The Interface Group v. Commissioner of Revenue

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


THE INTERFACE GROUP         v.     COMMISSIONER OF REVENUE
 
Docket Nos. C266670-76			     	     
		  C266680

SHELDON G. ADELSON		   v.	COMMISSIONER OF REVENUE

Docket Nos. C266677-79			Promulgated:
							October 17, 2008


	Pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32, the Appellate Tax Board ("Board") promulgates these revised Findings of Fact and Report simultaneously with its reinstated decisions on remand.  These appeals were originally filed under the formal procedure pursuant to G.L. c. 62C, § 39 from the refusal of the appellee, the Commissioner of Revenue ("Commissioner" or "appellee"), to grant an abatement of corporate excise assessed against the appellant, The Interface Group ("Interface"), under G.L. c. 63, § 38 for the tax years 1991, 1992, 1993, 1994, 1995, 1998, 1999 and 2000 ("Interface's tax years at issue"), and from the refusal of the appellee to grant an abatement of personal income taxes assessed against the appellant, Sheldon G. Adelson ("Mr. Adelson"), under G.L. c. 62, § 4 for the tax years 1994, 1995 and 1998 ("Mr. Adelson's tax years at issue").
	Former Commissioner Gorton heard the appeals and was joined in the original decisions for the appellee by Commissioners Scharaffa, Egan and Rose.  Interface and Mr. Adelson appealed the original decisions to the Massachusetts Appeals Court ("Appeals Court"), which vacated the decisions and remanded the appeals to the Board for a reconsideration of the issues raised in the appeals.  The Interface Group & Another v. Commissioner of Revenue, 72 Mass. App. Ct. 32 (2008).
Commissioners Scharaffa, Egan, Rose and Mulhern joined in the reinstated decisions on remand for the appellee.  Chairman Hammond took no part in the deliberation or decision of these matters. 

	Paul G. Roberts, Esq. for the appellant.

	Thomas W. Hammond, Esq. and Andrew P. O'Meara, Esq. for the appellee.

REVISED FINDINGS OF FACT AND REPORT
1.  Introduction
The Board issued its original decisions in these appeals on August 30, 2004 and promulgated its original Findings of Fact and Report on July 18, 2006.  See The Interface Group v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2006-527 ("Interface I").  
At all material times, Interface was a Massachusetts business trust with its regular place of business in Needham, Massachusetts.  Interface was a public charter tour operator doing business under the trade name GWV.  "GWV created and marketed vacation travel packages to destinations primarily in the Caribbean Islands and Mexico."  Id. at 2006-531.  
One of the issues in Interface I was whether GWV's receipts from the sale of vacation travel packages were properly deemed to be sales in Massachusetts for purposes of calculating Interface's sales factor under G.L. c. 63, § 38(f).  Pursuant to § 38(f), receipts from sales other than sales of tangible personal property (including sales of personal services, like vacation travel packages) are sales in the Commonwealth if:
the income-producing activity is performed in this commonwealth; or

the income-producing activity is performed both in and outside this commonwealth and a greater proportion of this income-producing activity is performed in this commonwealth than in any other state, based on costs of performance.

Resolution of the appeals thus required the Board to  determine GWV's "income-producing activity."  The Commissioner contended that Interface's income-producing activity was its overall operation as a public charter tour operator ("operational approach"), while the appellants contended that Interface's income-producing activity was each individual sale of a travel packages to an individual customer ("transactional approach").  Adoption of the transactional approach would require analyzing GWV's costs on a per-trip basis, while adoption of the operational approach would require analyzing GWV's costs on an annual basis.  
It is undisputed that adoption of the operational approach would result in the greater percentage of GWV's income-producing activity costs being allocated to Massachusetts when analyzing GWV's costs on a yearly basis.  GWV's Massachusetts costs were significant.  Most notably, the Board found that 90% of GWV's employees were working in GWV's Needham office.  David Bloom, GWV's Comptroller and Chief Financial Officer, conceded that: 
for all tax years at issue, in analyzing GWV's total costs on a yearly basis [operational approach] rather than a per-transaction basis, the costs allocated to Massachusetts, including "overhead" and personnel costs, were greater than the costs allocated to any single destination, even when the costs for airfare, hotel accommodations and ground transportation were included in GWV's costs of performance and sourced to the destination locations.
  
