Allied Domecq Spirits and Wines USA, Inc. v. Commissioner of Revenue (May 22, 2013)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD

ALLIED DOMECQ SPIRITS AND 	   v.	COMMISSIONER OF REVENUE
WINES USA, INC.      	 
 							 		   
Docket Nos.: C282807, C293684 		Promulgated:
		   C297779				May 22, 2013
	
									   
These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39(c) from the refusal of the appellee, Commissioner of Revenue ("Commissioner"), to grant an abatement of corporate excise, interest and penalties assessed to the appellant, Allied Domecq Spirits and Wines USA, Inc. ("ADSWUSA" or the "appellant") for the tax years ended August 31, 1996 through and including August 31, 2004 ("tax years at issue").
Commissioner Scharaffa heard these appeals and was joined by Chairman Hammond and Commissioners Rose, Mulhern and Chmielinski in a decision for the appellee in Docket No. C282807 and in decisions for the appellant in Docket Nos. C293684 and C297779.  
The findings of fact and report are made pursuant to requests by the appellant and the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32.  
John S. Brown, Esq., George P. Mair, Esq., Donald-Bruce Abrams, Esq., Darcy A. Ryding, Esq., and Matthew D. Schnall, Esq. for the appellants.
Andrew P. O'Meara, Esq., Mireille T. Eastman, Esq., Anne P. Hristov, Esq., and Derek W. Kelley, Esq. for the appellee.	

FINDINGS OF FACT AND REPORT
On the basis of a Statement of Agreed Facts, a Stipulation and Agreement for Judgment and the testimony and exhibits offered into evidence at the hearing of these appeals, the Appellate Tax Board ("Board") made the following findings of fact.
At all times relevant to these appeals, Allied Domecq, PLC was an international conglomerate that was headquartered in Bristol, England and owned hundreds of subsidiaries worldwide.  During the tax years at issue, Allied Domecq PLC had two main lines of business: (1) the retail division, which included the quick-serve restaurants Dunkin' Donuts, Baskin Robbins and later Togos; and (2) the wine and spirits division, which included the brands Kahlua, Beefeater Gin, Sauza Tequila, Maker's Mark Bourbon, Canadian Club Whiskey, Harvey's Bristol Cream, Clos du Bois Wines and William Hill Wines.  Allied Domecq North America Corporation ("ADNAC"), a Delaware corporation that was an indirect subsidiary of Allied Domecq PLC, was established as the U.S. parent corporation of the U.S. subsidiaries of Allied Domecq, PLC.  ADNAC qualified to do business in Massachusetts in February, 1997.  ADNAC, the North American operation, was headquartered in Windsor, Ontario, just across the border from Detroit, Michigan.  The Windsor headquarters was commonly referred to as "Walkerville."   
ADSWUSA, itself a subsidiary of ADNAC, was the principal reporting corporation for a combined group of affiliated corporations under Allied Domecq, PLC that were doing business in the Commonwealth ("combined group").  As the principal reporting corporation, ADSWUSA filed a Massachusetts Corporate Excise Return, Form 355, for each of the tax years at issue.  The particular jurisdictional facts relevant to each appeal are presented below.
Jurisdiction Information for Docket No. C282807. 
As the principal reporting corporation for the combined group, ADSWUSA filed a Massachusetts Corporate Excise Return, Form 355, for each of the tax years ended August 31, 1996 through and including August 31, 1998.  The appellant signed several Consents Extending the Time for Assessment of Taxes ("Consents"), including a Consent extending the period for assessment until June 30, 2004.  On March 31, 2004, the Commissioner issued to the appellant a Notice of Intent to Assess ("NIA"), proposing additional assessments of corporate excise for the tax years ended August 31, 1996 through and including August 31, 1998.  On May 18, 2004, the Commissioner issued a Notice of Assessment ("NOA") showing the assessments of additional corporate excise in the following amounts: $861,239.00, plus interest and penalties, for the tax year ended August 31, 1996; $739,866.00, plus interest and penalties, for the tax year ended August 31, 1997; and $1,629,119.00, plus interest and penalties, for the tax year ended August 31, 1998.  ADSWUSA has not paid the amounts set out in the NOA.  On February 16, 2005, ADSWUSA timely filed an Application for Abatement of corporate excise, Form CA-6, for the tax years ended August 31, 1996 through and including August 31, 1998.  By Notice of Abatement Determination dated January 21, 2006, the Commissioner gave ADSWUSA notice that she had denied in full its abatement application for the tax years ended August 31, 1996 through and including August 31, 1998.  On February 15, 2006, ADSWUSA filed a Petition Under Formal Procedure with the Board appealing from the Commissioner's denial of ADSWUSA's abatement application for tax years ended August 31, 1996 through and including August 31, 1998.  That petition was assigned Docket No. C282807.  On the basis of the foregoing, the Board found and ruled that it had jurisdiction over that appeal.  
Jurisdiction Information for Docket No. C293684.  
As the principal reporting corporation for the combined group, ADSWUSA filed a Massachusetts corporate excise return, Form 355, for each of the tax years ended August 31, 1999 through and including August 31, 2001.  The appellant signed several Consents, including a Consent extending the period for assessment until March 31, 2006.  On January 16, 2006, the Commissioner issued an NIA proposing additional assessments of corporate excise for the tax years ended August 31, 1999 through and including August 31, 2001.  On February 28, 2006, the Commissioner issued an NOA showing the assessments of additional corporate excise in the following amounts: $1,391,663.00, plus interest and penalties, for the tax year ended August 31, 1999;   $2,464,403, plus interest and penalties, for the tax year ended August 31, 2000; and $3,528,600.00, plus interest, for the tax year ended August 31, 2001.  ADSWUSA has not paid the amounts set out in the NOA.  On June 8, 2006, ADSWUSA timely filed with the Commissioner an abatement application for the tax years ended August 31, 1999 through and including August 31, 2001.  As of May 8, 2007, the Commissioner had not acted on ADSWUSA's abatement application.  By letter dated May 8, 2007 and delivered to the Commissioner on that date, ADSWUSA withdrew its consent to the extended consideration of its abatement application and the application was deemed denied on that date pursuant to G.L. c. 58A, § 6.  On September 20, 2007, ADSWUSA filed a Petition Under Formal Procedure with the Board appealing from the Commissioner's denial of ADSWUSA's abatement application for tax years ended August 31, 1999 through and including August 31, 2001.  That petition was assigned Docket No. C293684.  On the basis of the foregoing, the Board found and ruled that it had jurisdiction over that appeal.  
Jurisdiction Information for Docket No. C297779.  
As the principal reporting corporation for the combined group, ADSWUSA filed a Massachusetts corporate excise return, Form 355, for each of the tax years ended August 31, 2002 through and including August 31, 2004.  The appellant signed several Consents, including a Consent extending the period for assessment until June 30, 2007.  On April 11, 2007, the Commissioner issued an NIA proposing additional assessments of corporate excise for the tax years ended August 31, 2002 through and including August 31, 2004.  On May 24, 2007, the Commissioner subsequently issued an NOA showing the assessments of additional corporate excise in the following amounts:  $4,780,642.00, plus interest, for the tax year ended August 31, 2002; $3,612,296.00, plus interest, for the tax year ended August 31, 2003; and $4,467,421.00, plus interest, for the tax year ended August 31, 2004.  ADSWUSA has not paid the amounts set out in the NOA.  On August 16, 2007, ADSWUSA timely filed with the Commissioner an abatement application for the tax years ended August 31, 2002 through and including August 31, 2004.  As of February 19, 2008, the Commissioner had not acted on ADSWUSA's abatement application.  By letter dated February 19, 2008 and delivered to the Commissioner on that date, ADSWUSA withdrew its consent to the extended consideration of its abatement application and the application was deemed denied on that date pursuant to G.L. c. 58A, § 6.  On July 10, 2008, ADSWUSA filed a Petition Under Formal Procedure with the Board appealing from the Commissioner's denial of ADSWUSA's abatement application for tax years ended August 31, 2002 through and including August 31, 2004.  That petition was assigned Docket No. C297779.  On the basis of the foregoing, the Board found and ruled that it had jurisdiction over that appeal.  
Operative Facts of the Appeals.
Prior to the tax years at issue, ADNAC was not included in the appellant's combined Massachusetts corporate excise return.  However, as will be described, the appellant claimed that it transferred employees from three of its business departments -- insurance, taxation and internal audit -- from either Dunkin' Donuts or ADSWUSA to ADNAC and thereby created a physical presence for ADNAC in Massachusetts.  On the basis of those transactions, the appellant contended that ADNAC had sufficient nexus with Massachusetts to be included in the Massachusetts combined group.  For each of the tax years at issue, the appellant included ADNAC in the combined corporate excise returns and consequently applied an apportioned share of ADNAC's significant losses to offset the income of the combined group.  On audit, the Commissioner concluded that ADNAC did not have sufficient nexus with Massachusetts to be included in the combined group for the tax years at issue and thus removed ADNAC from the combined group.  The effect of this removal was the elimination of ADNAC's substantial losses.  
The appellant contended that the transfer of employees and functions from three of its business operations to ADNAC had business purpose and economic effect.  The Commissioner, however, determined that the appellant's transfers were a sham without business purpose or economic effect and therefore, disregarded the transactions.  Before the transfers, ADNAC did not have sufficient nexus with Massachusetts to be included in the combined group.  Accordingly, the fundamental issue raised by these appeals is whether the appellant's transfer to ADNAC of employees and business functions had a valid business purpose and economic effect beyond the avoidance of tax, and therefore created sufficient nexus for ADNAC to be included in the combined group.  The parties referred to this question as the "reverse-nexus issue."   
By an Order dated September 23, 2008, the Board consolidated these appeals for hearing and further ordered that the appeals be bifurcated, with the reverse-nexus issue addressed first.  After a hearing on the reverse-nexus issue, by an Order dated April 1, 2010, the Board found and ruled that ADNAC was not properly includible in the Massachusetts combined group for the corporate excise returns that ADSWUSA filed for the tax years at issue under G.L. c. 63, § 32B, as then in effect.  Subsequent to this Order, the parties resolved all the remaining issues of the appeals by entering into a Stipulation and Agreement for Judgment by which they agreed on the proper excise due based on the Board's determination that ADNAC did not have nexus with Massachusetts.  The following table reflects the parties' agreement: 
Table 1
Tax Year Ending	Original Assessment	Parties' Agreed-Upon Excise	Abatement	
8/31/1996	$   861,239	$   861,239	$         0	
8/31/1997	$   739,886	$   739,886	$         0	
8/31/1998	$ 1,629,119	$ 1,629,119	$         0	
8/31/1999	$ 1,391,663	$ 1,260,149	$   131,514	
8/31/2000	$ 2,464,403	$ 2,318,257	$   146,145	
8/31/2001	$ 3,528,600	$ 3,466,250	$    62,351	
8/31/2002	$ 4,780,642	$ 4,572,294	$   208,348	
8/31/2003	$ 3,612,296	$ 1,986,789	$ 1,625,507	
8/31/2004	$ 4,467,421	$ 3,758,636	$   708,784	
Total	$23,475,268	$20,592,619	$ 2,882,649	

