Section Review

Summary of recent developments in tax law cases

This article appeared in the July 1999 issue of the Section Review.
© 1999 Massachusetts Bar Association Tonya S. Jamesis an associate at the Newton firm of Vacovec, Mayotte & Singer. Jan. 13, 1998 John R. Maclean v. Commissioner, ATB Docket No. 205309(sales and use tax, responsible person) The Appellate Tax Board held that a corporate bookkeeper that temporarily assumed the position of treasurer was not a responsible person under a duty to collect and pay over Massachusetts sales and use tax, and therefore, was not personally liable for the tax.

Feb. 6, 1998 John L. and Anne L. Sick v. Board of Assessors of Essex,ATB Docket No. F233099 (property tax) The taxpayers were denied an abatement ofproperty tax with regard to the taxpayer's restrictive leasehold interestin government-owned land. The ATB held that it was proper to value the landwithout consideration of the restrictive leasehold interest. The plain meaningof the statute required that the leasehold be valued as if the taxpayers wereowners in fee.
Feb. 11, 1998 Spectron, Inc. v. Commissioner, ATB Docket No. F214939(use tax, manufacturing) The ATB held that the taxpayer was not subject to usetax with regard to the materials, tools and machinery used by the taxpayer tomanufacture eyeglasses in its retail stores because the laboratory area wasphysically separated and distinct from the retail space.
March 27, 1998 First Main Street Corporation v. Board of Assessors of theTown of Acton, ATB Docket No. 228670 (property tax, condo, common area) The ATBheld that a developer's retained interest in two parcels of land thatwere part of the common area of a condo were not subject to real estate taxbecause common areas cannot be taxed separately from the condo units.
April 28, 1998 Boston Towing and Transportation Co. v. Commissioner, ATBDocket Nos. F205073 and 169622 (use tax, tugboats and barges, 14th Amendment)The ATB ruled that the boats in question were subject to the Massachusetts usetax where they were purchased for use, and were so used, in Massachusettscoastal waters. Although the taxpayers argued that the imposition of the taxwas a violation of the 14th Amendment, the ATB determined that the Constitutiondid not prevent the imposition of the use tax in the circumstances at hand.
April 29, 1998 Chatham Bars Inn, Inc. v. Commissioner, ATB Docket No.F225093 (sales tax, tips, service charge) The ATB ruled that the service chargeadded to customer sales was not part of the sales price of customer meals, andthus not subject to the sales tax. To exclude a service charge from the salesprice of a meal, the restaurant must (1) segregate the funds and (2) distributethe service charge to the employees almost immediately.
May 22, 1998 The Prudential Life Insurance Co. of America v.Commissioner, ATB Docket Nos. 207067-68; (corporate excise tax, Notice ofAssessment) The ATB ruled that Prudential had incorrectly calculated itsretaliatory tax on foreign life insurance companies. The ATB found thatPrudential's error constituted a mathematical, clerical or other obviouserror on the face of the taxpayer's tax return, and thus, theCommissioner could assess a deficiency without first issuing a Notice ofIntention to Assess.
May 12, 1998 Surel International, Inc. v. Commissioner, ATB Docket Nos.199059-60 (corporate excise tax, sales) Surel was a Domestic InternationalSales Corporation pursuant to Section 992 of the IRC. In determining whethergross commissions from receipts should be regarded as Massachusetts sales,Section 38(f) requires a comparison of costs of performance of income-producingactivities between those incurred in Massachusetts and those incurred in anyother state, and not a comparison of costs incurred in Massachusetts and thoseincurred in all other states combined.
May 27, 1998 Harold and Evelyn Indursky v. Commissioner, ATB DocketNos. 216279-81 (income tax, nonresident taxpayer, interest) The ATB ruled thatinterest income from a note secured by a mortgage on Massachusetts real estatewas not taxable to a nonresident as derived from or effectively connected withthe ownership of an interest in real property.
May 20, 1998 Lester Katz v. Commissioner, ATB Docket No. 173542 (incometax, nonresident taxpayer, partnership income) The ATB ruled that thetaxpayer's share of partnership gain from the sale of Massachusetts realestate was Massachusetts source income.
June 22, 1998 Galo Palma v. Commissioner, ATB Docket No. F224010 (salestax, fabrication, repair) The ATB ruled that the separately stated laborcharges for repairs made to the interior and exterior of vehicles were not partof the sales price and were not subject to sales tax. At issue was whetherthese repairs constituted reupholstering of furniture, and thus subject to thesales tax. The ATB determined that the application of replacement material toan existing automobile was a repair and not subject to the sales tax.
June 30, 1998 Our Lady of Mt. Carmel Church v. Commissioner, ATB DocketNo. F245447 (sales tax, nonprofit organization, fund-raising) The ATB ruledthat a nonprofit religious organization was not subject to the sales tax withregard to two fund-raising events where meals were sold. The ATB found that thesales of the meals were casual and isolated sales by a vendor not regularlyengaged in the business of making retail sales.
June 30, 1998 Spirit of Yankee, Inc. v. Commissioner, ATB Docket No.239125 (use tax, boat) The ATB ruled that a boat was actually purchased fromits builder when the buyer purchased a third party's construction rightsto an existing hull. The ATB determined buyer purchased a "timeslot" from the third party and that the taxpayer had actually purchasedthe boat from the builder, and thus, the sale was subject to the use taxexception found in G.L. c. 64H, § 6(o).
