Avco Research Laboratory, Inc., Avco Corporation, et al. v. Commissioner of Revenue (October 12, 2000)

COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD
AVCO RESEARCH LABORATORY, INC., v. COMMISSIONER OF REVENUE 
AVCO CORPORATION, 
TURBINE ENGINE COMPONENTS TEXTRON 
(NEWINGTON OPERATIONS) INC.
(f.k.a. Babco Textron Inc.), 
TEXTRON, INC., 
TEXTRON FINANCIAL CORPORATION,
TEXTRON AUTOMOTIVE FUNCIONTAL 
COMPONENTS INC.- McCORD WINN DIVISION

Docket Nos. F242168				Promulgated:	
		  F242193				October 12, 2000
		  F245676
            F250551
            F250552
            F250553

	These are appeals under the formal procedure pursuant to G.L. c. 62C, § 39, from the refusal of the appellee to abate corporate excises assessed against the appellants under G.L. c. 63, § 38 for tax years 1990, 1991 and 1992.  
	Commissioner Scharaffa heard these appeals and was joined in the decision for the appellee by Chairman Burns and Commissioner Gorton.
	These findings of fact and report are made at the request of the appellant and the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.
	Paul H. Frankel, Esq., Michael A. Pearl, Esq. and Maxwell D. Solet, Esq. for the appellant.
	
	Harvey M. Pullman, Esq. and Steven A. Remsberg, Esq. for the appellee.

FINDINGS OF FACT AND REPORT
	On the basis of a stipulation of facts, a supplemental stipulation of facts, and testimony and exhibits introduced in the hearings of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.  The six appellants in these appeals are members of a federal consolidated corporate group ("Textron Group") which filed Massachusetts combined corporate excise returns for tax years 1990 through 1992.  Textron, Inc. ("Textron") is the principal reporting corporation for this controlled group.  Textron is a multistate corporation involved in the business of aerospace technology and the manufacture of commercial products.  Textron's principal place of business and commercial domicile is Providence, Rhode Island.  Four of the corporations in the combined group, Avco Corporation ("Avco"), Avco Research Laboratory, Inc. ("Avco Research"), Textron Financial Corporation ("Textron Financial") and Textron are incorporated in states other than Massachusetts ("foreign" corporations), and two of the corporations, Babco Corporation ("Babco") and Textron Automotive Functional Components Inc. - McCord Winn  Division ("McCord Winn"), are Massachusetts corporations ("domestic" corporations).  
	On July 7, 1996, the Commissioner of the Department of Revenue ("the Commissioner") issued Notices of Intent to Assess ("NIA") to various members of the Textron Group.  On September 25, 1996, the Commissioner issued a Notice of Assessment ("NOA") indicating that additional corporate excises had been assessed on September 24, 1996, against Avco, Turbine Engine Components Textron and McCord Winn.  On October 8, 1996, Textron filed an application for abatement of $1,328,248 in corporate excises plus interest and penalties for the Textron Group for the tax years at issue.  Textron indicated on this application the Textron Group's consent to the Commissioner's failure to act on its application prior to six months from the filing date.  
On April 22, 1997, the Commissioner sent a notice of abatement denial to Avco Research.  On April 24, 1997, the Commissioner sent a notice of abatement denial to Avco.  On September 29, 1997, the Commissioner sent a notice of abatement denial to Babco.  On August 4, 1998, Textron filed a withdrawal of consent as to the Commissioner's failure to act on the abatement claims for the remaining members of the Textron Group that have requested abatements -- McCord Winn, Textron and Textron Financial.  As a result of such withdrawal, the October 8, 1996 application for abatement is deemed to be denied in its entirety as of August 4, 1998, pursuant to G.L. c. 58A, § 6.  The appellants filed their appeals with the Board on the following dates: F242168 on June 12, 1997; F242193 on June 12, 1997; F245676 on November 4, 1997; F250551 on August 4,  1998; F250552 on August 4, 1998; and F250553 on August 4, 1998.  On the basis of the foregoing, the Board found it had jurisdiction to hear each of these appeals.