The parties further stipulated that, if it is finally determined on appeal or by the Board on remand that ADNAC had nexus with Massachusetts and was properly includible in the combined group for each tax year at issue, then the adjusted excises and abatements reflected in the following table would apply:

Table 2
Tax year ending	Original Assessment	Proper Excise Due	Abatement	
8/31/1996	$   861,239	$         0	$   861,239	
8/31/1997	$   739,886	$         0	$   739,886	
8/31/1998	$ 1,629,119	$   223,794	$ 1,405,325	
8/31/1999	$ 1,391,663	$         0	$ 1,391,663	
8/31/2000	$ 2,464,403	$ 2,029,837	$   434,565	
8/31/2001	$ 3,528,600	$         0	$ 3,528,600	
8/31/2002	$ 4,780,642	$         0	$ 4,780,642	
8/31/2003	$ 3,612,296	$   498,087	$ 3,114,209	
8/31/2004	$ 4,467,421	$ 2,436,381	$ 2,031,040	
Total	$23,475,268	$ 5,188,099	$18,287,169	

ADSWUSA presented its case-in-chief through the submission of exhibits and the testimony of: Robert Parker, a former tax department employee for ADNAC; Shawn Dahl, a former senior manager for internal audit for Allied Domecq; Catherine Carrara, manager of retail deployment service for Dunkin' Brands; and Jeanne DeLory, who at the time of the hearing was an associate treasury analyst for risk and insurance management at Dunkin' Brands.  
Several internal memoranda and communications originating from the appellant's tax department indicated that a tax-avoidance motivation was the impetus for the transfer of employees and their related expenses to ADNAC.  The first tax-planning memorandum, date-stamped July 26, 1996 (the "July 26, 1996 memorandum"), was written by Ted Trusevich, the former state tax manager and member of the tax department of ADSWUSA.  The July 26, 1996 memorandum, entitled "Allied Domecq North America Corp. -- Massachusetts Combined Income Tax Return," explained that the group's then-current Massachusetts tax liability was about $800,000, resulting from its combined filings.  Additional estimated annual Massachusetts tax savings of $350,000 were expected once a planned Real Estate Investment Trust (REIT) was implemented.  But even after this tax plan is implemented, "there still will remain income tax of $450,000 - $500,000 to pay annually."  The memorandum thus proposed a plan as follows:
The Massachusetts state income tax can be reduced to nil, and thus save approximately $500,000 annually, by creating sufficient in-state activities for ADNAC.  This would allow ADNAC to become part of the Massachusetts combined tax return and thereby apportion sufficient losses to eliminate the entire combined state taxable income.
 
