Richard Call discusses Massachusetts combined reporting ruling in Law360

Law360 Tax Authority recently featured Richard Call’s insights on a Massachusetts Appellate Tax Board decision holding that federal law shields a combined-group member’s receipts from being pulled into the tax liabilities of its unitary group, a ruling that may spur further challenges to states’ combined reporting rules.

The case centered on the Massachusetts Department of Revenue’s “Reallocation Rule,” which uses a Finnigan-style approach to sourcing receipts within a combined group. Under that rule, the department had reassigned the in-state sales of a group member protected by P.L. 86-272 to other, taxable members of the group, in effect increasing the tax owed on income the federal statute is designed to shield. The Board rejected that approach, finding that P.L. 86-272’s protections apply on a member-by-member basis and that the state could not achieve indirectly what it was barred from doing directly. Richard discussed why the decision could prompt similar challenges in other combined reporting states that have leaned on comparable sourcing rules to work around the federal law’s protections.