Fleet National Bank v. Commissioner of Revenue (February 27, 2006)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


FLEET NATIONAL BANK 	   v.	COMMISSIONER OF REVENUE


Docket No. C272081				Promulgated:
							February 27, 2006


This is an appeal under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 from the refusal of the appellee Commissioner of Revenue ("Commissioner")  to pay interest on an overpayment of financial institution excise paid by BayBank, N.A. ("BayBank") for calendar year 1997.      
This appeal was submitted to Commissioner Scharaffa on the appellant's Motion For Judgment On The Pleadings pursuant to 831 CMR 1.22 and 1.31.  He was joined in the decision for the appellant by Chair Foley and Commissioners Gorton, Egan, and Rose.  
These findings of fact and report are made at the requests of the appellant and the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR V 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 appellant.

John DeLosa, Esq. for the appellee.
FINDINGS OF FACT AND REPORT
There is no dispute concerning the underlying facts of this appeal.  The appellant, Fleet National Bank ("Fleet"), filed a Petition Under Formal Procedure and the Commissioner filed an Answer in which he admitted the relevant facts of this appeal.  On the basis of the facts contained in the pleadings, the Appellate Tax Board ("Board") made the following findings of fact. 
On September 3, 1998, BayBank filed a Massachusetts Financial Institution Excise Return ("Form 63 FI") for calendar year 1997.  On October 2, 2003, Fleet, as the successor by merger to BayBank, received a final determination from the Internal Revenue Service ("IRS") which made adjustments to BayBank's federal taxable income for calendar year 1997.  On December 31, 2003, Fleet filed a Massachusetts Application for Abatement on BayBank's behalf, indicating that the adjustments made by the IRS to BayBank's federal taxable income had reduced its 1997 Massachusetts financial institution excise liability by $709,950.  Fleet requested an abatement of $709,950, plus interest pursuant to G.L. c. 62C, § 40.  By a Notice of Abatement Approval dated February 11, 2004, the
Commissioner notified Fleet that he had allowed the Application for Abatement.  
The Commissioner subsequently sent Fleet a check dated February 19, 2004, in the amount of $712,452.60, which included the $709,950 of excise, plus interest of $2,502.60, calculated from December 31, 2003, the date that the Application for Abatement was filed, through February 19, 2004, the date that the Commissioner issued the refund check.  Fleet requested that the Commissioner supplement the refund check with an additional payment of interest.  By letter dated May 25, 2004, the Commissioner's counsel informed Fleet's counsel that the Commissioner refused to pay additional interest.  Fleet timely filed its petition on April 5, 2004.  On this basis, the Board found it had jurisdiction over this appeal. 
The issue in dispute in this appeal was the impact of amendments, under St. 2003, c. 26, §§ 196-97, on G.L. c. 62C, § 40 ("§ 40").  The amendments had an effective date of July 1, 2003, after BayBank had filed the Form 63 FI at issue and paid its financial institution excise but before Fleet filed its Application for Abatement.  The new § 40 altered the calculation of interest on overpayments of tax, particularly by defining
the date on which an overpayment of tax occurs for purposes of this section.  The parties agreed that Fleet was entitled to interest on the overpayment calculated from December 31, 2003, when it filed its Application for Abatement, through February 19, 2004, when the Commissioner refunded the overpayment.  Fleet, however, contended that it was entitled to additional interest calculated from when BayBank filed its Form 63 FI and paid its financial institution excise through the date that the new § 40 took effect, which is from September 3, 1998 through July 1, 2003 (the "period at issue").  For reasons stated in the Opinion, the Board found that Fleet was entitled to interest during the period at issue.  Accordingly, the Board issued a decision for the appellant and ordered the Commissioner to pay the disputed interest, which the parties agreed was $352,745.11, plus interest on that amount in accordance with § 40.