Prior to the hearing of these appeals, the Commissioner agreed to abate the amount of $422,217, exclusive of statutory additions, attributable to the inclusion in the numerator of McCord Winn's Massachusetts sales factor of certain sales pursuant to the "throw back" rule under G.L. c. 63, § 38.  Accordingly, the only issue on appeal is the constitutionality of certain provisions of the corporate excise which relate to the non-income measure of the excise. 
As to Textron, the Commissioner conceded, and the parties agreed to remove from consideration by the Board for the tax years at issue, $36,355, exclusive of statutory additions, as a result of the Commissioner's application of Department of Revenue ("DOR") Directive 99-1 ("DD 99-1"), in conjunction with Technical Information Release 99-3 ("TIR 99-3"), for the tax years at issue.  However, the Commissioner denied or is deemed to have denied a portion of the abatement claims filed by the Textron Group which would apply the provisions of the "repeal and revival" remedy contained in G.L. c. 63, § 52 to each of the appellants.  The amount of corporate excises remaining in dispute was stipulated to be $869,675, exclusive of statutory additions.
At issue in these appeals is the constitutionality of certain portions of the corporate excise statute.  The six appellants challenge the definitional provisions of G.L. c.  63, § 30(10) and (11), which define "tangible property corporation" and "intangible property corporation, and § 30(8) and (9), which calculate the net worth portion of the excise for domestic intangible property corporations and the net worth portion of the excise for foreign intangible property corporations, respectively.  These definitions are used as part of the computation of the corporate excise imposed by G.L. c. 63, §§ 32, 38C, 39 and 42B.
For each tax year at issue, all of the appellants except Textron paid excises as tangible property corporations, either foreign or domestic, as defined under G.L. c. 63, § 30(10).  Textron paid excises as a foreign intangible property corporation, as defined under G.L. c. 63, § 30(11).  All parties stipulated that the six appellants filed their returns and claimed the tangible or intangible property corporation status in accordance with the proper application of the rules provided in G.L. c. 63, § 30(10) and § 30(11).
The parties also stipulated that the five tangible property corporations would all have been classified as tangible property corporations, irrespective of the foreign subsidiary deduction in G.L. c. 63, § 30(10) and (11) at issue in these appeals.  As to the appellant Textron, the parties stipulated that application of DD 99-1 resulted in Textron having no tax liability under the non-income measure of the corporate excise in each of the tax years at issue.  Therefore, in the matter of Textron Inc. v. Commissioner, F250551, the decision was for the appellant in accordance with the Supplemental Stipulation of Facts filed by the parties.  Abatement was granted in the amount of $36,355.00 plus all statutory additions.  
In the remaining appeals, the decision was for the appellee.  For the reasons stated in the Opinion, the Board found that all the appellants lacked standing to challenge the constitutionality of  § 30(10) and (11).  The Board found that appellant Textron did have standing to challenge the constitutionality of § 30(8) and (9).  However, the Board found that § 30(8) and (9) are not unconstitutional, but rather, for the reasons stated in the Opinion which follows, these provisions are constitutional because they serve a legitimate state interest.

