For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
By Che Odom
First Marblehead Corp. is again asking the U.S. Supreme Court to review whether Massachusetts erred in taxing 51 percent of its student loan income because its property interest in the loans is located in-state ( First Marblehead Corp. v. Heffernan , U.S., No. 16-777, petition for writ of certiorari 12/15/16 ).
First Marblehead and its California-based subsidiary, Gate Holdings Inc., want the high court to review a Massachusetts Supreme Judicial Court’s decision from August ( First Marblehead Corp. v. Comm’r of Revenue , Mass., No. SJC-11609, 8/12/16 ).
The companies contest the sourcing of loans for the apportionment of income for Massachusetts’ financial institutions excise tax (FIET), seeking a ruling that the apportionment formula the state used wasn’t internally consistent. They say the formula violates the high court’s landmark 2015 opinion in Comptroller of the Treasury of Maryland v. Wynne, which requires that states look at taxation to see “whether its identical application by every State in the Union would place interstate commerce at a disadvantage as compared with commerce intrastate.”
Particularly, the petitioners argue that the Massachusetts apportionment formula fails to reflect a reasonable sense of how income is generated. Massachusetts disregarded the activities and entities that actually generate the income, arbitrarily assigning income to the commercial domicile of an owner of the income-producing entities, the petition argues. In other words, the state erred in holding that a wholly owned out-of-state subsidiary (Gate) is subject to income taxes as an in-state entity because it is essentially a holding company for an in-state entity (First Marblehead)—and the preponderance of substantive contacts regarding the loans being taxed was located in the commonwealth.
The petitioners also say the SJC ignored Supreme Court precedent by assuming other states would apply an apportionment formula different from the formula used in the Massachusetts statute.
First Marblehead’s attorney, John S. Brown, senior counsel at Morgan, Lewis & Bockius LLP in Boston, didn’t immediately respond to requests for comment.
In the Aug. 12 opinion, the SJC affirmed the state Appellate Tax Board’s finding that all of Gate’s interests in the securitized loans were properly assigned to Massachusetts under the FIET’s apportionment rules, resulting in a greater tax liability than Gate had calculated.
That was the second time the SJC upheld the tax board’s decision. The U.S. Supreme Court vacated its first opinion in the case, issued in January 2015, ordering that the matter be reconsidered in light of the high court’s May 2015 ruling in Wynne, in which the court ruled that Maryland discriminated against interstate commerce by taxing resident individuals on all of their income without a credit for taxes paid to other states, while taxing nonresidents on their income sourced to Maryland ( Comptroller of Treasury of Md. v. Wynne , U.S., No. 13-485, 5/18/15 ).
The SJC held that Massachusetts’ application of the FIET met the “internal consistency” test.
To contact the reporter on this story: Che Odom at COdom@bna.com
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
Text of the petition to review is at http://www.bloomberglaw.com/public/document/The_First_Marblehead_Corporation_et_al_v_Michael_J_Heffernan_Mass.
Text of the August SJC decision is at http://www.bloomberglaw.com/public/document/The_First_Marblehead_Corp_v_Commissioner_No_SJC11609_2016_BL_2597.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)