OPINION
1.  The Board has jurisdiction over this appeal.
As a threshold matter, when resolution of an issue of law is sufficient to determine the decision of the Board, disposition of an appeal on a Motion For Judgment On The Pleadings is appropriate.  See 831 CMR 1.22 and 1.31.  The only issue raised in this appeal was an issue of law regarding whether Fleet was entitled to an additional payment of interest for the period at issue.  Accordingly, this appeal can be resolved based on Fleet's Motion For Judgment On The Pleadings. 
In its Answer, the Commissioner asserted that the Board lacked jurisdiction over this appeal because the Commissioner had abated the underlying tax in full.  Although the Commissioner later conceded the Board's jurisdiction, the Board addresses this issue.    
That this appeal pertains to a payment of interest on a refund of taxes does not impede the Board's jurisdiction.  Prior to its amendment in 2003, G.L. c. 62C, § 39 authorized the Board to hear only appeals from the Commissioner's refusal to "abate" a tax.  However, the Legislature expanded the Board's jurisdiction by amending  § 39.  In 2003, the Legislature empowered the Board to entertain appeals from the Commissioner's refusal to "refund" any tax.  St. 2003, c. 143, § 2B (effective December 4, 2003).  Accordingly, the Board now has jurisdiction over both refund and abatement claims.
This appeal involves the calculation of interest on a refund due to Fleet, not the computation of the underlying tax.  However, pursuant to G.L. c. 62C, § 1, "tax" includes "any tax, excise, interest, penalty, or addition to tax imposed by this chapter."  The Board has decided appeals where a party contended that interest was wrongly assessed, even though there was no dispute regarding the underlying tax.  See Moss v. Commissioner of Revenue, ATB Findings of Fact and Reports 1989-270 (taxpayer appealed from Commissioner's refusal to abate interest and penalties assessed for failure to file and to pay sales tax on meals); Molesworth v. Commissioner of Revenue, ATB Findings of Fact and Reports 1987-337, aff'd, 408 Mass. 580 (finding that the statute at issue did not allow the Commissioner to "pyramid" interest and penalties on unpaid interest and penalties, and that the Commissioner did not have the discretion to apply a taxpayer's partial payments to interest and penalties, contrary to the taxpayer's express direction to apply the payments to the underlying tax);  see also Towle v. Commissioner of Revenue, 397 Mass. 599, 607-08 (1986) (Supreme Judicial Court ruled that the assessment of interest and penalties from the date of purchase of a boat was in error and therefore remanded case to the Board "for recalculation of interest and penalties from the date the taxpayer's sailboat was first used, stored, or otherwise consumed in the Commonwealth").  Moreover, the Legislature expanded the Board's jurisdiction in § 39 to hear appeals from the Commissioner's refusal to refund taxes paid.  Because a tax is defined as including interest (G.L. c. 62C, § 1), the power to entertain refund claims carries with it by necessary implication the power to calculate the interest due on the refund.  The Board accordingly ruled that its jurisdiction over refund claims in § 39 extends to claims for interest on the refund of the underlying overpayment of tax.      
Further, although the interest at issue accrued before the effective date of St. 2003, c. 143, § 2B, the Board's jurisdiction over this appeal is not affected.  The plain words of § 39 as amended do not restrict the subject matter of appeals to those involving tax overpayments made on or after the effective date of St. 2003, c. 143, § 2B.  If the Legislature had intended to restrict the subject matter of a taxpayer's appeal, the Legislature could have so specified.  In the absence of a specified Legislative intent to restrict taxpayers' appeals to those tax payments made on or after the effective date of St. 2003, c. 143, § 2B, the Board declined to infer one.  See Town of Boylston v. Comm'r of Revenue, 434 Mass. 398, 404 (2001). 
Accordingly, the Board ruled that it had jurisdiction over the instant appeal.  
2.  Fleet's entitlement to a payment of interest.
Prior to its amendment by St. 2003, c. 26, §§ 196-97, § 40 entitled a taxpayer to a refund of an overpayment of tax plus interest calculated "from the date of overpayment" of the tax.  The Commissioner deemed an overpayment of taxes as occurring on "the due date of the applicable return without regard to extensions, or the date of receipt of the overpayment, or the date of filing of the return, whichever [wa]s later."  830 CMR 62C.33.1(7)(b); see also, Technical Information Release 03-18 ("TIR 03-18") ("Previously, interest was calculated from the later of the due date of the applicable return without regard to extensions, or the date of receipt of the overpayment, or the date of filing of the return.").
In 2003, the Legislature amended § 40 by reducing the interest rate on overpayments by two percentage points, eliminating the daily compounding of the interest, and, most importantly for purposes of this appeal, defining "date of overpayment" to mean "the later of the date when the commissioner shall have received a properly completed return and full payment of the tax due thereon, or the date when the commissioner shall have received a completed and substantiated written application for abatement . . . ."  St. 2003, c. 26, §§ 196-97.  The new § 40 was made effective on July 1, 2003, after BayBank had filed the return at issue and paid the taxes.  Accordingly, Fleet's overpayment of taxes occurred before the effective date of the new § 40.
Fleet contended that the Board should apply the new statute only prospectively from the date of its enactment so that interest on the overpayment began accruing on September 3, 1998, the date when BayBank filed the Form 63 FI and paid the taxes.  The Commissioner countered that because Fleet had not filed an Application for Abatement before the passage of the new § 40, the new § 40 applied and interest ran only from December 31, 2003, when Fleet filed a completed and substantiated Application for Abatement, until February 19, 2004, when the Commissioner refunded the overpayment of tax.  For reasons which will be explained, the Board ruled that Fleet was entitled to interest for the period at issue.
Legislative changes affecting substantive rights must be applied prospectively.
St. 2003, c. 26, §§ 196-97 is silent on how it affects the computation of interest on tax payments which were made prior to its effective date.  If a statute is silent as to the timing of a legislative change, the Supreme Judicial Court has declared that the "general rule of interpretation
is that all statutes are prospective in their operation, unless an intention that they shall be retrospective appears by necessary implication."  Hein-Werner Corp. v. Jackson Industries, 364 Mass. 523, 525 (1974).  See also Sliski's Case, 424 Mass. 126, 129 (1997) ("Ordinarily, a statute is applied prospectively unless it provides otherwise."); Shelby Mut. Ins. Co. v. Commonwealth, 420 Mass. 251, 257 (1995) (quoting Sentry Fed. Sav. Bank v. Co-operative Cent. Bank, 406 Mass. 412, 414 (1990) ("Unless the legislative intent is unequivocally clear to the contrary, a statute operates prospectively, not retroactively.")). 
Massachusetts courts have also considered whether a statutory change affects substantive rights or merely procedural matters; if the change affected substantive rights, courts applied the change prospectively from the date of the change.  See. e.g., Hanscom v. Malden & Melrose Gas Light Co., 220 Mass. 1, 3 (1914) ("Hanscom").  "[T]his rule of interpretation is underpinned by constitutional limitations," because the retroactive application of a statute to disturb a vested right may constitute a taking without due process.  City Council of Waltham v. Vinciullo,

