Aquidneck Investments, Inc. v. Commissioner of Revenue (March 17, 2011)

  COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


AQUIDNECK INVESTMENTS, INC.   v.    COMMISSIONER OF REVENUE          
						     
 
Docket No. C298158			   	 Promulgated:
		  		   			 March 17, 2011  


	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 to abate corporate excise assessed against Aquidneck Investments, Inc. under G.L. c. 63, § 32 for the tax years ending December 31, 2001 through December 31, 2006 ("tax years at issue").
Commissioner Rose heard this appeal.  Chairman Hammond and Commissioners Scharaffa and Mulhern joined him in the decision for the appellee.   
These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32. 
 
Jeffrey S. Entin, Esq., for the appellant.  
Julie A. Flynn, Esq. and Timothy R. Stille, Esq., for the appellee.



FINDINGS OF FACT AND REPORT
	Based on the testimony and exhibits offered into evidence at the hearing, the Appellate Tax Board ("Board") made the following findings of fact.
Aquidneck Investments, Inc. ("Aquidneck" or "corporation"), formerly known as Star Wash, Inc., was organized on November 15, 1979.  In 1991, its Articles of Organization were amended to change the corporate name and also to change the purpose of the corporation from an automobile service station to the operation of a gasoline station and a convenience store selling beer and wine.  During the tax years at issue, Jeffrey S. Entin served as president and clerk of the corporation and Theresa Entin served as treasurer.  On December 18, 1991, Aquidneck was issued a license to sell beer and wine in the Town of Somerset.  
On April 29, 1997, Aquidneck, Jeffrey S. Entin and Theresa A. Entin, entered into a lease agreement with Somerset Energy, Inc. ("Somerset Energy" or "lessee") to lease the premises of Aquidneck's gas station and convenience store during the period May 1, 1997 through April 30, 2002.  In accordance with the lease agreement, Somerset Energy was required to make monthly rental payments.  Pursuant to paragraph 14.2 of the lease agreement, Aquidneck allowed Somerset Energy to use its liquor license and "in consideration of the rent paid," Somerset Energy was allowed to "keep the profit derived from the sale of the beer and wine."  Aquidneck, however, was responsible for the payment of all fees associated with the beer and wine license.  The lease agreement was twice renewed, through August 2009, when the real estate, which was owned by an unrelated third party, was foreclosed upon.  For each of the tax years at issue, Aquidneck submitted a liquor license renewal application to the Town of Somerset.  Each application was filed in the name of Aquidneck, signed by Jeffrey S. Entin as president, and listed Theresa A. Entin as Manager.  Mr. Entin testified that during the tax years at issue, Ms. Entin checked in regularly with the owner of Somerset Energy to make sure that the liquor license was being used appropriately and in accordance with license regulations.    
On or about August 31, 1998, Aquidneck was involuntarily dissolved by the Commonwealth for failure to file Annual Reports with the Secretary of State.  On November 29, 2006, Aquidneck filed an Application for Revival pursuant to G.L. c. 156B, § 108.  Question #8 on the appellant's Application for Revival asks the applicant to "describe fully the activities, if any, of the corporation since dissolution."  The appellant's response, signed by Mr. Entin under the pains and penalties of perjury, was that the "corporation leases a business in Somerset, Massachusetts."  On January 19, 2007, the Secretary of State's Office issued a "Revival Certificate" stating "[Aquidneck] is revived for all purposes and without limitation of time with the same powers, duties and obligations as if the corporation had not been dissolved."  
Subsequently, on September 28, 2007, Jeffrey S. & Theresa A. Entin entered into a purchase and sale agreement with Red's Somerset, Inc., d/b/a Red's Somerset, for the sale of the liquor license held in the name of Aquidneck for the sum of $115,000.  
On May 20, 2008, Aquidneck filed Form 355S S Corporation Excise Returns for the tax years at issue.  On each of the tax returns, Aquidneck reported a Massachusetts corporate excise liability of $456, the minimum corporate excise liability.  The appellant paid the tax associated with the returns for the tax years at issue.  Subsequently, the appellant filed an Application for Abatement with the Commissioner of Revenue ("Commissioner"), which she denied on June 18, 2008.  On July 9, 2008, Aquidneck timely filed an appeal with the Board.  On this basis, the Board found that it had jurisdiction to hear and decide this appeal.
	Based on the evidence presented, including the appellant's sworn statement on its Application for Revival, the Board found and ruled that during the tax years at issue, Aquidneck was doing business in the commonwealth and therefore was subject to the corporate excise under G.L. c. 63, § 32.  At all material times, Aquidneck leased its gas station and convenience store, including the use of its liquor license, to a third party for consideration.  In accordance with the rental agreement, Jeffrey Entin, in his capacity as president of Aquidneck, annually renewed the liquor license which, in turn, was leased to Somerset Energy, Inc.  Theresa Entin was listed as Manager on the liquor license and regularly checked in with Somerset Energy, Inc. to ensure that the liquor license was being used properly and in accordance with all regulations.  Further, pursuant to the rental agreement, Aquidneck received rental payments that ranged from $2,500 to $5,000 per month.  Accordingly, the  Board found that during the tax years at issue, Aquidneck's leasing of the gas station and convenience store and the exercise of its rights under the liquor license constituted "doing business" in the commonwealth for purposes of § 32 and, Aquidneck therefore, it was liable for the corporate excise.
OPINION
The first issue in the present appeal is whether, for the tax years at issue, Aquidneck was liable for the Massachusetts corporate excise.  During the tax years at issue, G.L. c. 63, § 32 imposed on "every domestic corporation . . . exercising its charter, or qualified to do business or actually doing business in the commonwealth."  G.L. c. 63, § 32 (2006).  The term "doing business" includes, 
each and every act, power, right, privilege, or immunity exercised or enjoyed in the commonwealth, as an incident to or by virtue of the powers and privileges acquired by the nature of such organizations, as well as, the buying, selling or procuring of services or property.