Interface I, Mass. ATB Findings of Fact and Reports at 2006-535.  Therefore, because GWV's Massachusetts costs would be greater than costs in any other single state, GWV's receipts are considered Massachusetts sales.  See Surel International, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1998-494, 505 (ruling that § 38(f) "requires a comparison of costs between those incurred in Massachusetts and those incurred in other individual states and not, as the Appellant contends, between costs incurred in Massachusetts and those incurred in all other states combined"). 
In Interface I, "[t]he Board found no basis for fracturing GWV's business into thousands of mini-transactions on a customer-by-customer basis" and instead concluded that, "consistent with Boston Professional Hockey Ass'n, GWV's income-producing activity in the instant appeals was the overall operation of a business to package and sell vacation tours in bulk."  Interface I, Mass. ATB Findings of Fact and Reports at 2006-551.  The Board thus found that the Commissioner properly assessed Interface by characterizing GWV's receipts as Massachusetts sales based on GWV's overall costs of performing its business operation; accordingly, the Board issued decisions for the appellee.   
 
2.  The Appeals Court Decision
The Appeals Court focused on the Commissioner's regulation at 830 CMR § 63.38.1(9)(d)(2), which defines an "income-producing activity" as:
a transaction, procedure, or operation directly engaged in by a taxpayer which results in a separately identifiable item of income.  In general, any activity whose performance creates an obligation of a particular customer to pay a specific consideration to the taxpayer is an income-producing activity.

The appellants essentially read the second sentence not as an example but as "a limitation on the first sentence."  Interface Group, 72 Mass. App. Ct. at 38.  Therefore, under the appellants' reading, the regulation requires that the activity be a "transaction, procedure, or operation" which "creates an obligation of a particular customer to pay a specific consideration to the taxpayer."  Id. (citing 830 CMR § 63.38.1(9)(d)(2)) (emphasis added).  The appellants contend that these two sentences aptly describe GWV's activity in assembling a travel package for a single customer who pays for the package.  Id.  The Appeals Court's opinion also indicated that the appellant pointed out what the appellant characterized as a "conflict" in the Board's findings: "‛GWV accounted for the sale of each vacation travel package as a separate transaction for each individual customer'" in its internal accounting records.  Id. (quoting Interface I, Mass. ATB Findings of Fact and Reports at 2006-534).  
The Appeals Court held that: 
the [B]oard's opinion here does not address how the first two sentences of the regulation are to be construed or why the taxpayer's construction runs counter to the regulation, nor does it reconcile the arguable conflict in the [B]oard's findings.  The lack of clarity is compounded, moreover, because as presently constituted, the [B]oard's reasoning is premised largely on an overextension of Boston Professional Hockey Assn., 443 Mass. at 286. 

Id. at 39-40.  Therefore, while not overturning any of the Board's subsidiary findings, the Appeals Court ruled that the Board's opinion did not "state adequate reasons in support of its decision so as to permit meaningful appellate review."  Id. at 40 (quoting Blakely v. Board of Assessors of Boston, 391 Mass. 473, 476 (1984)).  The Appeals Court thus remanded the appeals to the Board for further proceedings.
The following is the Board's analysis on remand of the particular facts and circumstances which characterize GWV's income-producing activity.

3.  GWV's income-producing activity for purposes of
    calculating its sales factor under § 38(f)

The Board adopts and reaffirms its original findings of fact detailed in Interface I.  Of particular importance are the following findings.
GWV was a public charter tour operator which created and then marketed vacation travel packages.  GWV had employees in Massachusetts and outside Massachusetts who assembled the various components of the vacation packages by negotiating with airlines, hotels and ground transportation operators to secure the tickets and accommodations necessary for travel to the various destinations offered.  Once GWV employees assembled the packages, GWV vacation packages were then sold to the public through various travel agents.  "The travel agents were independent of GWV, and they also performed duties for other suppliers and vendors of travel services unrelated to GWV."  Interface I, Mass. ATB Findings of Fact and Reports at 2006-533.  
GWV vacation travel packages included air transportation, hotel accommodations and ground transfers.  GWV contracted with the various air carriers, hotels and ground transportation providers to create the vacation travel packages.  GWV made the purchases of the airfare, hotel accommodations and ground transportation services to assemble the vacation packages.  According to its internal accounting practices, GWV recorded all of these outlays as its own costs.  Contracts with the hotels typically required GWV to pay a penalty for any unsold hotel rooms which had been part of its reservation package. MaryAnn Gentile, Vice President of Operations for GWV ("Ms. Gentile"), testified that, in most instances, contracts for hotel room accommodations were executed at the hotel, and that GWV employees also traveled outside of Massachusetts to negotiate and execute contracts with airline and ground transportation operators.  
It is undisputed that GWV bore significant expenses within Massachusetts.  Notwithstanding the work of GWV employees performed outside of Massachusetts,
[t]he vast majority of GWV's employees were based in its Needham, Massachusetts office.  The employees acted as liaisons with the destination hotels, providing the hotels with room counts and guest names, and responding to special requests.  The Needham employees also developed seasonal brochures and smaller promotional flyers, which were printed in New York and then distributed to travel agents, trade shows, and various advertising media nationwide. . . .  For each of the tax years at issue, over 90% of GWV's payroll was paid to workers operating in Massachusetts. 

