By Christopher Chang and Timothy Gustafson

The Massachusetts Department of Revenue issued a Letter Ruling stating that, for purposes of determining common control with regard to a combined report, the Department looks to actual voting control as opposed to voting power, which is the test for federal consolidated reporting. Under the Massachusetts combined reporting rules, common ownership means that more than 50% of the voting control of each member in the combined group is held by a common owner, either directly or indirectly. The applicant in this instance requested a determination regarding whether Corporations X and Y, which had a common shareholder (Shareholder), met the Massachusetts common ownership requirement. Corporations X and Y had the same capital and governance structure. The board of directors for each corporation consisted of 10 total members who were elected, in non-cumulative voting, by two classes of common stock. The first common stock class elected three board members, while a combined vote of both common stock classes elected the remaining seven board members. Shareholder held 23.13% of Corporation Y common stock and 53.74% of Corporation Y total votes. Shareholder also held 21.77% of Corporation X common stock prior to May 3, 2012 and 13.90% after, and 61.92% of Corporation X total votes prior to May 3, 2012 and 56.72% after. Using the federal voting power test, Shareholder held 51.56% of Corporation Y’s voting power and 49.88% of Corporation X’s voting power. However, the Department considered Shareholder’s actual voting control in the non-cumulative voting context and determined that Shareholder could elect seven board members, giving Shareholder more than 50% voting control in both Corporations X and Y. The Department noted that the federal voting power test specifically looks to “stock possessing” the required voting power, as opposed to Massachusetts statutory language that looks to “voting control.” Mass. Ltr. Rul. No. 13-7 (September 20, 2013).