G.L. c. 63, § 32.    
Mr. Entin testified that Aquidneck sold its entire business and all assets in 1997 and that, during the tax years at issue, the appellant was not doing business in the Commonwealth.  Therefore, the appellant argued, it was not subject to the corporate excise.    
However, during the tax years at issue, the appellant leased its gas station and convenience store to Somerset Energy for consideration.  Pursuant to the terms of the lease agreement, Aquidneck annually renewed its liquor license, in accordance with G.L. c. 138, § 15, and allowed Somerset Energy to sell beer and wine under the umbrella of its liquor license.  
Pursuant to G.L. c. 138, § 15, corporations organized under the laws of the commonwealth may be granted a liquor license.  Aquidneck, in its corporate capacity, annually applied for and was granted a liquor license.  It is well established that a liquor license is a "personal privilege."  Jubenville v. Jubenville, 313 Mass. 103, 106 (1942).  In the present appeal, the Board found that by annually renewing its liquor license and executing and renewing leases, the appellant exercised its powers, rights and privileges as a Massachusetts corporation and therefore, was "doing business" within the commonwealth pursuant to § 32.  
The second issue is whether a corporation that was involuntarily dissolved prior to the tax year at issue but was later revived pursuant to G.L. c. 156B, s. 108, is liable for the corporate excise.
If a corporation has failed to comply with the provisions of law requiring the filing of reports with the Secretary of State ("Secretary"), the Secretary may dissolve the corporation, subject to the provisions of G.L. c. 156B, §§ 101, 102, 104 and 108.  See Urban Computer Systems, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1988-286, 291.  Once dissolved, a corporation may subsequently file an Application for Revival; if the Secretary approves such an application the corporation shall: 
stand revived with the same powers, duties and obligations as if it had not been dissolved, and all acts and proceedings of its officers, directors and stockholders, acting or purporting to act as such, which would have been legal and valid but for such dissolution shall stand ratified and confirmed.

G.L. c. 156B, § 108.
	Aquidneck was involuntarily dissolved in 1998 for failure to file Annual Reports with the Secretary office.  Subsequently, on January 19, 2007, the Secretary issued to Aquidneck a Revival Certificate reviving the corporation "for all purposes and without limitation of time with the same powers, duties and obligations as if the corporation had not been dissolved."
Where there is no evidence that the corporation or its officers acted in a corporate capacity during its period of dissolution, the corporation may not be liable for corporate excises.  Urban Computer, Mass. ATB Findings of Fact and Reports at 1988-292-293.  Conversely, if there is evidence of "any active business . . . carried on in the name of the corporation," or "any known acts . . . of its officers, directors, or stockholders purporting to act as such," the corporation is liable for corporate excises.  Id.
In the present appeal, subsequent to its involuntary dissolution, Aquidneck twice renewed the lease agreement with Somerset Energy for the lease of Aquidneck's gas station and convenience store and received monthly rental payments pursuant to that agreement.  In addition, for each of the tax years at issue, Mr. Entin, in his capacity as president of Aquidneck, applied for the renewal of Aquidneck's liquor license.  Theresa Entin, also a corporate officer of Aquidneck, was listed as the Manager on the liquor license and routinely checked in with the lessee to ensure that the liquor license was being utilized appropriately and in accordance with the license regulations.  The Board found that the above-mentioned actions constituted active business carried on by the corporation and were "known acts" by the appellant's corporate officers during the period of dissolution.  
The Board therefore found that Jeffrey Entin and Theresa Entin, in their roles as officers and directors of Aquidneck, regularly conducted business in the name of Aquidneck during the period of dissolution.  The acts of a dissolved corporation's officers, conducted during dissolution, are ratified and confirmed as acts of the corporation upon revival.  Urban Computer, Mass. ATB Findings of Fact and Reports at 1988-293.  Therefore, the Board found that Aquidneck was liable for the corporate excise for the tax years at issue.
	In conclusion, the Board found that Aquidneck was doing business and also using its property in the Commonwealth, pursuant to G.L. c. 63, § 32, during the tax years at issue.  The Board further found that the actions of Jeffrey Entin and Theresa Entin during the period of dissolution were known acts of Aquidneck's officers and directors and, therefore, were ratified and confirmed as acts of the corporation.  Accordingly, the Board found that Aquidneck was liable for corporate excise for the tax years at issue.
					  APPELLATE TAX BOARD

			    By:			          	____
				  Thomas W. Hammond, Jr., Chairman 

 The actual filing date of the application for abatement is unclear on this record.  However, based on the return filing date of May 20, 2008 and the Commissioner's denial issued less than one month later on June 16, 2008, the Board found that the appellant's abatement application was timely filed. 
 Section 32, which provided for the corporate excise on domestic corporations, was repealed by St. 2008, c. 173, § 47.  G.L. c. 63, § 39 now provides for the corporate excise on both foreign and domestic corporations for tax years beginning after January 1, 2009.  Because the tax years at issue predate 2009, § 32 is the applicable provision.  

	ATB 2011-119