Id. at 2006-532.  As previously stated, Mr. Bloom conceded in his testimony that, for all tax years at issue, "in analyzing GWV's total costs on a yearly basis rather than a per-transaction basis, the costs allocated to Massachusetts, including 'overhead' and personnel costs, were greater than the costs allocated to any single destination, even when the costs for airfare, hotel accommodations and ground transportation were include in GWV's costs of performance and sourced to the destination locations."  Id. at 535.
The Board also makes the following additional findings of fact, which relate to evidence that was part of the record but was not emphasized in Interface I.  Ms. Gentile explained how GWV assembled the various tour packages.  She testified that employees from GWV's marketing group customarily negotiated hotel space oftentimes by traveling to the destination hotel and entering into a contract with the hotel.  A typical hotel contract entered into evidence showed that GWV was committed to pay for a specified number of rooms for the particular dates of travel.  Ms. Gentile testified that, as the dates of travel approached, if GWV was unable to sell sufficient travel packages to account for all of the reserved hotel rooms, the hotels might allow GWV to release some of the hotel rooms back to the hotel, but other times, GWV was required to pay for the unused hotel reservations.  
Ms. Gentile testified that the marketing group negotiated airline contracts in a similar manner, with GWV employees meeting with each airline carrier at its business headquarters and entering into a contract (a "block seat agreement") with the airline.  Like the hotel contract, a typical airline contract entered into evidence showed that GWV was committed to pay for a specific number of airline tickets for the particular dates of travel.  Ms. Gentile also affirmed that, like the hotel contracts, "GWV owns the seats on the plane for better or for worse," meaning that GWV typically was required to pay for any unused seats which it could not sell as part of a vacation travel package.    
Finally, with respect to ground transportation, Ms. Gentile testified that GWV employees of the operations group negotiated with a local company at their destination and entered into a contract with the company.  Again, a typical ground transportation contract entered into evidence showed that GWV was committed to provide a set minimum number of passengers for the particular dates of travel.  Ms. Gentile explained that the ground transportation carrier provided a certain size and number of vans or buses based on its negotiations with GWV employees, which included GWV's commitment of a set minimum number of paying passengers.   
On the basis of the forgoing, the Board found that GWV employees negotiated and purchased the various components of the vacation packages in bulk.  If GWV could not sell all of the seats or rooms for which it had contracted, GWV most often was still required to pay for the unused ticket or room.  These bulk negotiations with the hotels, air carriers and ground transportation carriers guaranteed the sale and, accordingly, the revenue, from a set or minimum number of seats or rooms.  The Board found that it was the guaranteed revenue stream to the airlines, hotels and ground transportation carriers that enabled GWV to offer competitive prices for the various components of the travel packages.  
Moreover, at the time of sale, GWV did not have contact with any of the ultimate customers.  As a public charter tour operator, GWV was in the business of assembling various components of travel packages and marketing those packages to the travel agents who sold them to the ultimate customers.  The "transaction, procedure or operation directly engaged in" by GWV was the bulk purchase of rooms and transportation and the package and sale of the tours through travel agents, not the sale of individual tours to individual customers.  Therefore, the Board found that the Commissioner properly characterized GWV's income-producing activity as its overall operation of a business that assembled, marketed and sold tours in bulk.  Accordingly, as explained in the Opinion, the Board reinstated its decisions for the appellee.

