Opinion
16-P-854
08-15-2017
MASSACHUSETTS ELECTRIC COMPANY v. COMMISSIONER OF REVENUE.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
This is an appeal from a decision of the Appellate Tax Board (board) allowing a motion for summary judgment by the Commissioner of Revenue (commissioner) and denying a cross motion for summary judgment by the Massachusetts Electric Company (MA Electric). The board's decision upheld the commissioner's denial of MA Electric's application to take a disaster loss deduction for its tax year ending March 31, 2008 (taxable year 2007) because the loss was "sustained" in December, 2008 (i.e., during taxable year 2008) within the meaning of G. L. c. 63, § 52A(1)(b )(ii) ( § 52A ). The sole issue on appeal is whether the board erred in determining that MA Electric was not entitled to the deduction (and consequent tax abatement) under § 52A. We affirm.
MA Electric is a public utility company subject to the tax imposed on utility corporations by G. L. c. 63, § 52A. Section 52A was repealed by St. 2013, c. 46, §§ 39, 84, effective January 1, 2014. References are to § 52A as in effect at all times relevant to this appeal.
Background. The parties do not dispute the underlying facts. In December, 2008, New England experienced a severe ice storm, after which the Federal Emergency Management Agency declared various Massachusetts counties Federal disaster areas. The storm caused MA Electric to suffer a loss of approximately $62,000,000; the loss met the requirements of a "disaster loss" under the Federal tax code. Under the code, such a loss may be "taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred" at the election of the taxpayer. 26 U.S.C. § 165(i)(1) ( § 165 ). When a taxpayer makes this election, the disaster loss is "treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed." Ibid.
Section 165 (effective October 3, 2008, to March 17, 2010) provides, in relevant part: "any loss occurring in a disaster area (as defined by clause (ii) of subsection (h)(3)(C)) and attributable to a federally declared disaster (as defined by clause (i) of such subsection) may, at the election of the taxpayer, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred.... If an election is made under this subsection, the casualty resulting in the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed."
In June, 2009, MA Electric amended its Federal return, electing to take a disaster loss deduction for the 2008 storm in taxable year 2007. As a result of the election, the loss was "deemed to have been sustained" in taxable year 2007 for Federal tax purposes.
Under corresponding regulations then in effect, "the disaster to which the election relates will be deemed to have occurred in the taxable year immediately preceding the taxable year in which the disaster actually occurred, and the loss to which the election applies will be deemed to have been sustained in such preceding taxable year." 26 C.F.R. § 1.165-11(d).
In September, 2009, MA Electric sought to similarly amend its 2007 Massachusetts return, claiming a deduction for the disaster loss and an abatement in the amount of approximately $4,000,000. The commissioner denied MA Electric's application, reasoning that § 52A of the Massachusetts tax code expressly excludes deductions for "losses sustained in other taxable years." MA Electric appealed to the board, which concluded that the unambiguous language of § 52A supported the commissioner's position and found in the commissioner's favor on cross motions for summary judgment.
Section 52A provided, in relevant part: " ‘Net income’ means the gross income from all sources, without exclusion ... less the deductions, but not credits, allowable under the provisions of the Federal Internal Revenue Code, as amended and in effect for the taxable year. Deductions with respect to the following items, however, shall not be allowed: ... (ii) losses sustained in other taxable years."
Although the Massachusetts Rules of Civil Procedure are not directly applicable to Appellate Tax Board proceedings, see G. L. c. 58A, § 8A, the parties do not dispute that summary judgment was an appropriate procedural vehicle to consider the legal issue presented in this case. See 831 Code Mass. Regs. § 1.22 (2007).
MA Electric argues on appeal that the board misapplied the clear language of the tax statute and erroneously determined that § 52A conflicts with § 165. By contrast, the board argues that the clear language of § 52A prohibits deductions for losses sustained in "other taxable years," and that therefore, MA Electric could not take a deduction in taxable year 2007 for a loss that occurred in taxable year 2008.
Discussion. Where there is no factual dispute, and the issue is one of statutory interpretation, our review is limited to questions of law. Sears, Roebuck & Co. v. Commissioner of Rev., 83 Mass. App. Ct. 768, 769 (2013). Further, while statutory interpretation is a matter for the court, "the board is an agency charged with administering the tax law and has expertise in tax matters"; therefore, "we give weight to its interpretation of tax statutes ... and will affirm its statutory interpretation if it is reasonable." Global Cos., LLC v. Commissioner of Rev., 459 Mass. 492, 494 (2011), quoting from AA Transp. Co. v. Commissioner of Rev., 454 Mass. 114, 118–119 (2009).