The memorandum explained that, to be part of the Massachusetts combined group, ADNAC would have to have nexus with Massachusetts, and Mr. Trusevich advocated that this nexus could be created "by establishing a physical presence for ADNAC in Randolph, Massachusetts," which was the headquarters for the Dunkin' Donuts subsidiary.  The memorandum described the steps by which ADNAC could establish a physical presence in Massachusetts.  These steps included: subleasing office space from Dunkin' Donuts for about $50,000 annually; transferring employees, including Christine Sullivan, Harriet Pollard and other treasury and insurance personnel to ADNAC to create $250,000 of in-state payroll; having ADNAC purchase at least $10,000 worth of office furniture and equipment to be used in the offices in Randolph; and ADNAC charging Dunkin' Donuts $1,000,000 annually as "administrative service fees."  
The memorandum then described the tax impact of the plan:  "[t]he foregoing nexus-creating activities would generate a Massachusetts apportionment factor of at least 10 percent," whether using a "4-factor" (presumably a double-weighted sales factor, plus payroll and property factors), a three-factor, or a single receipts factor for apportionment.  The memorandum concludes with the "recommend[ation] that the initial nexus producing events commence in August 1996, so that ADNAC may favorably impact the tax year ended August 31, 1996 Massachusetts combined income tax return."  
The memorandum included a handwritten notation at the bottom, which Mr. Parker testified was in Mr. Trusevich's handwriting, stating that "Per M.C., [pursuant to a] meeting on July 26/96, he, GB and Christine Sullivan will commence work on this project."  Mr. Parker testified that "M.C." referred to Michael Cremering, a fellow tax manager for ADNAC, "GB" referred to Gasper Baressi, a Canadian employee who worked in the tax department, and Christine Sullivan who was a Dunkin' Donuts tax department employee who worked at the Dunkin' Donuts headquarters in Randolph, Massachusetts.  Mr. Parker explained that he, Mr. Trusevich and Mr. Cremering were all based in Windsor, Ontario and reported to John Deboer, the senior manager of North American taxes, at the time that the memorandum was written.  Mr. Parker further testified that he was aware of the meeting referred to in the memorandum, although he did not attend it.
The second communication from the tax department advocating for the transactions is an e-mail dated August 22, 1996 (the "August 22, 1996 e-mail") from Mr. Trusevich to Jacky Kinsey, the U.K. tax manager for the retailing operations who oversaw the Dunkin' Donuts and Baskin Robbins U.S. operations.  As in his July 26th memorandum, Mr. Trusevich outlined his so-called "state tax planning project" as requiring a physical presence for ADNAC in Massachusetts, which he proposed to achieve by sourcing certain employees and their related expenses to Massachusetts.  The plan required several intercompany charges:  "In order [t]o create the required nexus we would move, through an intercompany charge, certain expenses currently on Dunkin's books and charge certain expenses currently on ADNAC's books."  These charges included ADNAC reimbursing Dunkin' Donuts approximately $250,000 annually for employee wages, which included insurance charges plus office rent of $20,000 annually for those employees, as well as the cost of office furnishings for those employees, and finally, ADNAC would bill $750,000 annually to represent its portion of the United Kingdom management fee.  
Also consistent with the July 26 memorandum, the August 22, 1996 e-mail stated that the tax department "[w]ould like to begin the plan by the end of August 1996" by charging the necessary expenses "currently on Dunkin's books" for the month of August.  The e-mail conveyed a sense of urgency to begin the project even before the details were planned: 
We would be able to take a position on our August 1996 return and receive the entire cash savings [for that month].  There is some risk associated with the tax plan but we would "get our foot in the door."  We would then refine the position during FY 1997.
 
