who achieves and maintains a permanent solution or remedy operation status . . .” may qualify for a Brownfields tax credit. G.L. c. 62, § 6(j)(1); G.L. c. 63, § 38Q. The Brownfields tax credit program became effective in 1998, and in June 2006, the legislature “expanded the scope of this credit to include nonprofit organizations and indeed, rendered earned credits transferable.” Until 2013, the Department “had approved applications submitted by nonprofit organizations regardless of whether their ‘permanent solution’ or ‘remedy operation’ statuses had been achieved before the 2006 amendment.” In 2013, the Department issued Directive 13-4, which prohibited nonprofit and transfer applicants from receiving or transferring credits based on documentation submitted in a taxable year that commenced before the effective date of the 2006 amendment. Department Directive 13-4 (November 18, 2013). By contrast, the statutes do not place any such time limitation on the grant of Brownfields tax credits to nonprofit and transfer applicants. G.L. c. 62, § 6(j)(1); G.L. c. 63, § 38Q.
The court held that Directive 13-4 was not within the scope of the statute because “the language of both [relevant statutes] is unambiguous” and “[n]o time limitation is explicitly or implicitly apparent.” The court determined that “the directive is unreasonable because the legislature left no room for interpretation in either” statute.
The court noted the Department’s switch in position stating that the “new restrictions directly contravene the plain language of the statute and indeed, [the Department’s] own seven years’history of its interpretation.” The court continued: “[The Directive] appears to be nothing more than a naked, confiscatory attempt by a state administrative agency to appropriate private property to fill government coffers.”
This case demonstrates an example of challenging a tax issue outside of the Appellate Tax Board. This case was brought in the Superior Court because an appeal from the denial of a Brownfields application by the Department is not specifically enumerated within the statutory jurisdiction granted to the Appellate Tax Board under the provisions of G.L. c. 58A, § 6. SeeAdministrative Procedure 636: Appeal Process for Denial or Partial Denial of Applications for Massachusetts Brownfields Tax Credit. Taxpayers with tax issues that may not be appealed to the Appellate Tax Board should consider suits in Superior Court.