364 Mass. 624, 626, n. 5 ("Vinciullo") (citing Hanscom, 220 Mass. at 5-7).    
The Supreme Judicial Court has found that changes to laws pertaining to damages affect vested rights and are thus regarded as substantive.  In Fontaine v. Ebtec Corp., 415 Mass. 309 (1993) ("Fontaine"), the Supreme Judicial Court explained that "legislation limiting or increasing the measure of liability, while arguably remedial in the broad sense of that word, generally is considered to impair the substantive rights of a party who will be adversely affected by the legislation" and, accordingly, should be applied prospectively "[i]n the absence of a provision mandating retrospective application."  Fontaine, 415 Mass. at 319.  The Fontaine Court cited cases ruling that certain statutory amendments affecting the computation of a judgment were to be applied prospectively.  For example, in Cudlassi v. MacFarland, 304 Mass. 612 (1939) ("Cudlassi"), the Court declined to give retroactive effect to a statutory amendment eliminating double damages in a tort case, which took effect after the commencement of the case, because to do so would destroy the "vested right" to double damages which arose at the time of the injury. Cudlassi, 304 Mass. at 613; see also, USM Corp. v. Marson Fastener Corp., 392 Mass. 334, 353 (1984) (suggesting "that statutes changing the measure of damages after a tort had been committed were not applicable retroactively . . . .").  
Of particular importance to the instant appeal, the Massachusetts Appeals Court ("Appeals Court") in Ogden Suffolk Downs, Inc. v. City of Boston, 18 Mass. App. Ct. 101 (1984) ("Ogden"), proposed that a change to the interest rate payable on tax refunds affected a substantive right: "To the extent that c. 406 with respect to prejudgment (or predecision) interest made substantive changes in the preexisting law, c. 406 may be regarded as substantive rather than procedural or remedial."  Ogden, 18 Mass. App. Ct. at 105, n.2 (citations omitted).  
The new § 40, at issue in the instant appeal, took effect after BayBank had filed its return and paid its taxes.  Under the prior version of § 40, the overpayment of taxes had occurred on September 3, 1998, when BayBank filed its Form 63 FI and made a timely payment of the tax shown to be due, and interest began accruing at that time.  See 830 CMR 62C.33.1(7)(b) and TIR 03-18.  The taxpayer thus had a vested right to the accrual of interest as of the date of the overpayment, and that right was substantive.  See Ogden, supra.  The Board thus ruled that the new § 40 must be applied prospectively from its effective date so as not to revoke the appellant's entitlement to interest during the period at issue.  See Cudlassi, supra. 
The fact that the notice of the federal change was not issued until October 2, 2003, three months after the effective date of the new § 40, does not affect the outcome of this appeal.  The parties agreed that the federal change resulted in a refund due to Fleet resulting from the original payment of taxes by BayBank.  The federal change, therefore, was retroactive to the date BayBank filed its Form 63 FI and paid its taxes.  Under the Commissioner's own interpretation of § 40 prior to amendment, the date of overpayment was September 3, 1998, and interest began accruing at that time.  See 830 CMR 62C.33.1(7)(b) and TIR 03-18.  Accordingly, Fleet had a vested right to interest on its overpayment of taxes before the enactment of the new § 40, even though the notice of the federal change was issued after its enactment. 