OPINION
	The sole issue raised by these appellants was whether four definitional provisions in § 30 violate the Commerce Clause of the United States Constitution, such that the entire corporate excise structure should be abandoned in favor of the prior version of the law in effect until 1919.  Under the current version of the statute, domestic and foreign corporations that do business in the Commonwealth are required to pay an excise based in part on a percentage of their net income and in part on a percentage of their property.  G.L. c. 63, §§ 32, 39.  The property, or non-income, portion of the excise is measured by a corporation's tangible property, if the corporation is a tangible property corporation, or by its net worth, if the corporation is an intangible property corporation.  Id.  The definitions for "tangible property corporation" and "intangible property corporation" are set forth in G.L. c. 63, § 30(10) and § 30(11), respectively.  The calculation of the excise for domestic and foreign tangible property corporations is set forth in G.L. c. 63, § 30(7).  The calculation of the excise on net worth for domestic and foreign intangible property corporations is set forth in G.L. c. 63, § 30(8) and § 30(9), respectively. 

I.  Background

In Perini Corporation v. Commissioner of Revenue, 419 Mass. 763, cert. denied, 516 U.S. 822 (1995), the Supreme Judicial Court addressed the constitutionality of two deductions used in computing the taxable net worth of an intangible property corporation, one for a domestic corporation, found at § 30(8), and one for a foreign corporation, found at § 30(9).  The challenged provisions allowed a domestic intangible corporation to deduct from its taxable net worth the value of a subsidiary of which it owned 80% or more of its voting stock, if that subsidiary was incorporated in Massachusetts.  Perini, 419 Mass. at 764.  Foreign intangible corporations were also allowed a deduction from their taxable net worth for the value of a subsidiary of which it owned 80% of more of the voting stock, but only if that subsidiary was incorporated outside of Massachusetts.  Id.   
The Supreme Judicial Court found that the challenged deductions facially discriminated against interstate commerce in violation of the Commerce Clause of the United States Constitution.  "This provision draws a distinction solely on the basis of the domicil of the subsidiary . . ."  Id. at 768.  The court compared similarly-situated taxpayers, and discovered distinctions based solely on domicile.  Id. at 769 (quoting Kraft Gen. Foods, Inc. v. Iowa Dep't of Revenue & Fin., 505 U.S. 71, 80 n.23 ("In considering claims of discriminatory taxation under the Commerce Clause . . . it is necessary to compare the taxpayers who are 'most similarly situated.'"))  Domestic parent corporations were treated differently based on the domicile of their subsidiaries, creating an incentive for domestic corporations to acquire in-state subsidiaries and a burden for domestic corporations that crossed state lines to acquire foreign subsidiaries.  Id. at 768.  Furthermore, the provisions treated foreign corporations less favorably than similarly-situated domestic corporations, allowing a deduction for a domestic corporation that acquires a domestic subsidiary, but not for a foreign corporation that acquires a domestic subsidiary.  Id. at 769.  The court thus found the deductions to violate the Commerce Clause, because "[u]nder § 30(8) and (9), only those corporate structures which are exclusively domestic or exclusively foreign are given a deduction . . . . Thus, the effect of this taxing scheme is to encourage single-State corporate structures and to penalize parent corporations that choose to cross State lines in order to acquire or create foreign subsidiaries."  Id. at 770.  
Having declared that the challenged deductions violated the Commerce Clause, the Supreme Judicial Court was left to fashion a remedy for the taxpayer in Perini.  Accordingly, Associate Justice Wilkins made the Recommendation Concerning Final Judgment To Be Entered (Wilkins, J.), SJC Docket No. 93-393, (entered May 13, 1996) ("Perini II").  In his Order, Justice Wilkins examined the available remedies, including those contained in G.L. c. 63, § 52.  Section 52 provides three separate remedies in the event that certain sections or subdivisions of the corporate excise statute are declared unconstitutional or inoperative.  The first remedy applies "[i]f the provisions of section thirty-two imposing an excise on domestic business corporations . . . are declared unconstitutional or inoperative by a final judgment, order or decree of the supreme court of the United States or of the supreme judicial court of the commonwealth."  In this event, the offending portion shall be rendered "null and void," and "all laws applicable to domestic business corporations . . . which were repealed or were made inoperative as to, or inapplicable to, such corporations by chapter three hundred and fifty-five of the General Acts of nineteen hundred and nineteen shall thereupon be revived and become operative."  This remedy is known as "repeal and revival."  The second parallel remedy applies if a portion of § 39 imposing an excise on foreign business corporations is "declared unconstitutional or inoperative by a final judgment, order or decree of the supreme court of the United States or of the supreme judicial court of the commonwealth."  Repeal and revival likewise applies in this situation.  The third remedy applies if any other part, section or subdivision of §§ 30 through 42B inclusive, other than those sections imposing an excise (§§ 32, 38C, 39 or 42B) is declared unconstitutional or inoperative.  In this situation, severability applies, meaning that the remaining parts of §§ 30 through 42B, inclusive, "shall not be affected thereby."  
Justice Wilkins viewed the repeal and revival provision as an overly drastic measure where the Supreme Judicial Court declared a single deduction to be unconstitutional and not §§ 32, 38C, 39 or 42B: "Certainly severability is warranted in the circumstances, and the entire scheme need not be thrown out."  Id. at 3 (citing G.L. c. 63, § 52 and G.L. c. 4, § 5).  Justice Wilkins, therefore, opted for a "surgical procedure" striking the unconstitutional language pertaining to the location of the subsidiaries in § 30(8) and (9).  As a result, all corporations, both domestic and foreign, now receive a deduction for their investments in subsidiaries, both domestic or foreign, in which they owned at least an eighty-percent interest.  Perini II at 7-8.

