Massachusetts – Nexus creating transactions disregarded as sham transactions

The transfer of Massachusetts employees from an in-state company to its out-of-state parent was disregarded for tax purposes by the Massachusetts Appellate Tax Board. The transfer, which established Massachusetts nexus for the parent and caused the parent to be included in the ‘nexus combined’ corporate excise tax return, allowed the parent’s losses to offset the income of other members of the nexus combined group. The Board found that, pursuant to the sham transaction doctrine, the transfers had no valid business purpose other than tax avoidance. Massachusetts taxpayers should be aware that expansion of the sham transaction doctrine to nexus determinations could subject a new area of business transactions to state scrutiny. [Allied Domecq Spirits and Wines USA, Inc. v. Commissioner of Revenue, Massachusetts Appellate Tax Board, Nos. C282807, C293684, and C297779 (5/27/13)]

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