Alternatively, even if the new § 40 effected a procedural change, it cannot be applied retroactively to a pending matter in which the procedural stage to which the statute relates has passed.

Even if a change in an interest rate were deemed to be a procedural change, the new § 40 nonetheless could not be applied to revoke Fleet's entitlement to the interest which accrued during the period at issue.  In Vinciullo, the Supreme Judicial Court declared that "statutes which are remedial or procedural should be deemed to apply retroactively to those pending cases which, on the effective date of the statute, have not yet gone beyond the procedural stage to which the statute pertains."  Vinciullo, 364 Mass. at 628.  However, "[i]f the point in the proceedings to which the statutory change is applicable has already passed, the proceedings are not subject to the change."  Porter v. Clerk of the Superior Court, 368 Mass. 116, 118 (1975) ("Porter"), citing Vinciullo, supra.  The daily accrual of interest requires specific application of the Vinciullo principle to statutes affecting interest computation.  In Porter, the Supreme Judicial Court incorporated the Vinciullo principle into a case involving a statutory change which increased the percentage of interest paid on damages.  The Supreme Judicial Court found that interest "is meant as compensation for delay" and "as such, it accrues daily.  The finding or order for judgment merely makes this accrued interest payable."  Id. at 118 (citations omitted); see also Mirageas v. Massachusetts Bay Transportation Authority, 391 Mass. 815, 821 (1984).  Therefore, "the rate applicable on each day is that in effect at the time."  Porter, 368 Mass. at 118.  Accordingly, the Supreme Judicial Court ruled that interest in that case should be calculated at two separate rates, first from the commencement of the action up to the effective date of the statutory amendment, and second from the effective date of the amendment.  Id. at 119;  see also Trinity Church in Boston v. John Hancock Mut. Life Ins. Co., 405 Mass. 682, 684 (1989) (finding that two interest accrual rates were required to calculate postjudgment interest when a statutory amendment, passed after the entry of judgment but before the judgment was satisfied, altered the rate of interest on judgments) (citing Porter, supra, and Vinciullo, supra).  
In the present appeal, an overpayment of taxes was made when BayBank filed its Form 63 FI, prior to the effective date of the new § 40, and interest began accruing daily on the overpayment.  See TIR 03-18.  Because the interest accrued on a daily basis, a statutory change
enacted after it had begun accruing necessarily occurred after "the procedural stage to which the statute pertains."  Vinciullo, 364 Mass. at 628.  Therefore, even if the new § 40 effected a procedural change, it must be applied prospectively, and Fleet is entitled to the interest which had accrued during the period at issue. 
 
The Commissioner's regulation at 830 CMR 62C.33.1(7)(c) is inconsistent with Massachusetts case law.

The Commissioner's reliance on 830 CMR 62C.33.1(7)(c) is of no avail.  This regulation interprets the new § 40 as effective "[f]or abatement claims filed on or after July 1, 2003."  A reasonable administrative interpretation of a statute by the agency charged with its enforcement, adopted contemporaneously with its enactment or amendment, is entitled to deference. Ace Heating Service, Inc. v. State Tax Comm'n, 371 Mass. 254, 256 (1976); FMR v. Commissioner of Revenue, 441 Mass. 810, 819 (2004).  However, an administrative interpretation that is contrary to Massachusetts law is not entitled to deference.  See G.L. c. 62C, § 3 (empowering Commissioner to promulgate regulations "not inconsistent with law" and "reasonably designed to carry out the intent and purposes" of a statute); BankBoston Corporation v. Commissioner of Revenue, ATB Findings of Fact and Reports 2005-450, 486-87 (citing Massachusetts Hospital Ass'n, Inc. v. Department of Medical Security, 412 Mass. 340, 346 (1992)).  
In the instant appeal, the Board found that 830 CMR 62C.33.1(7)(c) was contrary to Massachusetts case law, which prohibits the retroactive application of a statutory amendment affecting a substantive right.  See, e.g., Vinciullo, 364 Mass. at 626, n. 5.  The Board ruled that 830 CMR 62C.33.1(7)(c), promulgated after Fleet had filed its petition with the Board, was inconsistent with Massachusetts law and therefore, not entitled to weight. 
 
