Massachusetts Court Issues 'True Debt' Decision

Yesterday, June 8, the Massachusetts Appeals Court once again denied a taxpayer's claimed deductions from the income and net worth tax base of the corporate excise tax.

In a decision that will be a disappointment for taxpayers with pending appeals on the issue, the Massachusetts Appeals Court has upheld the Appellate Tax Board's determination in National Grid, Inc. & others v. Commissioner¹—denying the taxpayer a deduction from its net worth tax base for intercompany obligations classified as debt, as well as denying an interest deduction for amounts paid under those intercompany obligations.

The court's decision impacts any taxpayer that is facing a Department "true debt" audit, where the Department refuses to treat an intercompany obligation as debt that can be deducted from the tax base of the net worth portion of the corporate excise tax.