II.  Appellants' Arguments

At issue in these appeals is the constitutionality of the corporate excise statute as a whole, due to alleged constitutional flaws in the definitional section, G.L. c. 63, § 30.  Paragraphs (10) and (11) provide two formulas for the determination of whether a corporation is a tangible or an intangible property corporation, depending on whether the corporation is domestic or foreign.  If a corporation is determined to be an intangible property corporation, paragraphs (8) and (9) provide two formulas for the calculation of that corporation's non-income portion of the excise, depending on whether the corporation is domestic or foreign.  The appellants' argument is that these definitional sections are constitutionally defective in two respects.  First, they allege that paragraphs (10) and (11) are unconstitutional or inoperative, because these provisions provide a deduction to foreign corporations for their investments in subsidiaries not doing business in Massachusetts.  This deduction, they allege, by reducing the tangible property of a corporation, tends to make it more likely for a foreign corporation to be classified as an intangible property corporation than a similarly-situated domestic corporation.  Therefore, the appellants allege, these provisions violate the Commerce Clause, because they treat domestic and foreign corporations differently.  
The appellants' second argument is that paragraphs (8) and (9), providing the formulas for the calculation of the excise on the net worth of domestic and foreign intangible property corporations, respectively, are unconstitutional or inoperative, because they apply less favorably to foreign corporations than they do to domestic corporations.  After Perini II, the deduction for investments in eighty percent owned subsidiaries applies to both foreign and domestic corporations without any references to the domicile of the subsidiary or the parent corporation.  However, the appellants allege that, even after Perini II, these provisions apply differently to foreign corporations than to their domestic counterparts.  The deduction, they allege, is applied directly to reduce a domestic corporation's net worth measure.  However, because it is applied in conjunction with an apportionment factor to a foreign corporation, they allege that the deduction applies only indirectly to a foreign corporation's net worth measure in calculating the non-income portion of the corporate excise.  
As a result of these perceived defects in the definitional section, the appellants allege that those provisions actually imposing the excise on domestic and foreign corporations, §§ 32 and 39, respectively, are so tainted as to render the entire corporate excise statute unconstitutional or inoperative.  They argue, therefore, that the Board must invoke the repeal and revival provision of G.L. c. 63, § 52, thereby granting an abatement of excise to the level which would have been imposed under the prior version of the corporate excise statute in effect until 1919.  
For the reasons explained below, the Board dismissed the appellants' challenges to the non-income portion of the Massachusetts corporate excise.

