Commissioner of Revenue v. AMIWoodbroke, Inc.

• Decision Date: 09 June 1994
• Citation: 634 N.E.2d 114,418 Mass. 92
• Parties: COMMISSIONER OF REVENUE v. AMIWOODBROKE, INC. (and a companion case 1 ).
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 114

634 N.E.2d 114

418 Mass. 92

COMMISSIONER OF REVENUE v. AMIWOODBROKE, INC. (and a companion case ¹).

Supreme Judicial Court of Massachusetts Suffolk.

Argued April 6, 1994.

Decided June 9, 1994.

Eric A. Smith, Asst. Atty. Gen., for the Com'r of Revenue.

Louis J. Marett, Boston (Marian S. Wossum, with him), for the taxpayers.

William E. Halmkin & Donald W. Parker, Boston, for The New York Times Co. and others, amici curiae, submitted a brief.

Before LIACOS, C.J., and ABRAMS, NOLAN, LYNCH and GREANEY, JJ.

ABRAMS, Justice.

The question presented is whether the issuing of interest-free loans from a subsidiary to a parent is a "service[ ] performed" within the meaning of G.L. c. 63, §§ 33 and 39A (1992 ed.). ² The Commissioner of Revenue (commissioner), appeals from two decisions of the Appellate Tax Board (board) granting the taxpayers' applications for tax abatement. The commissioner assessed corporate tax deficiencies against the taxpayers, AMIWoodbroke, Inc. (AMIWoodbroke), and Inhalation Therapy Services, Inc. (ITS), relating to their corporate excise tax returns for the fiscal year ending August, 1988. After paying the assessments, the taxpayers filed applications for abatement which the commissioner denied. The taxpayers appealed, and the board granted their requests for abatements. We transferred the appeal to the court on our own motion. We conclude that the term "services performed" includes interest-free loans made by a subsidiary to a parent corporation. We reverse the decisions of the board.

Facts. The facts agreed to are as follows. The taxpayers are wholly-owned subsidiaries of American Medical International, Inc. (AMI). AMIWoodbroke is a Massachusetts corporation engaged in the operation of two for-profit hospitals in Massachusetts. ITS is a Delaware corporation having a place of business in Massachusetts. AMI is a Delaware corporation with its principal place of business in California. AMI had no office or business in Massachusetts and was not subject to Massachusetts corporate excise during the year in question.

During the fiscal year ending on August 31, 1988, AMIWoodbroke and ITS loaned substantial sums to AMI. AMIWoodbroke loaned AMI $14,000,340; ITS loaned $21,609,991 to AMI. The taxpayers did not receive any interest or other consideration for the loans. AMI, however, made charges against the net income of AMIWoodbroke for financial and technical support and management services that it provided. These charges against AMIWoodbroke were at amounts equivalent to arm's length transactions and totaled $1,001,496 for the fiscal year. In May, 1990, the commissioner assessed additional corporate excise taxes against AMIWoodbroke and ITS, based on the imputation of interest income for the loans to AMI. After adjusting the taxpayers' net incomes to include compensation for their loans to AMI, the commissioner assessed $163,349.24 against AMIWoodbroke and $13,988.53 against ITS. The taxpayers paid the commissioner in full satisfaction of the assessment, which included tax, interest, and penalty.

Discussion. We are faced with a question of statutory interpretation. The precise issue is whether the loans made by the taxpayers to the parent are included within the meaning of the statutory language "all commodities sold to or services performed for" the parent corporation.

The general rule of construction is that where the language of the statute is plain, it must be interpreted in accordance with the usual and natural meaning of the words. O'Sullivan v. Secretary of Human Servs., 402 Mass. 190, 194, 521 N.E.2d 997 (1988). This rule has particular force in interpreting tax statutes. There is no power to tax unless such authority is expressly conferred by statute. DiStefano v. Commissioner of Revenue, 394 Mass. 315, 325-326, 476 N.E.2d 161 (1985). Thus, we are mindful that "[t]axing statutes are to be construed strictly against the taxing authority, and all doubts resolved in favor of the taxpayer." Dennis v. Commissioner of Corps. & Taxation, 340 Mass. 629, 631, 165 N.E.2d 893 (1960).

The taxpayers contend that the plain meaning of the term "services performed" does not include intercompany loans. ³ They assert that, if the Legislature intended the statute to cover interest-free loans, it could have drafted language which expressly included such transactions. In the absence of a more specific statute, the taxpayers argue that the commissioner does not have the statutory authority to impute additional compensation for the interest-free loans made to their parent, AMI. We do not agree.

The common and ordinary meaning of "services" is broad enough to encompass the loaning of money. Webster's Third New International Dictionary 2075 (1961) defines service, generally, as follows: "5 a: an act done for the benefit or at the command of another ... 9 a: action or use that furthers some end or purpose: conduct or performance that assists or benefits someone or something." The issuing of an interest-free loan is both "an act done for the benefit of" the parent corporation and an action "that assists or benefits" the parent corporation.

Our cases support a broad interpretation of the term "services." We have stated that "[t]he meaning of the word 'services' is broad enough to include expenditures as well as labor." Tracy v. Waters, 162 Mass. 562, 563, 39 N.E. 190 (1895). See First Nat'l Bank v. Attorney Gen., 371 Mass. 773, 777, 359 N.E.2d 1262 (1977) (referring to "banks' loans, deposits, and other services"), rev'd on other grounds, 435 U.S. 765, 770 n. 4, 98 S.Ct. 1407, 1412 n. 4, 55 L.Ed.2d 707 (1978). See also Back Bay Nat'l Bank v. Brickley, 254 Mass. 261, 263, 150 N.E. 11 (1926) (referring to "services" in making "notes and loans"). In other contexts, we also have interpreted the term "services" broadly. See Dodd v. Commercial Union Ins. Co., 373 Mass. 72, 80-81, 365 N.E.2d 802 (1977) (sales of motor vehicle insurance policies constitute sales of services within the meaning of G.L. c. 93A, § 9).

Courts in other jurisdictions lend further support for a very broad definition of the word "services." ⁴ The Supreme Court of Minnesota, construing a statute very similar to G.L. c. 63, § 33, concluded that the term "services" included interest-free loans from a subsidiary to its parent corporation. See Addison Miller, Inc. v. Commissioner of Taxation, 249 Minn. 24, 81 N.W.2d 89 (1957). The court stated, "We feel that the word 'services' ... is broad enough to cover the particular services that the corporation was rendering its shareholders in this case, namely that of allowing them to use its money and land for nothing." Id. at 28-29, 81 N.W.2d 89. It is clear that AMIWoodbroke and ITS performed a service for AMI by allowing it to use substantial amounts of money at no cost.

In challenging the application of the statute, the taxpayers look to a similar taxing provision of the Federal Internal Revenue Code. See 26 U.S.C. § 482 (1988). The taxpayers assert that the more detailed language of the Federal statute indicates that the State statute was not intended to apply to intercompany indebtedness. ⁵ Federal statutes and regulations offer limited guidance in interpreting...