Massachusetts - Appeals Court Upholds Ruling on Costs of Performance Issue

Tri-State Tax Alert

From our offices in Boston, Portland, and Portsmouth, Pierce Atwood’s State and Local Tax Group provides litigation, planning, transaction, regulatory, and legislative services to business, associations, and individuals on all Massachusetts, Maine, and New Hampshire tax issues and development incentives. 


Appeals Court Upholds Ruling on Costs of Performance Issue

The Massachusetts Appeals Court held that the Board of Tax Appeals properly used the “operational approach” in AT&T v. Commissioner of Revenue.  The appeal followed the ATB’s decision in favor of AT&T on a significant apportionment issue, costs of performance.  The applicable Massachusetts statute provided that receipts from the sales of services should be sourced to the Commonwealth for sales factor purposes if more of the direct costs associated with performing the income-producing activity occurred in the Commonwealth than in any other state.  AT&T operated an extensive worldwide telecommunications network which was monitored and maintained from New Jersey.  The Commissioner argued that AT&T’s costs of performance should be analyzed on a transaction-by-transaction basis for each of its billions of “buyer-seller interactions.”  However, the Appeals Court agreed with the Board and with AT&T, holding that the costs of performance should be analyzed under an “operational” approach.  The Commissioner has appealed this ruling to the Supreme Judicial Court.  AT&T is represented in this matter by Pierce Atwood’s Kathleen King Parker.  Commissioner of Revenue v. AT&T Corporation, Mass. App. Ct., Dkt. No. 11-P-1462 (Jul. 13, 2012).

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