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Raytheon Co. v. Commissioner of Revenue

Appeals Court of Massachusetts, Suffolk

September 12, 2019


          Heard: June 3, 2019.

          Appeals from decisions of the Appellate Tax Board.

          Donald-Bruce Abrams (John S. Brown also present) for the taxpayer.

          Kirk G. Hanson, Assistant Attorney General, & Pierce 0. Cray, Assistant Attorney General, for Commissioner of Revenue.

          Present: Green, C.J., Vuono, & Lemire, JJ.

          GREEN, C.J.

         These two related appeals raise questions concerning the timeliness and scope of applications for abatement of excise taxes filed by the Raytheon Company for the years 2007 and 2012, respectively. In both cases, Raytheon timely filed its return, but thereafter received notice of a deficiency assessment from the Commissioner of Revenue (commissioner), and filed an application for abatement challenging the deficiency assessment. Raytheon timely appealed the commissioner's denials of the abatement applications, and, while the appeals were pending before the Appellate Tax Board (board), subsequent events revealed in each instance that Raytheon had in fact overpaid the taxes owed when it filed its original returns. Although the commissioner abated the deficiency assessments in full while the appeals to the board were still pending, Raytheon argued that it was due further abatements on the theories that (a) it had overstated its income for 2007, and (b) it was entitled to recoup at once (in the form of a tax refund) certain investment tax credits, rather than carrying forward any credits remaining after the full abatement of the 2012 deficiency assessment. After abating the deficiency assessments, the commissioner moved to dismiss Raytheon's appeals to the board, arguing that the appeals were untimely as to any matter other than the deficiency assessments. The board agreed and dismissed Raytheon's appeals for want of jurisdiction over any amounts other than the deficiency assessments. On appeal to this court, Raytheon contends that the board's dismissal was incorrect because the deficiency assessments necessarily encompassed not only the amounts stated in the notices of deficiency assessment but also the amounts by which Raytheon had overpaid its taxes in its original returns. In its appeal concerning its 2012 return, Raytheon makes an additional argument: that its application for abatement, which referenced only the deficiency assessment for that return, was sufficient to preserve its rights to claim an abatement of taxes reported in its filed return because the application for abatement was filed within three years after Raytheon had filed its return.[1] See G. L. c. 62C, § 37. We affirm the decisions of the board in both cases.

         1. Factual Background. a. 2007 return.

         Raytheon filed a corporate excise tax return for the 2007 tax year, reporting an excise tax liability of $7, 333, 762.[2] On November 15, 2011, following an audit, the commissioner issued a notice of assessment, notifying Raytheon that he had assessed it an additional $650, 752 of corporate excise tax, plus interest and penalties, for the 2007 tax year.[3]

         On January 12, 2012, Raytheon filed an application for abatement of the deficiency assessment. Raytheon did not, however, file any application for abatement directed to its original 2007 tax return. The commissioner denied Raytheon's abatement application in full on July 31, 2013. On September 20, 2013, Raytheon filed with the board a timely appeal from the commissioner's denial.

         In addition to challenging the nonincome measure of the excise upon which the $650, 752 deficiency assessment for the 2007 tax year was based, Raytheon also raised for the first time in its appeal to the board a claim that it had overstated its sales factor in its original 2007 return, resulting in an overstatement of the income component of its corporate excise for that tax year on that return. As a result of the alleged sales factor overstatement in its 2007 tax return, Raytheon claimed it was entitled to an additional abatement of $5, 746, 575 for the 2007 tax year, to be refunded from the taxes paid when it originally filed its return.

         On December 14, 2015, the commissioner filed a partial motion to dismiss, moving to dismiss so much of Raytheon's appeal to the board as sought an abatement of portions of the tax paid when it filed its 2007 return. The commissioner agreed that Raytheon could use the sales factor adjustment argument as a new legal theory to dispute the commissioner's tangible property deficiency assessment of $650, 752 for the 2007 tax year. However, he argued that, because Raytheon had never applied for an abatement of the tax originally reported on the 2007 return, any challenge to the original self-assessment for 2007 was time barred. After the board denied the commissioner's motion, the commissioner abated the deficiency assessment in full, and filed a second motion to dismiss what remained of Raytheon's appeal -- in other words, its request for abatement of portions of the tax it originally reported on, and paid with, its 2007 return. On February 2, 2018, the board allowed the commissioner's motion to dismiss, and Raytheon appealed.

         b. 2012 return.

         Raytheon filed its 2012 corporate excise return on August 29, 2013, reporting a tax due of $8, 574, 471. On July 25, 2016, the commissioner sent to Raytheon a notice of assessment for 2012 in the amount of $2, 885, 572, plus interest and penalties, based on the commissioner's denial of a research and development credit that Raytheon had claimed. Raytheon applied for an abatement of the deficiency assessment on August 24, 2016. At thirty days after the deficiency assessment, Raytheon's abatement application was filed well within the two-year limit established by G. L. c. 62C, § 37, and also fell (by five days) within three years after the date it had filed the return.

         The commissioner denied Raytheon's abatement application on February 24, 2017. Raytheon then timely appealed to the board from the commissioner's denial on March 24, 2017. On November 15, 2017, before any board action on Raytheon's abatement application, Raytheon and the commissioner reached a settlement regarding Raytheon's corporate excise liability for two previous years: 2008 and 2009. Two aspects of that settlement had a significant collateral effect on Raytheon's 2012 excise. First, the settlement altered the calculation of the 2012 research and development credit at issue in the commissioner's deficiency assessment, leading him to reduce that assessment from $2, 885, 572 to $119, 929. Second, the settlement also resulted in $2, 737, 091 worth of investment tax credit (ITC) "carryforwards" from 2008 and 2009 available for certain uses in later tax years, including 2012. The commissioner applied $119, 929 of those carryforwards to 2012 as a credit against the remaining balance of the deficiency assessment, thereby reducing that balance to zero. As a result, the commissioner abated the deficiency assessment in full on April 12, 2018. The next day, he moved to dismiss for lack of jurisdiction Raytheon's appeal to the board from his earlier denial of the company's application to abate the deficiency assessment.

         In response, Raytheon asserted that it should be allowed to apply the remaining $2, 617, 162 in unused ITC carryforwards to the tax it had paid with its 2012 return, and receive a refund in that amount. In furtherance of that claim, Raytheon filed an amended and restated petition in which it sought "to amend and restate in its entirety the petition that Raytheon previously filed . . . and to assert Raytheon's entitlement to an additional abatement and refund." After hearing, the board issued a decision with findings, dismissing Raytheon's appeal for lack of jurisdiction, based on the fact that the commissioner had abated in full the deficiency assessment that was the subject of Raytheon's abatement application, and the time for filing a new abatement application with the commissioner had long since passed. This appeal followed, and was paired for hearing with Raytheon's appeal from the board's decision concerning the 2007 return.

         2. Statutory and regulatory background.

         Assessment of taxes is governed by G. L. c. 62C, § 26. Subparagraph (a.) ...

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