RK&O attorneys David Daniels and Margaret Meyers recently filed an amicus brief on behalf of Michael S. Knoll of the University of Pennsylvania Law School and Ruth Mason of the University of Virginia School of Law in First Marblehead Corp. et al. v. Commissioner of Revenue, a closely watched tax case in the Massachusetts Supreme Judicial Court.
At issue is the internal consistency test that invalidated Maryland’s tax system for potential double taxation in the U.S. Supreme Court decision in Comptroller v. Wynne. In October 2015, the U.S. Supreme Court vacated and remanded the Massachusetts Supreme Judicial Court’s ruling that First Marblehead had incorrectly apportioned its income to the state and owed $4 million in financial institution excise taxes. First Marblehead argued that because they had outsourced administration of the loans to service providers outside of Massachusetts, their property factor should be zero. The Court originally ruled that because the commercial domicile was in Massachusetts, the statute provides that all of the company’s loans should be sourced to the state. This case is widely considered to be the first test of the Wynne decision, as well as the reach of the internal consistency test.
Our clients, Michael S. Knoll of the University of Pennsylvania Law School and Ruth Mason of the University of Virginia School of Law, suggest that neither party is addressing the key question. “If Massachusetts were to allocate to itself any income from such a nondomiciliary financial institution based on that entity's property factor, then the Massachusetts tax scheme as a whole would discriminate against interstate commerce and should be struck down as unconstitutional,” they said in the brief. They argue that the proper tax treatment of such a hypothetical entity under Massachusetts law is unclear, and that the Supreme Judicial Court should turn its attention toward that question since the Department of Revenue does not appear to have ruled on the question.
The Supreme Judicial Court repeatedly cited to this brief at oral argument in this case. The case remains under submission.
Click here to read Law 360 coverage of this case. (subscription required)