State Street Corporation v. Commissioner of Revenue

State Street Corporation, a bank holding company and financial institution under Massachusetts law, claimed Massachusetts research credits under G.L. c. 63, section 38M for its subsidiaries' research activities for the 2016 through 2018 tax years, ultimately reporting $13,875,785 in combined research credits (including carryovers) on its 2018 combined report. The Commissioner of Revenue denied the credits on purely legal grounds, taking the position that Massachusetts research credits are available only to business corporations subject to the excise imposed under G.L. c. 63, section 39, and that financial institutions — taxed instead under section 2 — could not claim them, without conducting any substantive review of the underlying research expenses. The resulting assessment totaled nearly $17.9 million including penalties and interest.

Financial Institutions Are 'Business Corporations' Under the Statute

The Appellate Tax Board held that G.L. c. 63, section 38M(a)(1) permits any 'business corporation' to claim the research credit, with no textual limitation to corporations taxed under section 39. Because the definition of 'business corporation' in G.L. c. 63, section 30(1) expressly applies throughout sections 30 through 52 of the chapter — including section 38M — and because the parties did not dispute that State Street and its subsidiaries met that definition, the Board found the statutory language unambiguous. The Board further relied on G.L. c. 63, section 68C, added in a 2008 statutory overhaul, which explicitly confirms that a business corporation that is a financial institution taxed under section 2 is exempted only from the section 39 excise — not from status as a business corporation generally.

The Commissioner's Regulation Predated a 2008 Statutory Overhaul

The Board declined to defer to the Commissioner's regulation limiting the credit to corporations taxed under section 39, noting the regulation had never been updated to reflect the 2008 amendments that eliminated the prior 'domestic corporation'/'foreign corporation' distinction and replaced it with the unified 'business corporation' definition. An agency regulation that conflicts with unambiguous statutory text is not entitled to deference.

Because the Commissioner had denied the credits solely on this legal theory without any factual dispute about the underlying research expenses, the Board found no genuine issue of material fact and granted summary judgment abating the assessment in full.

Significance: This 2024 decision resolved a threshold eligibility question with significant implications for the financial services industry, confirming that Massachusetts financial institutions may claim the state's research credit on the same basis as other business corporations — a conclusion the Massachusetts Department of Revenue subsequently acknowledged in Technical Information Release 25-3.