III.  Challenges to § 30(10) and (11) - classification provisions

First, the Board found that all appellants lacked standing to challenge paragraphs (10) and (11).  It is a fundamental principle of constitutional law that a court cannot entertain an action challenging the constitutionality of a statute unless the challenging party has "legal standing" to maintain such an action.  See  Franklin P. Horton & others v. Attorney General & The Secretary of the Commonwealth, 269 Mass. 503, 513-14 (1929)("Only those directly affected as to some personal interest by the operation of a statute can question its validity").  Courts in the Commonwealth strictly adhere to the standing requirement, viewing the issue as intrinsic to the delicate separation of powers among the branches of government: "From an early day it has been an established principle in this Commonwealth that only persons who have themselves suffered, or who are in danger of suffering, legal harm can compel the courts to assume the difficult and delicate duty of passing upon the validity of the acts of a coordinate branch of the government." Jane Doe & others v. The Governor & others, 381 Mass. 702, 704 (1980)(quoting Kaplan v. Bowker, 333 Mass 455, 459 (1956)).  For this reason, "[t]he issue of "standing" is closely related to the question of whether an "actual controversy" exists, and [the Supreme Judicial Court] ha[s] treated it as an issue of subject matter jurisdiction."  Doe, 381 Mass. at 705 (citing Department of Community Affairs v. Massachusetts State College Bldg. Auth., 378 Mass. 418, 422-23 (1979)).
The Board agreed with the Commissioner that none of the six appellants could establish any actual harm by the operation of the classification provisions in § 30(10) and (11).  With respect to the five appellants which were classified as tangible property corporations, the parties stipulated that "regardless of whether [each of these five appellants] were to utilize the formula for domestic corporations or the formula for foreign corporations, for all tax years at issue, [each appellant] would fall within the definition of and be classified as a tangible property corporation under G.L. c. 63, § 30(10), and be taxed on the value of its tangible property determined under G.L. c. 63, § 30(7)." Therefore, the Board agreed with the Commissioner's assertion that "since their classification status is in no way dependent upon or affected by the statutory provisions that they allege are unconstitutional, the alleged unconstitutionality has no adverse impact on them."
The intangible property corporation, Textron, also lacks standing to challenge paragraphs (10) and (11), because the challenged deduction in no way harmed Textron.  The Board found that Textron failed to prove that, for all tax years at issue, Textron would be classified as anything other than an intangible property corporation under § 30(11), regardless of the deduction for investments in foreign subsidiaries.  Therefore, the existence and application of this deduction had no effect on Textron for any of the tax years at issue.  However, as discussed in part IV of this Opinion, Textron did have standing to challenge paragraphs (8) and (9) of § 30. 
Second, the statute as written in paragraphs (10) and (11) authorizes the Commissioner to use discretion in classifying corporations as tangible or intangible.  After setting forth the general definition of a tangible property corporation, § 30(10) adds to this "or a corporation, which, in the judgment of the commissioner, should be so classified."  Section 30(11) adds this same discretionary language to the definition of an intangible property corporation.  Therefore, the Commissioner is authorized by statute to depart from the classification formula for foreign and domestic corporations where in his discretion he believes a corporation "should be so classified" as either tangible or intangible.  Such discretion was properly exercised where the Commissioner, with the benefit of judicial guidance from Perini, believed that a potential constitutional issue was present in these sections.  See Consolidated Cigar Corporation v. Dept. of Public Health, 372 Mass. 844, 850-54 (1977)(court gives considerable leeway to a Massachusetts agency in interpreting a statute it is charged with enforcing); School Committee of Springfield v. Board of Education, 362 Mass. 417, 441 n.22 (1972)("weight should be given" to reasonable construction of a statute adopted by the agency charged with its enforcement); see also Train v. Natural Resources Defense Council, 421 U.S. 60, 87 (1975)(same result with respect to federal agency).  In light of this factor, and more importantly, in light of Perini and Perini II, it was appropriate for the Commissioner to allow corporations to choose whether to use the formula in § 30(10) or (11) whether they are domestic or foreign pursuant to DD 99-1.
Third, the Board also found that none of the appellants presented evidence proving that the provisions in c. 63, § 30(10) and (11) work to the advantage of a domestic corporation and to the disadvantage of a foreign corporation.  In striking the language in Perini, the Supreme Judicial Court noted that the challenged provisions in § 30(8) and (9) discriminated against interstate commerce because they resulted in a benefit to domestic intangible property corporations that acquired domestic subsidiaries, and a burden to foreign intangible property corporations and to domestic intangible property corporations that acquired foreign subsidiaries.  Perini, 419 Mass. at 768-69 (citing, inter alia, West Lynn Creamery, Inc. v. Healy, 114 S.Ct. 2205, 2212, 2214 (1994)(Massachusetts pricing order which effectively benefited in-State economic interests by burdening out-of-State competitors held to be unconstitutional in violation of Commerce Clause).  Accordingly, the Board found that none of the appellants in these appeals met their burden of proving that the provisions in § 30(10) and (11) work to the advantage of domestic corporations and to the disadvantage of foreign corporations; therefore, the Board did not find that paragraphs (10) and (11) discriminated against interstate commerce in violation of the Commerce Clause.
Finally, an additional consideration is that the challenged deductions in § 30(10) and (11) serve a legitimate state interest that cannot be served adequately by reasonable nondiscriminatory alternatives.  See Perini, 419 Mass. at 771.  This legitimate interest is avoidance of a constitutional violation in the Commonwealth's taxing provisions.  The challenged deductions available to foreign corporations in § 30(10) and (11) insures that a foreign corporation's investments in foreign subsidiaries not doing business in Massachusetts will not be a factor that determines its classification as either a tangible or an intangible property corporation.  It is a well-established constitutional principle that a State may not tax the worldwide income of an out-of-state corporation.  See Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768, 777 (1992)("The principle that a State may not tax value earned outside its borders rests on the fundamental requirement of both the Due Process and Commerce Clauses that there be 'some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax')(quoting Miller Brothers, Co. v. Maryland, 347 U.S. 340, 344-45 (1954)).  Likewise, the Supreme Judicial Court has noted that the inclusion in the Commonwealth's taxing provision of a foreign corporation's investments in other foreign corporations not doing business in the Commonwealth would likely be unconstitutional.  Perini, 419 Mass. at 771, n. 8; Perini II at 4-6.  Moreover, the deduction is narrowly drawn so as to eliminate that portion of the foreign corporation's investments - those investments in foreign subsidiaries not doing business in the Commonwealth - which would create a constitutional violation.  The avoidance of a constitutional violation in its taxing provisions, therefore, advances a legitimate local purpose and is narrowly drawn to accomplish that legitimate purpose.
For all the reasons stated above, the Board found for the Commissioner on the issue of the constitutional challenge to § 30(10) and (11).

