Recently, the Massachusetts Appellate Tax Board addressed whether the Indiana Utility Receipts Tax or URT is an income tax required to be added back in computing Massachusetts corporate excise. The taxpayers at issue, a combined group that included two utility companies, paid Indiana adjusted gross income tax and Indiana URT for the tax years at issue. Under Massachusetts law, taxpayers must add back taxes “measured on or by income, franchise taxes measured by net income, franchise taxes for the privilege of doing business, and capital stock taxes imposed by any state.” In computing their corporate excise liability, the taxpayers added back the Indiana adjusted gross income tax, but not the URT. The primary issue before the Board was whether the URT was a tax required to be added back.
The Indiana URT statute imposes an “income tax” known as the URT, on taxable gross receipts. The term gross receipts is broadly defined to include “anything of value, including cash or other tangible or intangible property, that a taxpayer receives in consideration for the retail sale of utility services for consumption before deducting any costs incurred in providing the utility services.” The term taxable gross receipts generally means all gross receipts not exempt from tax less all allowable deductions. The Board noted at the outset that the label given to the tax by the Indiana statute—that it was an income tax—was not controlling of the issue. Rather, it was necessary to determine if the characteristics of the URT were similar to the types of taxes required to be added back by statute. The Board concluded that although the URT had some characteristics of a transaction tax, such as an exception for occasional sales and an exemption for U.S. Government transactions, it was more akin to the types of taxes that were not deductible. Notably, the Board highlighted that the URT was not only imposed on receipts from sales, but also on legal settlements and judgements, which made it appear more like a tax on income. Another similarity between the URT and an income tax was that URT liability was paid in estimates and penalties were imposed for underpayments. Furthermore, the Board agreed with the Commissioner’s position that the URT was imposed as a condition precedent to the privilege of doing business. Although the taxpayer lost on the issue of whether the URT was deductible, the Board did abate penalties because it was not clear from the Massachusetts authorities that the URT was required to be added back. Please contact Nikhil Sequeira at 617-988-1787 with questions on Bay State Gas Co. & Affiliates v. Commissioner of Revenue.