June 30, 1998 Charles J. Fox v. Commissioner, ATB Docket Nos. 194544(tax administration, responsible person) The ATB held that the taxpayer was aresponsible person and thus personally liable for unpaid sales tax with regardto two companies of which the taxpayer owned one-third of the corporate stockand held two-thirds of the voting rights. Because the taxpayer was a CPA, thetreasurer of both companies, and signed most of the checks written for bothcompanies, the ATB found that the taxpayer had the requisite knowledge, duty,control and authority to make payments for the sales tax.
June 29, 1998 Donald L. and Ann I. Kent v. Commissioner, ATB Docket No.205846 (tax administration, responsible person) The ATB ruled that thetaxpayers were responsible persons with regard to sales tax assessed againstRowley Printing Inc. Although the taxpayers admitted that they were responsibleto pay the sales tax that was collected, they argued that because they hadresigned their positions prior to the issuance of the Notice of Assessment,they were no longer responsible persons for the corporation. The ATB ruled thatthe operative date was the date on which the duty to pay the tax arose, and notthe date of the assessment.
July 24, 1998 Joseph Insoft v. Commissioner, ATB Docket No. 215079(income tax, nonresident, partner, real estate) The ATB held that thenonresident taxpayer had Massachusetts source income with regard to thetaxpayer's distributive share of a partnership's income which wasderived from the sale of Massachusetts real estate.
Aug. 5, 1998 David M. Hart and Paul J. McGinley v. Commissioner, ATBDocket No. F233702 (sales tax, exempt purchasers) The ATB held that amountspaid by an architectural firm to a supplier for reproduced project reports,which were requested by the taxpayer pursuant to a Department of Public Workscontract was exempt from the sales and use tax pursuant to the exemptpurchasers' exemption.
Aug. 13, 1998 Noreast Fresh, Inc. v. Commissioner of Revenue, ATB DocketNo. F226284 (corporate excise tax, manufacturing) The ATB held that the processof packaging salads and vegetables for sale did not constitute manufacturingbecause there was not a sufficient amount of physical change to the vegetablespackaged.
Sept. 2, 1998 Gale and Jacqueline Noble v. Commissioner, ATB Docket No.223686 (income tax, residence) The ATB held that the taxpayers were residentsof Massachusetts for the tax years in question. The ATB based its decision onwhere the taxpayers focused most of their activities, contracts that thetaxpayers had with various home service providers and contracts, which weresigned that listed Massachusetts as the taxpayers' residence.
Sept. 3, 1998 Stephen H. Cohen DMD, P.C. v. Commissioner, ATB Docket No.F232117 (use tax) The ATB held that dental supplies purchased by the taxpayerfrom an out-of-state vendor for use in Massachusetts were subject to theMassachusetts use tax.
Sept. 11, 1998 Anna N. Valeri v. Commissioner, ATB Docket No. 196034 (taxadministration, responsible person) The ATB held that the taxpayer was aresponsible person with regard to unpaid sales tax and withholdings ofAnna's Inc. In this case the taxpayer was the sole shareholder,president, clerk, treasurer and director. She prepared and signed the taxreturns, as well as the checks to the commonwealth and vendors. In addition,the taxpayer exercised control over the financial matters of the company.
Sept. 21, 1998 James I. Daniel v. Commissioner, ATB Docket No. F223807,(income tax, sick leave) The taxpayer had included in his 1990 income paymentthat he had received funds for unused sick time. In 1992 the taxpayer repaidhis employer the sick leave amount in return for additional leave. The taxpayerrequested an abatement for the amount included in 1990. The ATB held that theincome was properly includable in 1990, however, the taxpayer would not be ableto receive a reduction of income in 1992 when the funds were returned to theemployer.
Sept. 22, 1998 Timothy K. Hanna v. Commissioner, ATB Docket No. 224902(tax administration, responsible person) The ATB held that the taxpayer was aresponsible person with reference to Timothy's Inc., regardless of thefact that the ABCC had previously determined that the taxpayer was neither theowner or manager of the company.
Oct. 23, 1998 Norma C. Treat and Estate of Robert H. Treat v. Commissioner,ATB Docket No. F232197 (income tax, marital deduction, estate tax) Thesurviving spouse and decedent held property as tenants by the entirety at thedecedent's death. The decedent acquired the property. The survivingspouse argued that 100 percent of the value of the property should be includedin the decedent's estate, and therefore, the surviving spouse wouldreceive a step-up in basis for 100 percent of the property. The ATB ruled thatpursuant to the Massachusetts code, only one-half of the value of the realestate is includable in the decedent's estate when the property is heldas tenants-in-common with the decedent's spouse.
Nov. 16, 1998 Eugene L. and Lorraine Miller v. Commissioner, ATB DocketNo. 221839 (sales tax, motor vehicle, trade-in) The ATB held that the taxpayerwould not receive an abatement of sales tax with regard to a trade-in allowanceon the purchase of a vehicle because the dealership was not a registeredMassachusetts dealer.
Dec. 2, 1998 Araserve, Inc. v. Commissioner, ATB Docket No. 223254 (usetax, exempt organization) The ATB ruled that the taxpayer was not required topay a use tax with regard to its purchase of items used in the performance ofservice contracts in Massachusetts where the items were actually purchased on behalfof, and as an agent for, exempt organizations.

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