The Commissioner of Revenue (“Commissioner”) wrongly disallowed a taxpayer’s claim of research credits, incorrectly determining that financial institutions are not entitled to claim such credits under Massachusetts law. In State Street Corp. v. Comm’r of Revenue, No. C344139 (App. Tax Bd. Aug. 15, 2024), the Appellate Tax Board analyzed the plain language of the applicable law and the actions taken by the Commissioner during the audit to determine that the taxpayer was entitled to the over $13 million in research credits that it claimed.

Facts: State Street Corporation (“SSC”), a financial institution under Massachusetts law, filed combined excise tax reports (“Combined Reports”) for the tax years ended December 31, 2016, through December 31, 2018. State Street Bank and Trust Company (“SSBT”) and Charles River Systems, Inc. (“CRSI”), both financial institutions, were included on the Combined Reports for the years they were affiliated and owned by SSC. SSC carried over and ultimately sought to use research credits generated by SSBT and CRSI in the tax year ended December 31, 2018 (“Year at Issue”).

Through a series of audits and proposed assessments, the Commissioner denied SSC’s research credit carry overs and its research credit claim for the Year at Issue, determining that SSC could not claim the credits because it was an ineligible financial institution. SSC challenged the Commissioner’s denial and appealed to the Appellate Tax Board (the “Board”). Following oral arguments, SSC moved for summary judgment, and the Commissioner opposed SSC’s motion and cross-moved for summary judgment.

Opinion: On appeal, the Board first considered the summary judgment standard and whether any genuine issue of material fact existed, which would make granting summary judgment inappropriate. The Board found that “[t]he Commissioner failed to identify a genuine dispute of material fact,” and made no “contention… that even rose to the level of a dispute.” The Board also reviewed the Commissioner’s conduct during the audit, specifically, the Commissioner’s failure to “conduct an in-depth review of the Massachusetts research credits” claimed by SSC. The Commissioner’s failure to analyze the calculation of the credits, the Board noted, did not create a “genuine dispute of material fact.”

Turning to the substantive issue at hand, the Board reviewed the plain language of the relevant research credit law, which provides that:

“a business corporation shall be allowed a credit against its excise due… equal to the sum of [10%] of the excess, if any, of the qualified research expenses for the taxable year over the base amount and [15%] of the basic research payments [as determined under] the federal Internal Revenue Code.”

-Mass. Gen. Law c. 63, § 38M(a)(1).

The parties did not dispute that financial institutions such as SSC, SSBT, and CRSI were business corporations under Massachusetts law. As a result, based on the “unambiguous language” of the law, the Board found all three entities were “entitled to seek Massachusetts research credits.”

Despite the law’s plain language, the Commissioner contradictorily argued both that SSC’s claim directly controverted the law’s plain language and that adhering to a “literal reading of the statute… would yield an ‘absurd’ or ‘illogical’ result [that] would not effectuate the intent of the [l]egislature enacting it.” Rightly, the Board disagreed with the Commissioner’s arguments, finding nothing illogical “about a financial institution claiming a research credit,” and determining that if the legislature intended to limit who could claim research credits, the legislature could have easily enacted such limiting language. It was neither the place of the Commissioner by regulation, nor the Board through deference to the Commissioner, to limit or conflict the statute’s clear language.