OPINION
A Massachusetts corporation is subject to the corporate excise under G.L. c. 63, § 32.  If the corporation has income from a business activity conducted both inside and outside of the Commonwealth, it is entitled to apportion its taxable net income to Massachusetts and such other states, pursuant to G.L. c. 63, § 38(c).  Taxable net income is first determined by taking the corporation's federal net income, as defined in G.L. c. 63, § 30(5)(b), with certain statutory deductions provided in G.L. c. 63, § 38(a).  Taxable net income is then multiplied by the three-factor apportionment formula in G.L. c. 63, § 38(c).  The components of the apportionment formula are the property factor, payroll factor and sales factor, which are themselves fractions.  G.L. c. 63, § 38(c).
The instant appeals pertain to the calculation of Interface's sales factor under G.L. c. 63, § 38(f), particularly, whether GWV's receipts from the sale of vacation travel packages were properly determined to be Massachusetts sales.  Pursuant to § 38(f), receipts from sales other than sales of tangible personal property (including sales of personal services, like vacation travel packages) are Massachusetts sales if:
the income-producing activity is performed in this commonwealth; or

the income-producing activity is performed both in and outside this commonwealth and a greater proportion of this income-producing activity is performed in this commonwealth than in any other state, based on costs of performance.

The sourcing of sales to Massachusetts thus turns on the proper characterization of GWV's "income-producing activity."  
The appellants contend that the Commissioner improperly characterized their income-producing activity as the overall operation of a business which assembles, markets and sells vacation tours in bulk rather than the individual sales of isolated vacation packages to individual customers.  "‛The taxpayer has the burden of proving as a matter of law [its] right to an abatement of the tax.'"  Koch v. Commissioner of Revenue, 416 Mass. 540, 556 (1993) (quoting M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 140 (1989)).  According to the Supreme Judicial Court, this burden 
is particularly heavy with respect to challenges to the apportionment of income under G.L. c. 63, § 38.  Before this court will require the Commonwealth to adopt an alternative computation method, "the taxpayer must prove by 'clear and cogent evidence' that the income attributed to the Commonwealth is in fact 'out of all appropriate proportion to the business transacted' here or has 'led to a grossly distorted result.'"  

Boston Professional Hockey Ass'n, 443 Mass. at 285 (quoting Gillette Co. v. Commissioner of Revenue, 425 Mass. 670, 679 (1997) (quoting W.R. Grace & Co. v. Commissioner of Revenue, 378 Mass. 577, 591 (1979))).  
The Supreme Judicial Court has recognized that "[t]he board's decision is final as to findings of fact."  Syms Corp. v. Commissioner of Revenue, 436 Mass. 505, 511 (2002) (citation omitted).  An appellate court's "review of the sufficiency of the evidence is limited to 'whether a contrary conclusion is not merely a possible but a necessary inference from the findings.'"  Id. (quoting
Olympia & York State St. Co. v. Assessors of Boston, 428 Mass. 236, 240 (1998) (quoting Kennametal, Inc. v. Commissioner of Revenue, 426 Mass. 39, 43 (1997), cert. denied, 523 U.S. 1059 (1998)).  Accordingly, "[i]f supported by sufficient evidence, we will not reverse a decision of the board unless it is based on an incorrect application of the law."  Id. (citing Koch v. Commissioner of Revenue, 416 Mass. 540, 555 (1993)).  Furthermore, "[i]n reviewing mixed questions of fact and law, the board's expertise in tax matters must be recognized, and its decisions are due 'some deference.'"  Koch v. Commissioner of Revenue, 416 Mass. 540, 555 (1993) (quoting McCarthy v. Commissioner of Revenue, 391 Mass. 630, 632 (1984)).
The Appeals Court remanded the present appeals to the Board to address "how the first two sentences of [830 CMR § 63.38.1(9)(d)(2)] are to be construed."  Interface Group, 72 Mass. App. Ct. at 39.  The first two sentences of 830 CMR § 63.38.1(9)(d)(2) describe an "income-producing activity" as:
a transaction, procedure, or operation directly engaged in by a taxpayer which results in a separately identifiable item of income.  In general, any activity whose performance creates an obligation of a particular customer to pay a specific consideration to the taxpayer is an income-producing activity.