IV.  Challenges to § 30(8) and (9) - net worth calculations

First, it is apparent that all appellants except Textron lack standing to challenge the net worth provisions in § 30(8) and (9).  Only Textron was an intangible property corporation, so only Textron could actually use either of these provisions to calculate the non-income measure of its corporate excise.  See G.L. c. 63, § 30(8) and (9).  The other five corporations, as tangible property corporations, calculated the non-income measure of the corporate excise under the provisions of § 30(7). 
Thus, the only appellant with potential standing to challenge § 30(8) and (9) is the one intangible property corporation, Textron.  The Board found that Textron had standing notwithstanding the Commissioner's issuance of DD 99-1.  The United States Supreme Court has held that voluntary cessation of an action may not necessarily moot a judicial suit to challenge that action.  See United States v. Concentrated Phosphate Export Ass'n, 393 U.S. 199, 203 (1968).  Moreover, the DOR's unilateral issuance of a directive such as DD 99-1 may not be a sufficiently final discontinuance of a challenged behavior, such as the legislative change of a statute, to guarantee that the challenged activity could not reoccur.  See Laurence H. Tribe, American Constitutional Law, 3d. ed. (2000) at 355-56 (citing United States v. Chesapeake & Potomac Co. of Virginia, 516 U.S. 415 (1996)(per curiam).   Furthermore, Massachusetts courts traditionally choose to adjudicate claims even if they are technically moot if the issue raised is one of importance and capable of avoiding review.  See Mendoza v. Commonwealth, 432 Mass. 771, 777 (1996)("[I]t is entirely appropriate that we proceed to adjudicate both claims" where "[T]he issues are certainly of recurring importance to the administration of justice in the Commonwealth, yet . . . they would almost certainly evade review in this court").
However, the Board found that the challenged provisions in § 30(8) and (9) are not unconstitutionally discriminatory.  Textron's argument is that, because an apportionment factor is applied to a foreign corporation's net worth, the deduction for eighty percent owned subsidiaries will apply indirectly to reduce a foreign corporation's net worth.  Yet, they argue, the eighty percent owned subsidiary deduction will directly reduce a domestic corporation's net worth, because there is no apportionment factor applied to the domestic corporation.  Appellant's argument, therefore, stems from the statute's use of an apportionment factor to calculate the net worth portion of the excise of a foreign corporation.  However, the use of an apportionment formula is a basic precept to the corporate excise.  "[T]he entire net income of a corporation, generated by interstate as well as intrastate activities, may be fairly apportioned among the States for tax purposes by formulas utilizing in-state aspects of interstate affairs."  Mobil Oil Corp. v. Comm'r of Taxes, 445 U.S. 425, 436 (1980)(quoting Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 460 (1959)).  Latitude is accorded to a State in approximating the value of the intrastate operations which it may fairly tax.  See Moorman Manufacturing Co. v. Bair, 437 U.S. 267, 273 (1978)("the Court has refused to impose strict constitutional restraints on a State's selection of a particular formula" for calculating corporate excise on intrastate corporate activity).  "One who attacks a formula of apportionment carries a distinct burden of showing by 'clear and cogent evidence' that it results in extraterritorial values being taxed."  Butler Bros. V. McColgan, 315 U.S. 501, 507 (1942)(citing Norfolk & Western Ry. Co. v. North Carolina, 297 U.S. 682, 688 (1968)).
Textron did not meet this "clear and cogent" evidence standard.  Under § 30(0), the apportionment factor is not just applied to the deduction, but to the entire net worth amount.  The Commonwealth must apply an apportionment factor in calculating a foreign corporation's excise, because a State cannot within the boundaries the Constitution tax extraterritorial income of a foreign corporation.  See Allied-Signal, supra.  Because the Commonwealth can tax only a portion of a foreign intangible property corporation's net worth, it follows that such a corporation should receive only a corresponding portion of the deduction used to arrive at that net worth amount.  See  Butler Bros., 315 U.S. at 506 (a statute "calling for a method of apportionment which is 'fairly calculated' to assign to a State 'that portion of the net income 'reasonably attributable' to the business done there" will put any constitutional question under the Fourteenth Amendment "at an end")(citations omitted).  Therefore, while the use of the apportionment factor in § 30(9) may result in foreign corporations receiving the eighty percent subsidiary deduction indirectly, the apportionment factor nonetheless serves a legitimate state interest, which is the avoidance of taxing extraterritorial income.  See Allied-Signal, supra.  Therefore, the provisions of § 30(9) withstand Textron's constitutional challenge. 