The new § 40 should not be construed strictly in favor of the taxing sovereign.

The Commissioner's contention that statutes requiring the payment of interest by the taxing sovereign must be construed strictly in favor of the taxing sovereign is also unavailing.  The Commissioner relied principally upon Ogden, supra, where a taxpayer claimed that the City of Boston owed it an additional two-percent interest on an abatement of property tax, because the statute providing for the interest had been amended since the tax was assessed.  The Appeals Court in Ogden held that to the extent there was a statutory ambiguity, the ambiguity should not be resolved in favor of the taxpayer, because the statute in question did not impose a tax but amended an interest provision.  Ogden, 18 Mass. App. Ct. at 104.  Ogden addressed a statute which purported to specify whether it would apply retroactively.  The ambiguity in Ogden was the statute's reference to "abatements filed on or after the effective date of this act."  Id. at 102.  As explained by the Appeals Court, an abatement is not typically referred to as "filed" but rather "made," "granted," or "ordered."  Id. at 103.  The Appeals Court thus found "abatement filed" to be an ambiguous term which "should be dealt with in a manner which fits appropriately into the general property tax structure."  Id. at 104. 
Unlike the statute in Ogden, the new § 40 does not address whether the change will apply retroactively or prospectively to tax payments that were made before the effective date of the legislation but for which the Application for Abatement was filed after the effective date.  Accordingly, the Board found that the analysis in Ogden was not instructive to the resolution of the instant appeal.   
After filing his post-hearing briefs, the Commissioner submitted to the Board a letter which cited a "pertinent and significant authority [which has] come to the attention of a party after his brief has been filed."  M.R.A.P. 16(l).  According to the Commissioner, Snaxin, Inc. v. Underground Storage Tank Petroleum Cleanup Fund Administrative Review Board, 62 Mass. App. Ct. 224, 227-29 (2004) ("Snaxin") supported his argument that statutes requiring the payment of interest by the Commonwealth should be construed in favor of the Commonwealth.  Snaxin addressed whether the appellants were entitled under G.L. c. 21J to interest for the period during which the Underground Storage Tank Petroleum Cleanup Fund Administrative Review Board, an agency of the Commonwealth, delayed approving and paying the appellants' claims for reimbursement of costs incurred in their cleanup and replacement of underground storage tanks.  In ruling that the appellants were not entitled to interest payments, the Appeals Court specifically noted that "G.L. c. 21J does not contain any express authorization for the payment of interest in cases of delay."  Id. at 225-26.  In contrast, the provision at issue in this appeal, § 40, contains express authorization for payment of interest on an overpayment of taxes.  Accordingly, the Board found that Snaxin does not provide guidance on the issue of how to compute interest under the facts of this appeal and, therefore, is inapposite. 

Conclusion
The new § 40 provides a definition for "date of overpayment" for purposes of that section.  This provision, if applied retroactively in the matter before the Board, would reduce the amount of interest accrued on BayBank's earlier overpayment of tax, thereby affecting a substantive right.  The new § 40 must be applied prospectively, and the "date of overpayment" at issue is September 3, 1998, the date when BayBank filed Form 63 FI and paid the taxes.    Alternatively, even if the new § 40 were deemed to have effected a procedural change, it still must be applied prospectively because the procedural stage to which the amendment relates has passed.  Therefore, consistent with Massachusetts case law, the new § 40 must be applied prospectively from its effective date of July 1, 2003.  
Accordingly, the Board issued a decision for the appellant in this appeal.

				THE APPELLATE TAX BOARD


By:  ____________________________________
Anne T. Foley, Chair

     
____________________________________
Frank J. Scharaffa, Commissioner


____________________________________
Donald E. Gorton, III, Commissioner


     ____________________________________
Nancy T. Egan, Commissioner

  
____________________________________
James D. Rose, Commissioner 

A true copy,


Attest:_____________________________
  	    Assistant Clerk of the Board

 The Supreme Judicial Court has recognized the difficulties in distinguishing statutes which affect substantive rights from those affecting procedures and remedies.  See, e.g., Vinciullo, 364 Mass. at 626-27 ("The rule is far easier to state than it is to apply . . . .").  "Nevertheless this approach survives."  Parello v. McKinney, 46 Mass. App. Ct. 785, 789 (1999) (citing Fontaine v. Ebtec Corp., 415 Mass. 309, 318-21 (1993); Gray v. Commissioner of Revenue, 422 Mass. 666, 670 (1996)).

ATB 2006-137