The appellants contend that GWV's income-producing activity is each separate sale of a vacation travel package to an individual customer, because it is this "transaction" which "creates an obligation of a particular customer to pay a specific consideration."  Appellants support this contention with the fact that, as the Board found in Interface I, GWV records its income on a per-transaction basis in its internal records.  The Interface Group, 72 Mass. App. Ct at 38.  
First, while GWV may account for the sale of each travel package separately in its records, the Board has consistently found that a corporation's internal accounting practices are not dispositive for purposes of computing its taxable income.  Interface I, Mass. ATB Findings of Fact and Reports at 2006-344 (quoting Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U.S. 207, 221 (1980) ("As this Court has on several occasions recognized, a company's internal accounting techniques are not binding on a State for tax purposes.")); accord Jacob Licht, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1999-12, 28-29 ("Formal accounting, whether geographical or transactional, is subject to manipulation and imprecision and often ignores or captures inadequately the many subtle and largely unquantifiable transfers of value that take place among the components of a single enterprise.").
More significantly, the appellants' interpretation of 830 CMR § 63.38.1(9)(d)(2) as focusing on each individual sale misses the mark.  The relevant statute and regulation require a determination of the taxpayer's activity that produces the income which is subject to apportionment.  See, e.g. 830 CMR 38.1(9)(d)(1) (describing a taxpayer's income-producing activity as the activity "that gave rise to the sales").  The general, non-specific language of the regulation, particularly the disjunctive phrase "transaction, procedure, or operation" from the first sentence, and the phrase "[i]n general" from the second sentence, require a close analysis of the particular facts and circumstances of each case to determine the activity that produces all the income which is subject to apportionment.  The regulation does not permit a taxpayer to cherry-pick from among its subsidiary activities so as to characterize its income-producing activity in the manner which results in the most favorable tax treatment.  See Boston Professional Hockey Ass'n, 443 Mass. at 284 (ruling that the taxpayer's income-producing activity was the overall "operation of an NHL franchise" and not merely the "subsidiary activities," such as the playing of individual games, which were necessary to create a viable, income-producing franchise).  Rather, what is required is an examination of a taxpayer's overall business to determine the taxpayer's income-producing activity.   
	The first sentence of 830 CMR § 63.38.1(9)(d)(2) provides that, in determining a taxpayer's income-producing activity, the "transaction, procedure or operation" must be an activity which is "directly engaged in by a taxpayer [and] which results in a separately identifiable item of income" (emphasis added).  The second sentence of the regulation further provides that an income-producing activity is "any activity whose performance creates an obligation of a particular customer to pay a specific consideration to the taxpayer" (emphasis added).  The focus of these two sentences is on the activity of the taxpayer; it must be directly engaged in by the taxpayer and it must result in a payment obligation of a customer, i.e, it must result in a sale.  Reading these two sentences together, income-producing activity under the regulation is activity in which the taxpayer directly engages which generates sales income to the taxpayer.
Under the facts of these appeals, GWV is not "directly engaged" in the sale of individual vacation tours to individual customers.  Rather, GMV purchases the components of its tour packages in bulk and sells the packages indirectly through travel agents.  Accordingly, GMV's income-producing activity that gives rise to its sales income is its overall operation of a business which negotiates, purchases, assembles, packages and markets tours in bulk.  It is GWV's performance of this overall operation that creates its income which is subject to apportionment. 
The appellants focus on the second sentence of 830 CMR § 63.38.1(9)(d)(2), which provides that "[i]n general, any activity whose performance creates an obligation of a particular customer to pay a specific consideration to the taxpayer is an income-producing activity," to argue that each individual sale must be separately analyzed to determine whether the sale proceeds should be allocated to Massachusetts.  Appellants' narrow reading of this sentence in isolation from the rest of the regulation and the governing statute results in an interpretation where only an individual transaction can constitute an income-producing activity.  Such an interpretation would render superfluous the words "procedure" or "operation" in the first sentence of 830 CMR § 63.38.1(9)(d)(2). More importantly, the appellants' reading does not comport with the statute, which sources a taxpayer's income from sales of intangibles based on its costs of performance; those costs necessarily include all the costs which give rise to the sales income to be apportioned, including the substantial personnel and overhead costs incurred in GWV's Needham office.  
As the Supreme Judicial Court recognized in Boston Professional Hockey Ass'n, a taxpayer's income-producing activity can include "many subsidiary activities," but these subsidiary activities, standing alone outside the context of the taxpayer's overall activity, are not the measure by which to determine the taxpayer's income-producing activity.  Boston Professional Hockey Ass'n, 443 Mass. at 284.  The Supreme Judicial Court thus agreed with the Board's finding that, with respect to the gate receipts received by the appellant, BPHA, "the 'income-producing activity' was the 'operation of an NHL franchise,' not just the playing of individual games."  Boston Professional Hockey Ass'n, 443 Mass. at 284 (quoting Boston Professional Hockey Ass'n, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2003-273, 284).  This operation "included many subsidiary activities (including the playing of games) necessary to create a viable NHL franchise."  Id.  "[T]he board's finding - that BHPA's income-producing activity was the operation of an NHL franchise rather than the playing of individual games - fits comfortably within the text of the regulation that states that 'an income-producing activity is a transaction, procedure, or operation directly engaged in by a taxpayer which results in a separately identifiable item of income." Id. at 286 (quoting 830 CMR § 63.38.1(9)(d)(2)) (emphasis provided by Supreme Judicial Court).       
Accordingly, although an individual transaction -- the sale of a ticket to a hockey game or the sale of a vacation package to a customer -- may be an "income-producing activity," there is nothing in the statute or regulation that requires that these individual transactions be "individually analyzed" to determine whether the sales should be allocated to Massachusetts.  Id. at 283.  Rather, the individual transactions are part of the overall "income-producing activity" that gives rise to the sales income to be apportioned.
Under the facts of these appeals, the Board found that GWV's income-producing activity is most appropriately described as its overall tour charter business, rather than its sales of individual, unrelated vacation packages; only this characterization recognizes that GWV's business model is to negotiate, purchase, assemble, and market vacation packages in bulk so as to secure competitive prices on those packages.  To view GWV's business activity as thousands of separate mini-transactions, which each create a separately identifiable item of income, ignores GWV's fundamental business function as a travel tour operator, which is to deal in bulk so as to secure discounted, competitive prices.  It also focuses unduly on the ultimate sale to the customer to the exclusion of the "many subsidiary activities . . . necessary to create a viable [business]" that assembles, markets and sells tours in bulk.  Boston Professional Hockey Ass'n, 443 Mass. at 284.  
The appellants' characterization of GWV's income-producing activity "trivializes the Massachusetts-based work that went into assembling and marketing the tour packages to produce value."  Interface Group, 72 Mass. App. Ct. at 39.  In fact, the activity in which GWV was directly engaged was its negotiating, purchasing, assembling, and marketing of travel tours in bulk, in other words, its operation as a travel tour business.  Accordingly, the Board found and ruled that GWV's "separately identifiable  item of income" resulting from this activity  for  purposes  of  § 38  was  the annual amount which GWV received for the sales of its vacation packages.  830 CMR § 63.38.1(9)(d)(2). "This construction of the regulation is neither 'patently wrong, unreasonable, arbitrary, whimsical, or capricious.'"  Boston Professional Hockey Ass'n, 443 Mass. at 286 (quoting Box Pond Ass'n v. Energy Facilities Siting Bd., 435 Mass. 408, 416 (2001)) (other quotations omitted).
Finally, the appellants did not meet their burden of proving that GWV's direct costs in any one specific state exceeded its direct costs in Massachusetts when analyzed on an annual basis as required by G.L. c. 63, § 38(f).  See Surel International, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1998-494, 505 ("The Board ruled that in determining whether gross receipts are to be regarded as Massachusetts sales, G.L. c. 63, § 38(f), requires a comparison of costs between those incurred in Massachusetts and those incurred in other individual states and not, as the Appellant contends, between costs incurred in Massachusetts and those incurred in all other states combined.").  Therefore, the Board found and ruled that the Commissioner properly characterized GWV's receipts from its sales of vacation packages as Massachusetts sales pursuant to § 38.