Even if the Board were to find that paragraphs (8) and (9) were unconstitutional, the Board could not grant Textron the remedy it sought, namely, the repeal and revival remedy in § 52.  For the reasons stated below, the conditions for the application of the repeal and revival remedy were not met in these appeals.  
In order for the repeal and revival provisions in § 52 to apply, one of the sections of G.L. c. 63, §§ 32, 38C, 39 or 42B, those sections actually imposing the excise, must have been declared unconstitutional or inoperative by a final judgment, order or decree of the United States Supreme Court or the Supreme Judicial Court of Massachusetts.  This prerequisite has not been met under the facts of these appeals for two reasons.  First, the challenged portions of the statute are confined to four definitions in § 30; they do not impugn §§ 32, 38C, 39 or 42B, the provisions of the statute imposing the excise on domestic and foreign corporations.  Second, there has been no United States Supreme Court case, nor a Supreme Judicial Court of Massachusetts case, that has declared by final judgment, order or decree that any of the provisions of G.L. c. 63, §§ 32, 38C, 39 or 42B imposing an excise on corporations are unconstitutional or inoperative.  Because neither of the requirements of the § 52 repeal and revival remedy has been met, the Board would be statutorily unable to grant the remedy sought by the appellants.  See W. & J. Sloan v. Commissioner, 253 Mass. 529, (1925)("Doubtless section 52 is remedial and should be given an interpretation to effectuate its intent.  But it is not to be stretched to cover facts not within its fair meaning").
Furthermore, as in Perini and Perini II, the repeal and revival remedy of G.L. c. 63, § 52 would not apply to the provisions that Textron challenged.  Textron's challenge to § 30(8) and (9) is similar to the challenge to those same portions addressed in Perini and Perini II, namely the constitutionality of a net worth calculation that applies different deductions to corporations depending on whether they are foreign or domestic.  Justice Wilkins began his Order with the premise that repeal and revival is too harsh for challenges of deductions contained in the definitional section of § 30.  Instead, the severability remedy would apply to eradicate any unconstitutional or inoperative provisions from the statute.  Perini II at 3; see also Opinion of the Justices to the Governor and Council, 269 Mass. 611, 617 (1929)(in addressing whether repeal and revival remedy should apply to unconstitutional defect of a single deduction in G.L. c. 63, § 30(5): "That is too violent an inference or construction to be warranted")(citing Truax v. Corrigan, 257 U.S. 312, 341, 342 (1921).  Therefore, even if an appropriate court or this Board were to agree with Textron and find that the net worth provisions provide an unconstitutional advantage to domestic taxpayers, Perini II makes clear that severability, and not repeal and revival, would be the proper remedy for addressing constitutional defects in deductions contained in the definitional provisions of § 30.  See also Opinion of the Justices, 269 Mass at 617 ("We do not think that the words of [§ 52] disclose an intention that the section shall take effect in the circumstances here disclosed.  The main design of the excise law as set forth in G.L. c. 63, § 32, has not been declared unconstitutional").  Therefore, if any of the definitional provisions of § 30 were declared unconstitutional or inoperative, a "surgical procedure" similar to that utilized in Perini II would be used in accordance with the last sentence of § 52.  It is an accepted judicial tenet that, where there is an unconstitutional provision in a statute, a court will try to eradicate the defect whenever possible rather than expunge the statute as a whole.  See Boston Gas Co. v. Department of Public Utilities, 387 Mass. 531, 540 (1982)("When a court is compelled to pass upon the constitutionality of a statute and is obliged to declare part of it unconstitutional, the court, as far as possible, will hold the remainder to be constitutional and valid, if the parts are capable of separation and are not so entwined that the Legislature could not have intended that the part otherwise valid should take effect without the valid part").  See also Massachusetts Wholesalers of Malt Beverages, Inc. v. Commonwealth, 414 Mass. 411 (1993)(court strikes amendment to bottle law creating retroactive funding, thereby saving the remainder of the statute).
Moreover, Textron was not treated differently based on its status as a foreign corporation.  Pursuant to DD 99-1 and TIR 99-3, Textron was allowed to choose either the domestic or foreign corporation formula for determining net worth, irrespective of the place of the corporation's domicile.  The Commissioner, relying on Perini and Perini II, issued DD 99-1 in an attempt to avoid further constitutional challenges.  This directive allows both foreign and domestic corporate taxpayers to choose between the two formulas for calculating their net worth measure, either § 30(8) or (9), such election to be made anew for each tax year.  Pursuant to TIR 99-3, the Commissioner authorized the elections of DD 99-1 to be available both prospectively and retroactively.  Therefore, for all tax years at issue, Textron was entitled to choose whether to be taxed on its net worth as either a foreign or a domestic corporation.  As stipulated by the parties, treatment of Textron as a domestic intangible property corporation in each of the tax years at issue would result in Textron having no tax liability under the non-income measure of the corporate excise.  Therefore, the statutory scheme as enforced by the Commissioner treated Textron no differently than a similarly-situated domestic intangible property corporation.
Appellants argue that the Commissioner misplaced the authority to prevent an unconstitutional result by  promulgating a directive and technical information.  The Board agrees with the appellants that the Commissioner's authority to assess taxes must be derived from statute.  See Commissioner v. AMIWoodbroke, Inc., 418 Mass. 92 (1994), Commissioner of Revenue v. Marr Scaffolding, 414 Mass. 489, 493 (1993), Polaroid Corp. v. Commissioner of Revenue, 393 Mass. 490, 472 (1984) Chateau deVille, 11 Mass. App. Tax Bd. Rep. 102, 107 (1989).  However, as the head of the agency charged with enforcing the corporate excise statutes, the Commissioner has the discretion not to enforce a statute, especially if in his expertise he believes the statute as written poses a constitutional problem.  See Heckler v. Chaney, 470 U.S. 821 (1985)(an agency's decision to refrain from enforcing a statute under particular circumstances involves "a complicated balancing of a number of factors which are peculiarly within its expertise").  While the Board found the challenged provisions to be constitutional, it also found that the Commissioner was within his authority, as the head of the agency charged with administering the tax laws, to apply the statutes in a manner which avoided what he perceived to be a potential constitutional issue.  The Commissioner was authorized to apply the statute in light of the judicial guidance given in Perini and Perini II.  Because DD 99-1 removes the distinction based on domicile of the corporations for purposes of calculating an intangible property corporation's net worth, DD 99-1 is a reasonable interpretation of what the Supreme Judicial Court did in Perini and Perini II with respect to other parts of the same section, and resolves all ambiguities arising after Perini and Perini II in favor of the taxpayer, as is required under Massachusetts law.  "It is a familiar principle that tax laws are to be strictly construed.  The right to tax must be plainly conferred by the statute.  It is not to be implied.  Doubts are resolved in favor of the taxpayer."  Eaton, Crane & Pike Co. v. Commonwealth, 237 Mass. 523, 530.  See also, Cabot v. Commissioner of Corp. & Tax., 267 Mass. 338, 340 (1929), State Tax Commission v. Gray, 340 Mass. 535, 541 (1960).  
Moreover, DD 99-1 refrains from rewriting the statute; it follows the exact computational provisions as written by the Legislature, but implements these provisions by enabling taxpayers to choose their net worth excise liability irrespective of their domicile.  The result is that the calculations as written by the Legislature remain intact, but the implementation allows the Commissioner to avoid what he perceives to be a potential constitutional issue in light of his agency's reasonable interpretation of Perini and Perini II.  DD 99-1 is therefore consistent with the Supreme Court's decision in Cheney, which allows discretion in the agency charged with enforcing a particular statute.
Based on the foregoing, the Board accordingly issued a decision for the appellant in F250551 as a result of the application of DD 99-1 and TIR 99-3, in accordance with the Supplemental Stipulation of Facts filed by the parties.  Abatement was granted in the amount of $36,355.00 plus all statutory additions.  With respect to the remaining appeals, the Board issued decisions for the appellee.

					     THE APPELLATE TAX BOARD	
							
  By:____________________________
					     Abigail A. Burns, Chairman

A true copy:


Attest: _____________________
	    Clerk of the Board

   The corporate franchise tax as originally enacted and then amended in 1865 did not have any maximum or minimum limitation.  The Business Corporation Law of 1903 inserted maximum and minimum limitations.  The tax on any corporation was not to exceed by more than twenty percent a tax on the tangible property and taxable securities of the corporation calculated at the same rate.  In no event was the excise on foreign corporations to exceed $2,000 annually.  Appellants estimated that the combined total excise liability for all six appellants for the three-year period at issue was $6,915.00

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