The e-mail further "request[ed] your approval to immediately proceed."  	
	The e-mail also emphasized that the proposed plan, originating from the tax department, was intended to have tax ramifications only, as "[o]bviously, Dunkin management would never approve of this plan unless there is no impact to the management results.  Accordingly Rob Parker and myself would work to ensure that management relief will be available."  When asked what was meant by "management relief," Mr. Parker testified that bonus amounts were calculated on the basis of profit after expenses, so "relief" meant ensuring that management was not "penalized" for any economic changes to the company related to a tax plan.  Mr. Parker, Mr. Cremering, and Mr. Deboer, members of the Windsor, Ontario tax department, were copied in this e-mail. 
The third and final internal communication, a memorandum by Mr. Trusevich to Mr. Parker, dated August 26, 1996 (the "August 26, 1996 memorandum"), urged that certain "events must occur prior to the end of this fiscal year to establish a state tax presence in MA for FY 1996 and forward."  Proposed actions included the creation of "appropriate invoices" for previous charges for office space, employees and administrative charges.  The memorandum concluded with a reminder that "[t]he foregoing transactions should be implemented by August 31, 1996 to realize the full group tax benefit estimated at $500,000 (after Federal benefit) for FY 1996."  The memorandum also included a handwritten notation at the bottom, referring to the following as then-"DD employees":  Christine Sullivan, Harriet Pollard, Debbie Graham, and Mike Michaud.  The appellant claimed that these same employees were employees of ADNAC during the tax years at issue.
The testimony of several witnesses, either former or current employees within the appellant's combined group, was offered in an attempt to establish business purpose and economic effect for the transfers at issue.  Mr. Parker testified that he served as a Tax Manager for ADNAC during the tax years at issue.  He testified that ADNAC began restructuring its businesses sometime in 1994 by centralizing operations, including its tax and insurance work.  He stated that by August of 1996, the tax department had been reduced to the employees in ADNAC's central office in Walkerville plus two employees in Randolph, Massachusetts -- Harriet Pollard, an administrative assistant with the Dunkin' Donuts tax department, and Christine Sullivan, whom he testified was working at the Dunkin' Donuts office as a liaison for ADNAC.  According to a September 16, 2005 letter by Mr. Parker to Robert Mood of the Massachusetts Department of Revenue ("DOR") Office of Appeals, the tax and insurance functions of the appellant were already centralized, in a different entity, before the tax years at issue.  With respect to the tax function, Mr. Parker explained:
In 1994, the management of the North American tax function was centralized in Windsor Ontario Canada.  Prior to centralization, the North American spirits and wine business had a tax department of 16 employees, Dunkin Donuts Inc. had a tax department of 5 employees and Baskin Robbins had 1 employee.  The Baskin Robbins employee and 4 Dunkin Donuts employees left the organizations and the Windsor based department became responsible for corporate tax of all companies in North America.  The remaining employee, Harriet Pollard, Tax Administrative Assistance remained based in Massachusetts.  During 1994 and 1995, Windsor based tax personnel visited Massachusetts for extended periods to gather information needed to prepare tax returns and other tax matters.  It was decided to hire a full time employee based in Massachusetts to perform this role . . . . On March 13, 1995, Christine Sullivan was hired as Tax Manager to be based in Massachusetts.
(emphasis added).  According to Mr. Parker, ADNAC's tax department was centralized in Walkerville with two additional employees serving as liaisons in Massachusetts.  As previously mentioned, according to the August 26, 1996 memorandum's handwritten notation, Ms. Pollard and Ms. Sullivan were recognized by ADNAC to be Dunkin' Donuts employees as of that date.
Jeanne DeLory, a Dunkin' Donuts employee since 1994, testified about the insurance department functions of the appellant.  She testified that she started working strictly for Dunkin' Donuts in 1994, but that the company "became ADNAC" in 1996.  Ms. DeLory testified that, initially, the other business units of Allied Domecq had their own insurance teams, but after ADNAC took over the various lines of business, these duties became centralized and the risk management department was eventually reduced to the three individuals in her department.  At all relevant times, she reported to the Risk and Insurance Manager, Deborah Graham, who was situated in Randolph and had also been a Dunkin' Donuts employee since 1975.  The other member of their team for a time was Mike Michaud.  Ms. DeLory testified that she and her other department members were "considered" ADNAC employees because, in her position, she obtained insurance policies for all of the companies included within ADNAC, including the quick-serve restaurants and the wine and spirits companies.  She would secure one master policy for all of the ADNAC companies for each type of insurance, including general liability, excess liability, property, worker's compensation and automobile.  On all of these policies, "Allied Domecq PLC, et al" was listed as the named insured and ADNAC was listed as the so-called "parent organization."  Ms. DeLory testified that the parent organization was the main company that was listed on the policies, and it ensured that all the other companies would be covered as well.
Ms. DeLory explained that ADNAC's offices were located in Randolph at the Dunkin' Donuts headquarters.  She testified that her department had its own segregated fax machines and copiers.  The lease between ADNAC and Dunkin' Donuts was entered into evidence.  The lease was dated August 31, 1996 and had a start date of August 1, 1996, with a payment due date of July 30, 1996.  According to Mr. Trusevich's July 26, 1996 memorandum, the office space was supposed to house ADNAC employees from both the tax and the insurance divisions.  However, the lease provided for a single office with two sets of furniture, with a diagram delineating space for the offices of Christine Sullivan and Harriet Pollard.  There is no reference in the diagram of space for the three insurance employees -- Ms. Graham, Ms. DeLory, and Mr. Michaud -- who worked in the Randolph office, supposedly for ADNAC.  Ms. DeLory admitted that her department's business furniture and office location within Dunkin' Donuts headquarters did not change when the responsibilities began to include all of ADNAC's companies, which, according to a copy of a job description entered into evidence, occurred in April of 1996.  
Furthermore, tax returns offered into evidence indicate that the rent paid by ADNAC dropped dramatically after tax year 1998, from $280,000 on an annualized basis in the tax year ended August 31, 1998 to $24,000 in the tax year ended August 31, 1999, to $7,480 in the tax year ended August 31, 2000.  The lease expired on August 31, 1999.  The appellants produced no evidence that the lease was renewed or that any rent was paid after the payment for tax year 2000. 
Shawn Dahl, a former internal audit manager who was initially employed in Walkerville by ADSWUSA, testified to the restructuring of ADSWUSA's internal audit department.  He testified that, with the restructuring of ADNAC, the internal audit department expanded to include the retail division as well as the wine and spirits division.  Mr. Dahl was afforded the opportunity to relocate from Walkerville to Massachusetts, which he testified had been discussed prior to his hiring by ADSWUSA.  Mr. Dahl testified that, when he relocated, he worked for ADNAC in the Randolph headquarters of Dunkin' Donuts.  The internal audit office setup in Randolph consisted of three offices and two or three cubicles:  "we had our own area with a copier and basically a setup as a normal department" within the Randolph Dunkin' Donuts and Baskin Robbins office, where he had responsibility for ADNAC's wine and spirits business and for its retailing business.  Mr. Dahl testified that he spent between 50 to 70 percent of his time in the Randolph office in any given quarter, with the remaining time spent travelling. 
Documentary evidence submitted by the appellant did not adequately support ADNAC's employee presence in Randolph.  While Mr. Parker claimed that they were ADNAC employees working in Randolph, payroll exhibits revealed that both Ms. Pollard and Ms. Sullivan were on the payroll of Dunkin' Donuts.  Mr. Parker admitted that the Dunkin' Donuts employees were never moved to the ADNAC payroll, so they continued to receive W-2s from Dunkin' Donuts.  His explanation for this discrepancy was that the different subsidiaries offered different benefits packages, "and we didn't want to get into trying to figure out" whether everyone should receive the same benefits and pension packages.  Mr. Parker stated that this was also true of employees of the wine and spirits division -- their W-2s were also issued from their individual companies instead of by ADNAC.  He claimed, however, that payroll for employees doing work for ADNAC was charged back to ADNAC.  Moreover, the W-2s entered into evidence that were issued by ADNAC for Mr. Parker were from 1999 and later; the appellant produced no documentary evidence to prove that Mr. Parker was paid by ADNAC prior to 1999.  
One of Ms. DeLory's business cards from this time was offered into evidence, and it listed her title as "Risk Insurance Coordinator North America" and her employer as "Allied Domecq PLC."  She also admitted that her W-2s at all relevant times were issued by Dunkin' Donuts, explaining that payroll was generated by Dunkin' Donuts.           According to Mr. Dahl's job description, which was written on ADSWUSA letterhead, the business units he was to head would include the wine-and-spirits division, which ADNAC did not cover, as well as the retailing division.  Mr. Dahl's formal job offer, dated May 22, 1997, also came to him on ADSWUSA stationery, was signed by William M. Collins, ADSWUSA's Director of Human Resources Services, and contemplated Mr. Dahl's eventual relocation to Massachusetts, because that is where "Headquarters for Allied Domecq Retail-USA" was located.  Mr. Dahl's W-2 for 1997, the first year of his employment with any of the appellant's affiliated companies, was also issued to him by ADSWUSA.  In 1998, Mr. Dahl had two W-2s, the first, reflecting approximately 30% of his income was issued by ADSWUSA and the second was issued by ADNAC.  Both W-2s were issued to Mr. Dahl's Massachusetts address. 
One of the employees who worked for Mr. Dahl in Randolph was Virginia Flynn, who was employed as part of the internal audit department.  Like Mr. Dahl's, Ms. Flynn's job posting was written on ADSWUSA letterhead, and it included a request for interested candidates to submit their credentials to William M. Collins, Director of "Human Resources Services, Allied Domecq Spirits and Wine."  Ms. Flynn later received a letter, dated October 19, 1998 and written on ADSWUSA letterhead, clarifying various aspects of her employment as Audit Manager.  This letter unequivocally stated that "This position is in the Audit Department of Allied Domecq Spirits & Wine based in Boston," and that her employment commenced on May 19, 1998, when she "became an Audit Manager reporting to Shawn Dahl, Regional Director Audit Services."  The letter also clarified her eligibility to participate in the "Allied Domecq Spirits & Wine Global Executive Incentive Scheme."
Finally, an August 13, 1999 letter from a Mr. A. R. Halliday to Mr. Parker stated that, retroactive to July 1, 1998, Mr. Dahl's audit department (which then consisted of Mr. Dahl, Ms. Flynn, and Adres Siefken) was transferred from ADSWUSA to ADNAC.  The implication of this letter was that these employees were on ADSWUSA's payroll prior to July 1, 1998.
The appellant deviated from its established business practices in an effort to reap the full benefit of ADNAC's significant losses.  On its returns, a portion of the ADNAC management fee charged to Dunkin' Donuts was sourced to Massachusetts and placed in the numerator of the sales factor for the years ended August 31, 1996 through and including August 31, 1998.  The appellant sourced these to Massachusetts because, as Mr. Parker explained, "[t]hat's where the recipient who received the benefit would have been headquartered."  But as Mr. Parker admitted in his cross-examination, these management fees were treated inconsistently from other charges; as a general business practice, the appellant sourced its fees to where the services were performed: 
Q:  The insurance charges were done where the services were performed, where as the management charges were sourced according to where the recipient was.  Is that right?
A:  Yes.

The result of this allocation of the management charges was that ADNAC's sales factor was large enough to import its significant losses into the combined group.  
The Board's Ultimate Findings of Fact.
On the basis of the above findings, the Board first found that the appellant's motivation for establishing nexus for ADNAC in Massachusetts was exclusively to avoid taxes.  As revealed by the July 26, 1996 memorandum, as well as by the August 22, 1996 e-mail and the August 26, 1996 memorandum, the appellant's tax department recognized that significant tax avoidance -- the reduction of its Massachusetts liability "to nil" -- could be reaped by "creating" or "producing" nexus for ADNAC with Massachusetts, which would then allow importing ADNAC's significant losses to the Massachusetts combined group. 
The Board next found that the appellant failed to advance any legitimate non-tax business purposes or any economic effects for the supposed transfer of the tax, insurance and internal audit functions to Massachusetts.  The appellant attempted to realize the benefits from its "state tax planning project" by: claiming expenses for certain key employees to ADNAC; leasing space and purchasing office furniture and equipment in Massachusetts; and charging administrative service fees to Dunkin' Donuts.  Yet as emphasized by its tax-planning memoranda, the tax department made clear that the result of the "state tax planning project" would solely be related to tax, and "[it] would work to ensure that management relief would be available" so "there is no impact to the management results."  The Board thus found that the appellant itself admitted that the plan was not to have any economic substance aside from tax avoidance. 
The Board further found that centralization of the tax, insurance and internal audit functions -- the main reasons cited for the alleged transfers of employees and creation of inter-company expenses -- had already occurred prior to the tax years at issue, as revealed particularly by the September 16, 2005 letter to the DOR Office of Appeals.  The appellant failed to demonstrate how shifting the tax and insurance functions previously performed by the Dunkin' Donuts employees to ADNAC, simply by changing the employees' salaries to ADNAC, had any practical effect other than the creation of sizable tax benefits.  Nothing actually changed for the employees whose salaries were charged over to ADNAC -- their W-2s continued to come from Dunkin' Donuts, and their duties and work spaces did not change.  While she testified to being an ADNAC employee, Ms. DeLory's business card listed her employer as Allied Domecq PLC and the insurance policies offered as evidence never actually identify ADNAC as the subscribing entity.   
With respect to the internal audit employees, they continued to be ADSWUSA employees.  The Board found that the move of Mr. Dahl and the rest of the internal audit group to Massachusetts occurred while the group was still within ADSWUSA.  Mr. Dahl's W-2s for 1997 and a portion of 1998 -- issued to his Massachusetts address -- were issued by ADSWUSA.  Mr. Dahl's job posting description, his official job offer, and the October 19, 1998 letter from ADSWUSA's human resources department indicated that both Mr. Dahl and Ms. Flynn were hired and employed by ADSWUSA.  Mr. Dahl's initial job offer was written on ADSWUSA letterhead and confirmed that his relocation in Massachusetts was to "Headquarters for Allied Domecq Retail-USA."  While the appellant better documented its supposed transfer of these employees to the payroll of ADNAC through W-2s issued by ADNAC, the appellant failed to advance any legitimate non-tax purposes for the transfer of the internal audit functions.  Further, the August 13, 1999 letter from Mr. Halliday to Mr. Parker of the tax department confirms the backdating of payroll expenses for Mr. Dahl, Ms. Flynn and Mr. Siefken to ADNAC.          
The lease by ADNAC of its office space for supposed ADNAC employees within Dunkin' Donuts' headquarters further highlights the lack of economic impact of the tax-avoidance plan.  The lease makes no mention of space for the three insurance employees -- Ms. Graham, Ms. DeLory, and Mr. Michaud -- who worked in the Randolph office; the payments dramatically decreased over the course of the tax years at issue until the $7,480 payment for tax year 2000, after which there is no evidence of further payments; and the lease was never renewed after it expired in 1999.  The July 26, 1996 memorandum had indicated that the tax department was more interested to "get our foot in the door" rather than to create a plan with economic substance, and the failure to ever attend to the details, like the lease, is further indication that tax avoidance reigned over economic substance in the "state tax planning project."
Finally, the management fees charged to Dunkin' Donuts by ADNAC were sourced inconsistently with respect to other charges, which were sourced to where the services were performed, as opposed to received.  The Board found that ADNAC's motive in its sourcing of the management charges was completely tax-driven: to achieve a sales factor for ADNAC that was large enough to import its significant losses into the combined group.  The Board thus found that the inconsistent treatment of the management fee was further proof of the appellant's tax-avoidance motivation, at the expense of consistent business practices.  In fact, the appellant intended for the "state tax planning project" to have "no impact to management results" when the tax department promised "management relief" to the combined group's upper echelon. 
On the basis of the appellant's documented tax-planning motivation for the transfers, coupled with the lack of business purpose and economic effect of those transfers, the Board found that the appellant's shifting of charges to ADNAC for functions that were already centralized and performed by its other entities was a sham, the effects of which must be disregarded for tax purposes.  Therefore, the Board found that ADNAC did not have sufficient nexus with Massachusetts to be included in the combined group for the tax years at issue.  Accordingly, pursuant to the Stipulation and Agreement for Judgment, the Board issued decisions for the appellee in Docket No. C282807 and for the appellant in Docket Nos. C293684 and C297779.

OPINION
General Laws c. 63, § 39 provides that "every foreign corporation, exercising its charter, or qualified to do business or actually doing business in the commonwealth, or owning or using any part or all its capital, plant or any other property in commonwealth, shall pay, on account of each taxable year, the excise provided in subsection (a) or (b) of this section . . . ."  The Commissioner's regulation at 830 CMR 63.39.1(7) further provides that the foreign corporation will be subject to taxation if there were any "employees, agents, or representatives, however designated" that engaged in any nexus-creating activities in Massachusetts.  830 CMR 63.39.1(7).  Nexus-creating activities could be "any one" of a "broad variety" of activities, including "the exercise of any . . . 'act, power, right, privilege or immunity' in the Commonwealth."  IDC Research, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2009-399, 525 (quoting G. L. c. 63, § 39), aff'd, 78 Mass. App. Ct. 352 (2010). 
These appeals present a scenario in which nexus for Massachusetts taxation is sought by a corporation, because it is part of a tax plan by which a consolidated group seeks to make available substantial deductions of one of its entities that previously was not subject to Massachusetts taxation.  The Commissioner disregarded the plan by which the appellant sought to create nexus for ADNAC as a so-called "sham transaction."  "Massachusetts recognizes the 'sham transaction doctrine' that gives the commissioner the authority 'to disregard, for taxing purposes, transactions that have no economic substance or business purpose other than tax avoidance.'"  The Sherwin-Williams Company v. Commissioner of Revenue, 438 Mass. 71, 79 (2002) (quoting Syms Corp. v. Commissioner of Revenue, 436 Mass. 505, 509-10 (2002)).  The sham transaction doctrine "prevents taxpayers from claiming the tax benefits of transactions that, although within the language of the tax code, are not the type of transaction the law intended to favor with the benefit."  Syms, 436 Mass. at 510.  In the instant appeals, the Board analyzed whether the intercompany shifting of expenses related to the appellant's tax, insurance and internal audit functions was a sham that lacked economic substance and business purpose and, therefore, must be disregarded for tax purposes.  
The sham-transaction issue has been comprehensively analyzed in appeals before the Board over the past decade.  See Kimberly-Clark Corporation v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2011-01, aff'd, 83 Mass. App. Ct. 65 (2013); IDC Research, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2009-399, aff'd, 78 Mass. App. Ct. 352 (2010); Fleet Funding, Inc. & Fleet Funding II, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2008-117; The TJX Companies, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2007-790, aff'd in part, and reversed and remanded in part on other grounds, 74 Mass. App. Ct. 1103 (2009); Syms Corp. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-711, aff'd, 436 Mass. 505 (2002); The Sherwin-Williams Company v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-468, rev'd, 438 Mass. 71 (2002).  The doctrine is now "codified" under G.L. c. 62C, § 3A; however, that provision, because of its effective date of January 1, 2002, applies only to the last two tax years at issue in these appeals.  Therefore, the Board relied primarily upon the principles derived from cases before the courts and the Board in its ruling in the instant appeals.
In analyzing this issue, the Board was mindful that every taxpayer has the right to decrease the amount of taxes owed, or avoid them altogether, by any means that are legal.  See Gregory v. Helvering, 293 U.S. 465, 469 (1935).  However:
[w]hile the courts recognize that tax avoidance or reduction is a legitimate goal of business entities, the courts have, nonetheless, invoked a variety of doctrines . . . to disregard the form of a transaction where the facts show that the form of the transaction is artificial and is entered into for the sole purpose of tax avoidance and there is no independent purpose for the transaction.
Falcone v. Commissioner of Revenue, Mass. ATB Findings of Fact and Report 1996-727, 734-35.  The sham transaction doctrine is one such judicially created doctrine "for preventing the misuse of the tax code."  Horn v. Commissioner of Internal Revenue, 296 U.S. App. D.C. 358, 968 F.2d 1229, 1236 (D.C. Cir. 1992).  In both Syms and Sherwin-Williams, the Supreme Judicial Court agreed that "Massachusetts recognizes the 'sham transaction doctrine' that gives the commissioner the authority 'to disregard, for taxing purposes, transactions that have no economic substance or business purpose other than tax avoidance.'"  Sherwin-Williams, 438 Mass. at 79 (quoting Syms, 436 Mass. at 509-10); see also Syms, 436 Mass. at 510.  The Court further instructed that "[t]he question whether or not a transaction is a sham for purposes of the application of the doctrine is, of necessity, primarily a factual one, on which the taxpayer bears the burden of proof in the abatement process." Syms, 436 Mass. at 511.  Analyzing these decisions, and applying them to subsequent appeals, thus requires careful attention to the specific facts presented in each appeal.
In each of the recent cases where the evidence established that tax avoidance had driven the transactions in question, the Board found, and the Court affirmed, that the transactions in question lacked a business purpose and economic effect beyond the creation of substantial tax benefits.  For example, in Syms, the taxpayer entered into a transaction scheme with the specific guarantee that it was "a method of saving state taxes."  Syms, 436 Mass. at 507.  The taxpayer there fully recognized the risks inherent in the tax-avoidance strategy, and it then surmised how diligently it would have to defend it:  
There have been cases when corporations attempted to do this and did not do it properly and thus had problems in various states.  It is everyone[']s feeling that New York is the most sophisticated state in terms of tax audits and most other states will not even realize the impact of the transactions.  

Id. at 508.   With the strong evidence that the transactions in question were entered into with the sole intent of avoiding taxes, coupled with the taxpayer's inability to support them with any legitimate non-tax business purposes or demonstrate any economic effects, the Court affirmed the Board's determination that the transactions were a sham.  Id. at 512-13.
In TJX, a tax-avoidance memorandum presented strong evidence that the purported business purposes for the transaction were but "a pretext" and "proposed purely as part of a tax-saving plan."  TJX, Mass. ATB Findings of Fact and Reports at 2007-805, 877-78.  Moreover, "[n]ot only did TJX acknowledge that tax benefits were the single most important reason behind the transfer and license-back arrangement, but it failed to produce sufficient evidence to support a finding that the transfer and license-back scheme could accomplish any of the purported business purposes."  Id. at 2007-839.  The Appeals Court affirmed the Board's ruling on this matter.  The TJX Companies, Inc. v. Commissioner of Revenue, 74 Mass. App. Ct. 1103 (2009).
In Fleet Funding, the marketing material provided by tax analysts -- which specifically characterized the REIT strategy in question as a "state tax minimization project" designed by KPMG "for the principal purpose of reducing [Fleet's] state income tax liability" -- demonstrated to the Board that the REIT strategy there "was specifically designed, marketed, purchased and implemented as a tax avoidance scheme."  Fleet Funding, Mass. ATB Findings of Fact and Reports at 2008-171, 174.  Meanwhile, the taxpayer in that case failed to offer any legitimate business purposes which could have been achieved by the proposed tax plan.  Id. at 2008-174.  
In IDC, the Board again found that the transfer and license-back of trademarks had been a sham that had been entered into for the creation of tax benefits.  IDC, Mass. ATB Findings of Fact and Reports at 2009-446.  Evidence that the Board relied upon included the fact that the transferor had retained benefits and burdens of ownership of its trademarks and that the transferee subsidiary did not engage in any substantive activity to maintain the trademarks and in fact did not even have any employees.  Id. at 440-41.  "The Board inferred from these anomalies that Holdings was not intended to function -- and did not function -- as anything other than a passive vessel in Delaware into which IDG diverted royalty income that would otherwise be taxable in Massachusetts."  Id. at 444.  The Appeals Court affirmed this ruling.  IDC Research, Inc. v. Commissioner of Revenue, 78 Mass. App. Ct. 352 (2010).
Most recently in Kimberly-Clark Corporation, the Board found "significant the extent to which those involved in company tax matters were responsible for development, implementation and oversight" of the tax-avoidance transaction at issue.  Mass. ATB Findings of Fact and Reports 2011-17.  The taxpayer there transferred its patents to its wholly owned subsidiary, thereby generating substantial royalty payments and consequent expense deductions for the taxpayer, yet for an "unexplained" reason it retained ownership and control over its trademarks.  Id. at 16.  Moreover, there was no evidence that the wholly owned subsidiary sought out or entered into any third-party license agreements for the patents that it supposedly owned.  Id. at 18.  The Board found that these facts "undermined [the taxpayer's] assertion that tax reduction was not a principal purpose underlying the 1996 reorganization."  Id. at 16.  The Appeals Court affirmed the Board's ruling in that appeal.  Kimberly-Clark Corporation v. Commissioner of Revenue, 83 Mass. App. Ct. 65 (2013). 
In the instant appeals, the evidence established that the supposed transfers of the tax, insurance and internal audit functions to ADNAC were driven by the tax department of ADSWUSA.  As indicated by the August 13, 1999 letter from Mr. Halliday to Mr. Parker that, effective on July 1, 1998, the ADSWUSA audit department was transferred to ADNAC, the transfer of employees was retroactive and initiated by the tax department, with no indication of business purpose or economic effect.  Mr. Parker's July 26, 1996 Memorandum reveals that the sole motivation for the "state tax planning project" was to have the combined group's Massachusetts state income tax liability be "reduced to nil."  As with other similar tax-planning memoranda from other cases, the July 26, 1996 memorandum cites no other business concerns that would be addressed by the transaction.  In fact, the memorandum touts that a valid business plan was not even required, stating instead that the concern was merely to "get our foot in the door" days before the end of the tax year and not be concerned with "refin[ing] the position" with the actual details until the next fiscal year.  Yet as the facts indicate, many of those details never materialized.  For example, the back-dated lease for space within Dunkin' Donuts made no provisions for the insurance department employees' work spaces, and the actual payments on the lease fluctuated dramatically, dropping from $280,000 in tax year 1998 to $24,000 in the subsequent tax year, lower still to $7,480 the following year, and no payments, or even a lease renewal, after that. 
In Sherwin-Williams, an appeal where the sham transaction doctrine was not deemed appropriate for disregarding the transfer at issue, the Court found that legitimate business concerns -- the loss of a trademark -- motivated the transfer of a taxpayer's intellectual property to a subsidiary as part of a business reorganization, and the taxpayer there demonstrated how the transactions at issue would accomplish those legitimate concerns:  
Sherwin-Williams's senior management had concerns dating as far back as 1983 regarding the maintenance and effective management of its marks because one of its marks, the "Canada Paint Company," which was to be used in a Canadian joint venture had been lost.  The corporate official who had been most vocal in expressing these concerns, Conway Ivy, was put on the boards of [the subsidiaries] when they were formed in 1991.  The testimony of senior corporate managers further established that before 1991, the multiple divisions of Sherwin-Williams, its decentralized management and culture, and the use of many of the marks across divisions, created uncertain authority and diffuse decision-making regarding the maintenance and exploitation of the marks, contributing to their ineffective and inadequate management as a company asset.  Finally, board members of [the subsidiaries] and Sherwin-Williams's associate general counsel for patents and trademarks testified that these concerns had been effectively addressed by the transfer of the marks to the subsidiaries whose sole focus was on their maintenance and management.
Sherwin-Williams, 438 Mass. at 78-79.  
	The Court next found sound evidence of economic effects for the transfer, including: that legal title and physical possession of the marks passed from the parent to the subsidiaries, as did "the benefits and burdens of owning the marks"; "[t]he subsidiaries entered into genuine obligations with unrelated third parties for use of the marks"; "[t]he subsidiaries received royalties, which they invested with unrelated third parties to earn additional income for their businesses"; and "[t]he subsidiaries incurred and paid substantial liabilities to unrelated third parties and to Sherwin-Williams to maintain, manage, and defend the marks."  Id.  Accordingly, the Court "conclud[ed] that the reorganization, including the transfer and licensing back of the marks, had economic substance in that it resulted in the creation of viable business entities engaging in substantive business activity."  Id.; but see Kimberly-Clark Corporation, 83 Mass. App. Ct at 78-9 (disallowing the tax effects of a transfer of patents made in conjunction with a reorganization of the taxpayer, when there was no showing of a valid business purpose or economic effect for the transfer at issue).
In the instant appeals, however, the Board found that there were no legitimate non-tax concerns for transferring the tax, insurance and internal audit functions from Dunkin' Donuts or ADSWUSA to ADNAC.  In fact, the Board found ample evidence that the tax department designed the "state tax planning project" specifically to have no economic effect.  The tax department went so far as to blatantly tout that there would be "no impact to the management results" and the tax department, aware that this promise was key to management's approval of the tax plan, "would work to ensure that management relief will be available."  
Moreover, the Board found that the appellant failed to demonstrate how the charging of certain employee expenses achieved any centralization of its operations.  The September 16, 2005 memorandum from Mr. Parker to DOR's Mr. Mood supports the Board's finding that centralization of the tax department had already occurred in 1994 in Windsor, Ontario and that centralization of the insurance function had occurred prior to April of 1996 when Ms. Graham became responsible for insurance filings for all of the appellant's affiliated North American companies.  The appellant failed to demonstrate how shifting these centralized functions to ADNAC by merely charging their salaries to ADNAC had any economic purpose or effect aside from the well-documented sizeable tax benefits, nor did the appellant advance any documentary evidence that these employees were actual ADNAC employees.  The tax and insurance employees' W-2s for the Dunkin' Donuts employees were still issued from Dunkin' Donuts, their physical desk and office spaces did not change, and they continued to carry out the same duties as before the supposed transfer.  The reason for the failure to have ADNAC issue all of its supposed employees' W-2s -- Mr. Parker's explanation that "we didn't want to get into trying to figure out" whether everyone should receive the same benefits and pension packages -- as well as the dramatic reduction in rent and nonrenewal of the lease between Dunkin' Donuts and ADNAC further illuminated the shoddy attention paid to the plan's form and execution, as opposed to its substantial tax benefits, which were very well documented.  Finally, the inconsistent treatment of the management fee charged to Dunkin' Donuts by ADNAC, sourced as it was so as to achieve a sales factor that was large enough to import ADNAC's sizable losses, reflected the appellant's concern with tax avoidance over proper form of its supposed reorganization.
With respect to the internal audit function, based on documentary evidence, including job posting descriptions, job offers, W-2s, the Human Resources letter to Ms. Flynn, and Mr. Halliday's letter to the tax department confirming the backdating of expenses, the Board found that the internal audit department was already centralized within ADSWUSA, and the transfer of the department had originally been contemplated to be for purposes of relocation to the "Headquarters for Allied Domecq Retail-USA."  
Therefore, the Board found and ruled that centralization of the tax, insurance and internal audit functions was not a legitimate business purpose for the transfer of such functions to ADNAC and the resulting intercompany charges and deductions.  See Syms, 436 Mass. at 513 (upholding Board's rejection of purported business purposes "concocted to provide faint cover for the creation of a tax deduction").  Instead, like the plan at issue in Syms, the "state tax planning project" at issue was specifically devised, touted and implemented as a tax avoidance scheme.  The Board found no indication on this record that the appellant had any business concerns which were addressed by purportedly transferring its tax, insurance and internal audit departments from ADSWUSA to ADNAC, or that the tax-planning project had any economic effect beyond the creation of tax benefits. 
On the basis of all of the evidence, the Board found that the "state tax planning project" constituted a sham transaction, the tax effects of which should be ignored for tax purposes.

Facts Specific to Tax Years Ending August 31, 2003 and August 1, 2004.
In 2003, the Massachusetts legislature passed G.L. c. 62C, § 3A ("§ 3A"), which was effective for tax years beginning on or after January 1, 2002, and thus applied to the tax years ended August 31, 2003 and August 31, 2004.  Section 3A provides that the Commissioner has the discretion to "disallow the asserted tax consequences of a transaction by asserting the application of the sham transaction doctrine or any other related tax doctrine," and the taxpayer bears the burden of showing by "clear and convincing evidence as determined by the commissioner that the transaction possessed both: (i) valid, good-faith business purpose other than tax avoidance; and (ii) economic substance apart from the asserted tax benefit."  The statute further specifies that "the taxpayer shall also have the burden of demonstrating by clear and convincing evidence as determined by the commissioner that the asserted nontax business purpose is commensurate with the tax benefit claimed." 
The Board has found that the appellant failed to prove any practical economic effect or any valid business purpose for the transactions at issue for the earlier tax years.  The appellant did not produce any additional evidence for the last two tax years that demonstrated any valid economic purpose or business effect beyond the creation of tax avoidance.  Therefore, the Board found and ruled that the Commissioner was within her discretion to deny the tax effects of the transactions at issue pursuant to § 3A.  See Kimberly-Clark Corporation, 83 Mass. App. Ct. at 80 (finding that the "scant evidence from the record to show that reduction of tax was not a principal purpose of the royalty payment system" failed to meet taxpayer's burden under § 3A).

Conclusion
The Board found and ruled that the appellant failed to prove any valid business purposes or economic effects for the supposed transfers of centralized business operations to ADNAC during any of the tax years at issue.  

Accordingly, pursuant to the parties' Stipulation and Agreement for Judgment, the Board issued a decision for the appellee for Docket No. C282807 and decisions for the appellant for Dockets Nos. C293684 and C297779, abating the following amounts of tax: 

Tax year	Abatement	
8/31/1999	$  131,514.00	
8/31/2000	$  146,145.00	
8/31/2001	$   62,351.00	
8/31/2002	$  208,348.00	
8/31/2003	$1,625,507.00	
8/31/2004	$  708,784.00	
Total	$2,882,649.00	


				     	  THE APPELLATE TAX BOARD

									
 	 By:			__________	___	__
				         Thomas W. Hammond, Jr., Chairman

A true copy,

Attest:						
	   Clerk of the Board
	

 The memorandum explains that "[t]his annual tax already reflects tax savings being created by the trademark holding company in Michigan."  
 As will be explained herein, in Sherwin-Williams, 438 Mass. at 82, the Supreme Judicial Court specifically found that tax avoidance was not the motivating factor for the transactions at issue there, but that the transactions were instead a key component of a corporate reorganization. 
  The Stipulation and Agreement for Judgment disposed of several other issues raised by the parties in the pleadings, but the appellant retained the right to appeal on the issue of whether ADNAC was properly includible in the combined group, and if so, the computation and apportionment of ADNAC's taxable net income.

ATB 2013-352