Conclusion
Based on the nature of GWV's business, the Board found that the Commissioner properly characterized GWV's income-producing activity as its overall operation of a public charter tour business.  On the basis of this finding, the Board found and ruled that the Commissioner properly characterized GWV's receipts as Massachusetts sales for purposes of the sales factor and therefore, properly assessed the appellants.  The Board thus reinstated its decisions for the appellee. 

 	 THE APPELLATE TAX BOARD


				
By: ______________________________
 						James D. Rose, Commissioner




A true copy,

Attest:  ________________________________
		      Clerk of the Board

  "State" is defined to include "any foreign country or a political sub division" of the United States or a foreign country. G.L. c. 63, § 30(13).
  As the Board previously found in Interface-Group-Nevada, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2000-324, 360-61, GWV's direct costs incurred in Massachusetts included "the payment of salaries to . . . [GWV's] Travel Unit employees, the majority of workers for the Travel Unit, who worked solely in the Needham office to package and market the vacation tours."  
 According to its internal profit and loss statements entered into evidence, GWV sourced its airline costs to the destination of the particular flight.  Therefore, return flights destined for Massachusetts were sourced to Massachusetts.
 Boston Professional Hockey Ass'n. v. Commissioner of Rev., 443 Mass. 276 (2005).
  Interface is a Massachusetts business trust.  Massachusetts business trusts are taxed as domestic corporations for purposes of the Massachusetts corporate excise.  See G.L. c. 63, § 32 and G.L. c. 156D, § 1.

ATB 2008-1343