Telephone Captive Leasing Companies

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Doris Atkinson
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MASSACHUSETTS ASSOCIATION of ASSESSING OFFICERS Telephone Captive Leasing Companies 2007 Summer Conference South Yarmouth, MA June 20, 2007 Gary A.

1 MASSACHUSETTS ASSOCIATION of ASSESSING OFFICERS Telephone Captive Leasing Companies 2007 Summer Conference South Yarmouth, MA June 20, 2007 Gary A. Blau, Tax Counsel Bureau of Municipal Finance Law PO Box 9569 Boston, MA This presentation represents the opinions & conclusions of the author and are not necessarily those of the Department of Revenue

2 History of Stock in Trade Exemption Corporations Historically Exempt From Local Property Tax Because Taxable at State Level on Value of Stock Statutes Authorized Property Tax on Machinery Used in Conduct of Business for Corporations Beginning in 1919 Definition of Machinery Used in Conduct of Business Excluded Stock in Trade Beginning with St. 1924, Chapter 321, 1

3 History of Stock in Trade Exemption 1947 NE Mut. Life Ins. v. Boston is Principal Case on Local Stock in Trade Exemption Corporate Lessor Not Taxable on Stock in Trade under 59:5(16)(2) Insurance Corp. Lessee Not Taxable on Exempt Machinery Leased to It Machinery Subject to Corporate Excise on Lessor s State Tax Return Exemption Applies only to Corps

4 History of Captive Leasing A Captive Leasing Company is a Subsidiary Set Up to Lease Property to Parent Company 1983 Brown, Rudnick v. Assessors of Boston is Major Case on Captive Leasing in Mass Partnership Law Firm Transferred Taxable PP to Subsidiary Corporation and Leased Property Back for Local Exemption Court Held Not a Business Corp If No Employees or Profit Motive Not Entitled to Local Tax Exemption Based on Specific Facts of Case

5 History of Captive Leasing Shaws Supermarket Corporate Subsidiary Claimed Leasing Corporation Exemption on Equipment Leased to Parent Company in Late 80 s Many Boards Continued to Assess Tax on Property Many Appeals Taken by Shaws to ATB Cases Were Eventually Withdrawn When Scheduled for Hearing

6 History of Telephone Leasing Issue In 2003 DOR Valued Telephone Machinery of Non-Corporate Telephone Companies under RCN-BeCoCom ATB Decision for FY2004 Several Companies Changed Form of Ownership to Avoid Valuation/Tax Increases Bell Atlantic Mobile Became Bermuda Co. Some LLCs Filed Corporate Federal Returns Sprint LP & Sprint Spectrum LP Formed Subsidiary Corporations & Leased Property Back from Them, to Get Stock in Trade Exemption MASSPCSCO & MASSFONCO

7 History of Telephone Leasing Issue DOR Notified Assessors of Potential Brown, Rudnick Issue on 5/14/04 DOR Valued Only Sprint Telco Companies Reported Property Left to Local Assessors to Determine Whether to Assess MASSFONCO & MASSPCSCO on Leased Machinery MASSFONCO Leased to Sprint Landline MASSPCSCO Leased to Sprint Wireless

8 History of Telephone Leasing Issue Also Notified Assessors that Companies Formed as Delaware Statutory Trusts Treated as Corporations for Corporate Excise Purposes - LR 91-2 Were Not Listed in Corporations Book Treated as Voluntary Trust by Secretary of State Failed to File Return with DOR in Time to Make Corporations List Several Towns Assessed Leasing Companies Currently in Litigation on Values/Classification

9 History of Telephone Leasing Issue AT&T Wireless Did a Similar Transfer to a Subsidiary Leasing Corp DOR Notified Assessors 5/16/05 AT&T Merged with New Cingular AT&T Leasing Company Changed Name to New Cingular Wireless Services Purchasing of Mass., Inc. Not Aware that Any Towns Assessed New Cingular s Leasing Corp.

10 Problems with Captive Leasing Not Limited to Telephone Companies If Structured Properly, with Employees, Other Customers & Profit Seeking, Property May Very Well Escape Local Tax May Need Legislative Solution

11 DORs Position in Litigation DOR Is Not the Real Party in Interest However, DOR is a Party to the Litigation Concerning Classification of Leasing Companies as Corporations DOR Has Not Classified Sprint Leasing Companies While Cases in Litigation

COMMONWEALTH OF MASSACHUSETTS APPELLATE TAX BOARD. TECHTARGET, INC. v. COMMISSIONER OF REVENUE

COMMONWEALTH OF MASSACHUSETTS APPELLATE TAX BOARD TECHTARGET, INC. v. COMMISSIONER OF REVENUE Docket No. C314726 TECHTARGET SECURITIES v. COMMISSIONER OF REVENUE CORPORATION Docket No. C314725 Promulgated: