Fleet Nat. Bank v. Commissioner of Revenue

Decision Date02 March 2007
PartiesFLEET NATIONAL BANK v. COMMISSIONER OF REVENUE. E. Haffner Fournier & another,<SMALL><SUP>1</SUP></SMALL> executors,<SMALL><SUP>2</SUP></SMALL> v. Commissioner of Revenue.
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

David Hadas, Assistant Attorney General (Thomas A. Barnico, Assistant Attorney General, with him) for Commissioner of Revenue.

John S. Brown, Boston (Matthew D. Schnall & Donald-Bruce Abrams with him) for Fleet National Bank.

Jonathan Sablone, Boston (Stephen M. LaRose with him) for E. Haffner Fournier & another.

Present: MARSHALL, C.J., GREANEY, IRELAND, SPINA, COWIN, SOSMAN, & CORDY, JJ.

SPINA, J.

In these appeals by the Commissioner of Revenue (commissioner) and now before us on his applications for direct appellate review, we consider how interest on tax refunds owed to the estate of Emile L. Fournier (Fournier estate) and to Fleet National Bank (Fleet)3 (collectively, the taxpayers) is properly calculated under G.L. c. 62C, § 40, as amended through St.2003, c. 26, § 197.

1. Statutory framework. General Laws c. 62C, § 40, governs the refund of taxes, interest, or penalties when a taxpayer makes an overpayment to the Department of Revenue (department). Because the present dispute turns on our construction of § 40, we first set forth its relevant provisions.

Prior to July 1, 2003, G.L. c. 62C, § 40, stated:

"(a) If any refund of any tax, interest or penalties is made pursuant to [G.L. c. 62C, § 36], the state treasurer shall repay to the taxpayer the amount of such refund with interest thereon at the rate established under [G.L. c. 62C, § 32], except as hereinafter provided, from the date of overpayment to a date, to be determined by the commissioner, preceding the date of the refund check by not more than thirty days . . ." (emphasis added).

Pursuant to the department's regulations, an overpayment of taxes occurred on "the due date of the applicable return without regard to extensions, or date of receipt of the overpayment, or the date of filing of the return, whichever [was] later, to a date no more than 30 days before the issuance of the refund." 830 Code Mass. Regs. § 62C.33.1(7)(b) (2004). See Technical Information Release (TIR) 03-18 (Aug. 29, 2003), 5 Official MassTax Guide at 170 (West 2006). Interest on a refund of an overpayment was paid "at the rate of the Federal short-term rate determined under section 6621(b) of the Internal Revenue Code, as amended and in effect for the taxable year, plus four percentage points, compounded daily." G.L. c. 62C, § 32(a). See 830 Code Mass. Regs. § 62C.33.1(7)(a).

In 2003, the Massachusetts Legislature enacted emergency legislation to make immediate appropriations for the fiscal year beginning July 1, 2003. See St.2003, c. 26, preamble. As is pertinent here, the Legislature amended G.L. c. 62C, § 40, to add a second paragraph to subsection (a) (hereinafter referred to as the 2003 amendment), which provides:

"For purposes of this section, the term `date of overpayment' shall mean the later of the date when the commissioner shall have received a properly completed return and full payment of the tax due thereon, or the date when the commissioner shall have received a completed and substantiated written application for abatement filed in accordance with this chapter, and any supplemental information requested by the department from the taxpayer in support of such application" (emphasis added).

G.L. c. 62C, § 40(a), as amended through St.2003, c. 26, § 197. See 830 Code Mass. Regs. § 62C.33.1(7)(c) ("For abatement claims filed on or after July 1, 2003, interest will be calculated on any tax, interest or penalty refunded from the date of receipt of a completed and fully substantiated abatement application"). See also TIR 03-18, supra. The 2003 amendment became effective on July 1, 2003. See St.2003, c. 26, § 715. Interest on a refund of an overpayment was reduced to the Federal short-term rate, "plus 2 percentage points, computed as simple interest." G.L. c. 62C, § 40(a), as amended through St.2003, c. 26, § 196. See 830 Code Mass. Regs. § 62C.33.1(7)(a). In sum, the effect of the 2003 amendment to G.L. c. 62C, § 40(a), with respect to the issuance of a tax refund for an overpayment was to change both the meaning of the "date of overpayment" and the applicable interest rate.

2. Factual and procedural background. a. Fournier estate. Emile L. Fournier, a Massachusetts resident, died on January 24, 2000. On October 24, 2000, the executors of the Fournier estate requested and received an extension on the filing of its Massachusetts estate tax return, and they paid the Commonwealth estimated estate taxes in the amount of $4,383,500. On April 24, 2001, the executors of the Fournier estate filed its Massachusetts estate tax return, which showed actual estate tax liability of $4,018,177.72, and a refund due to the estate of $365,322.28. The Commonwealth paid this refund. The Internal Revenue Service (IRS) then performed an audit on the Fournier estate and issued a report of estate tax examination changes, setting forth line item adjustments to the Fournier estate's Federal estate tax return.4 As a consequence of these adjustments, the gross value of the Fournier estate decreased, and its Massachusetts tax liability was reduced from $4,018,177.22 to $1,678,795.20, resulting in an overpayment in Massachusetts taxes of $2,339,382.52.5

On June 25, 2004, the executors of the Fournier estate filed an abatement application with the department, seeking a refund of its $2,339,382.52 overpayment, plus statutory interest pursuant to G.L. c. 62C, § 40. The department issued a refund to the Fournier estate in the amount of $2,364,629.96, of which $2,339,382.52 was principal and $25,247.44 was interest. The interest was calculated from June 25, 2004, the date the execu tors filed the abatement application, rather than from October 24, 2000, the date they paid the estate taxes.

The executors of the Fournier estate proceeded to file with the Essex Division of the Probate and Family Court Department, pursuant to G.L. c. 62C, § 39, a petition to receive interest owed to the estate. They claimed that the statutory language of G.L. c. 62C, § 40, in effect on October 24, 2000, when the Fournier estate overpaid its estate taxes to the Commonwealth, was controlling, and that the estate was entitled to recoup a total of $663,366.51 in interest that had accrued since that date, rather than the mere $25,247.44 they had been paid. The executors then filed a motion for judgment on the pleadings. The commissioner filed a cross motion for judgment on the pleadings, asserting that the amended statutory language of G.L. c. 62C, § 40, effective July 1, 2003, was controlling, and that the Fournier estate only was entitled to interest from the date it filed its application for an abatement, namely June 25, 2004.

A judge in the Probate and Family Court ruled in favor of the Fournier estate and ordered the commissioner to pay the executors interest in the amount of $638,119.07, plus any additional interest that had accrued between the time of the filing of their petition and final payment. The judge concluded that the commissioner had erred in retroactively applying the 2003 amendment to the Fournier estate because the commissioner's action infringed on the estate's substantive right to the receipt of interest from the date of its tax overpayment. Moreover, the judge opined that the retroactive application of the 2003 amendment did not satisfy the test of "reasonableness," thereby violating due process protections afforded by the Massachusetts Declaration of Rights and the United States Constitution.6 Accordingly, the Fournier estate was entitled to judgment on the pleadings.7 The commissioner filed a notice of appeal b. Fleet. On September 3, 1998, BayBank, N.A., the predecessor in interest of Fleet, filed a Massachusetts financial institution excise return for the 1997 calendar year.8 On October 2, 2003, Fleet obtained a final determination from the IRS reducing its Federal taxable income for the 1997 calendar year. On December 31, 2003, Fleet filed an abatement application with the department, seeking a reduction in its excise tax liability because of the reduction in its 1997 taxable income. It requested an abatement of $709,950 for its overpayment, plus statutory interest pursuant to G.L. c. 62C, § 40. The commissioner allowed the abatement, and the department issued a refund to Fleet in the amount of $712,452.60, of which $709,950 was principal and $2,502.60 was interest. The interest was calculated from December 31, 2003, the date Fleet filed its abatement application, rather than from September 3, 1998, the date it paid its excise tax. Fleet then requested that the commissioner supplement the refund with an additional payment of interest. The commissioner denied Fleet's request.

On April 5, 2004, Fleet filed with the Appellate Tax Board (board) a petition pursuant to the formal procedure, see G.L. c. 58A, § 7, and G.L. c. 62C, § 39, challenging the commissioner's refusal to pay additional interest on Fleet's successful tax abatement. Fleet and the commissioner agreed that Fleet was entitled to interest on its overpayment from December 31 2003, the date it filed its abatement application, through February 19, 2004, the date the department issued the refund. However, Fleet asserted that it also was entitled to interest from September 3, 1998, the date it filed its excise return for the 1997 calendar year and paid its required tax, through July 1, 2003, the date the 2003 amendment to G.L. c. 62C, § 40, became effective. Fleet then filed a motion for judgment on the pleadings.

The board ruled in favor of Fleet and ordered the commissioner to pay Fleet interest in the amount of $352,745.11, plus any additional interest that had accrued. The board first noted that the 2003 amendment to G.L. c. 62C, § 40, was silent on how it...

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