Section 52A generally incorporates deductions allowable under § 165, while specifically excluding deductions for "losses sustained in other taxable years." The board determined that § 52A's requirement that deductible losses be sustained in the same taxable year is "clear and unambiguous," and that the language is conclusive as to the Legislature's intent. We agree with the board's interpretation that the language provides for an "explicit and plainly-worded departure from deductions allowed for Federal tax purposes." See Massachusetts Broken Stone Co. v. Weston, 430 Mass. 637, 640 (2000) ("Where the language of a statute is clear, courts must give effect to its plain and ordinary meaning and the courts need not look beyond the words of the statute itself").
MA Electric's argument that the Legislature did not intend to exclude disaster losses is undermined by the plain language of § 52A, as well as by the construction of an analogous section relating to business corporations. General Laws c. 63, § 30 ( § 30 ), generally incorporates deductions allowable by the Federal code, and like § 52A, disallows certain deductions, including "losses sustained in other taxable years." G. L. c. 63, § 30(4)(ii), as amended by St. 2003, c. 143, § 5. However, § 30 goes on to create an exception for net operating losses. A similar exception for disaster losses, or any losses for that matter, is conspicuously absent from § 52A. We conclude, as did the board, that the Legislature intended to exclude all losses sustained in other taxable years.
We further note that, had the Legislature intended otherwise, it had ample opportunity to revise the law. See Parker Affiliated Cos. v. Department of Rev., 382 Mass. 256, 262 (1981).
MA Electric also argues that the term "sustained" "is a term of art that must be construed and understood in accordance with its peculiar and appropriate meaning in law." Relying on Commissioner of Rev. v. Franchi, 423 Mass. 817, 823-825 (1996), MA Electric further argues that the characterization of an item in a Federal tax regulation is controlling for Massachusetts tax purposes. We disagree, and are not persuaded that the meaning of the term "sustained," or the timing of when a loss is sustained for Massachusetts tax purposes, necessarily flows from the loss's treatment under the Federal code or corresponding Federal regulations.
MA Electric essentially argues that, once a taxpayer has elected under the Federal code to take a disaster loss in the preceding year, Massachusetts must also treat the loss as if it occurred in the preceding year. Not only is the language of § 52A clear on the point, the position is also undermined by the plain language of § 165, which provides that, where a taxpayer elects to take a disaster loss deduction in a preceding year, "the loss shall be treated for purposes of this title as having occurred in the taxable year for which the deduction is claimed" (emphasis added). Thus, the fiction created by the Federal code, that the loss occurred in the same year in which the deduction is claimed, is limited by the code's own language.
Further, Massachusetts courts have concluded that Federal tax concepts "are not always dispositive" of the interpretation of Massachusetts statutes. FMR Corp. v. Commissioner of Rev., 441 Mass. 810, 818 (2004), and cases cited therein. Indeed, "Massachusetts tax law can and does depart from Federal tax law, particularly in matters authorizing deductions for prior year's losses." Macy's East, Inc. v. Commissioner of Rev., 441 Mass. 797, 803 (2004). See Parker Affiliated Cos. v. Department of Rev., 382 Mass. 256, 261-262 (1981) ("ban on prior year loss carry-over evince[d] deliberate legislative choice to differentiate State from Federal practice in this area"); Bill DeLuca Enterprises, Inc. v. Commissioner of Rev., 431 Mass. 314, 325 (2000) (noting that "[t]he Massachusetts Legislature has consistently chosen to treat excess deductions from a previous tax year in a different manner from the [Internal Revenue Code].... These statutes evince a persistent and conscious legislative decision to take a different path from that of the Federal government in ameliorating the transactional inequities that arise from annual taxation"); FMR Corp., supra at 818-819 ("while Federal law often guides Massachusetts as to recognition of income, the same is not necessarily true for authorization of deductions. Deductions are to a large extent a matter of legislative grace" [citations and quotation omitted] ). Our precedent has recognized the "persistent and conscious" decision by the Massachusetts Legislature to treat deductions from other tax years differently than the Federal government. Bill DeLuca Enterprises, Inc., supra. It was not error for the board to conclude that, where § 52A and § 165 conflict, the plain language of § 52A controls. See Parker, supra at 262.
The board's interpretation of § 52A is a reasonable one. Therefore, the decision of the Appellate Tax Board is affirmed.
Other points relied on by MA Electric have been considered by the panel and do not warrant further discussion. See Commonwealth v. Domanski, 332 Mass. 66, 78 (1954).
So ordered.
Affirmed.