MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
SynQor, Inc. (SynQor), appeals from a decision of the Appellate Tax Board (board) upholding a refusal by the Commissioner of Revenue (commissioner) to abate SynQors corporate excise tax assessments for tax years 2011 and 2013. SynQor argues that the board erred by concluding that SynQors litigation proceeds (including damages, settlement payments, and royalty payments) were attributable to Massachusetts for purposes of determining the share of SynQors taxable net income subject to corporate excise tax in Massachusetts. We discern no error in the boards reasoning and conclusion. Accordingly, we affirm.
1. Background. SynQor is a Delaware corporation that has a commercial domicile in Massachusetts. It designs, manufactures, and sells power converters and systems that are generally used as components in larger products. SynQor also holds numerous patents on its technology to prevent competitors from selling the same technology for less. Prior to the tax years at issue, SynQor brought a successful patent infringement lawsuit in Texas against various competitors for, among other things, selling infringing products. As a result of the lawsuit, SynQor received both damages and settlement payments. SynQor also received royalty payments from the competitors customers in exchange for allowing the customers to continue using infringing products they had purchased.
2. The Massachusetts corporate excise tax. “Where a corporation such as [SynQor] conducts business both within and outside Massachusetts, the share of its taxable net income subject to corporate excise tax in Massachusetts is calculated by utilizing the so-called ‘statutory method’ provided in G. L. c. 63, § 38.” Boston Professional Hockey Assn v. Commissioner of Revenue, 443 Mass. 276, 279 (2005). For SynQor and other manufacturing corporations, the “statutory method” requires the commissioner to take the corporations Federal net income, apply certain statutory deductions, and multiply the result by a sales factor. See G. L. c. 63, § 38 (a), (l) (2). See also Boston Professional Hockey Assn, supra at 279-280 (discussing similar method for corporations other than manufacturing corporations).
The sales factor is a fraction, the numerator of which equals the corporations total annual sales in Massachusetts and the denominator of which equals the corporations total annual sales everywhere. G. L. c. 63, § 38 (f), par. 1.
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Sales of tangible personal property are considered Massachusetts sales, and thus included in the numerator, if “the property is delivered or shipped to a purchaser within this [C]ommonwealth.”
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Id. Other types of sales are considered Massachusetts sales if “the income-producing activity is performed in this [C]ommonwealth.”
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G. L. c. 63, § 38 (f), par. 2. The statute also lists specific types of sales (e.g., the licensing of intangible property, sales of tangible personal property shipped to a purchaser in a foreign country, and sales of businesses) and sets forth rules for those sales. See G. L. c. 63, § 38 (f), par. 3. As is relevant here, for the licensing of intangible property, the statute provides that the income-producing activity is deemed performed in Massachusetts to the extent that the intangible property is used in Massachusetts. See id.
The statute gives the commissioner explicit authority to “adopt regulations implementing” the sales factor. See G. L. c. 63, § 38 (f), par. 5. Pursuant to that authority, the commissioner adopted regulations that set forth the circumstances in which specific types of income-producing activities are deemed performed in Massachusetts. See 830 Code Mass. Regs. § 63.38.1(9)(d)(3) (2006).
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As is relevant here, the commissioner adopted a legal rights regulation that provides as follows: “Gross receipts from the enforcement of legal rights by taxpayers domiciled in Massachusetts are presumed to be attributable to Massachusetts regardless of the forum through which a claim may be pursued, unless the legal dispute or claim relates directly and exclusively to real or tangible personal property of the taxpayer located outside of the Commonwealth.” 830 Code Mass. Regs. § 63.38.1(9)(d)(3)(f).
3. The boards decision. The board found that the litigation proceeds were all gross receipts from the enforcement of SynQors legal rights. The board further ruled that, based on SynQors Massachusetts domicile, those gross receipts were presumed to be attributable to Massachusetts under the legal rights regulation. Relying on the statutory language regarding sales from the licensing of intangible property, SynQor sought to rebut the presumption in the legal rights regulation by arguing that (1) it received the litigation proceeds in lieu of licensing fees
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and (2) the infringements underlying the patent la6wsuit occurred outside Massachusetts. The board noted that SynQor was not in the business of licensing its patents and declined to “indulge in the fiction” that SynQor received the litigation proceeds in lieu of licensing fees. The board concluded that SynQor did not rebut the presumption in the legal rights regulation.
4. Discussion. SynQor argues that the board applied the legal rights regulation in a manner that would render it invalid. In particular, SynQor contends that G. L. c. 63, § 38 (f), contemplates only certain income-producing activities, including the licensing of intangible property, and that the enforcement of legal rights is not a type of income-producing activity under the statute. SynQor further contends that the board impermissibly treated the enforcement of legal rights as its own type of income-producing activity and that, instead, the board should have looked to the nature of the income-producing activity that was at issue in the patent infringement lawsuit.
The issue before us is one of statutory interpretation: whether G. L. c. 63, § 38 (f), contemplates only certain income-producing activities, none of which are the enforcement of legal rights. We review questions of statutory interpretation de novo, giving substantial deference to the boards reasonable interpretation of tax statutes. See Onex Communications Corp. v. Commissioner of Revenue, 457 Mass. 419, 423 (2010).
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We are not persuaded by SynQors arguments for a simple reason: G. L. c. 63, § 38 (f), does not contemplate an exclusive list of income-producing activities. As noted above, the statute provides that (1) for sales of tangible personal property, the inquiry is where the property was shipped or delivered and (2) for other types of sales, the inquiry is where the income-producing activity was performed. The statute then sets forth rules for specific types of sales. Nothing therein contemplates a list, let alone an exclusive list, of income-producing activities. The statute specifies one type of income-producing activity -- the licensing of intangible property -- and grants authority to the commissioner to adopt regulations to implement subsection (f). Where there is no conflict between the statute and the boards application of the legal rights regulation, we discern no error in the boards refusal to treat the litigation proceeds as licensing fees. See, e.g., Boston Professional Hockey Assn, 443 Mass. at 286-288 (no error in boards application of regulation for income-producing activity of rendering of personal services).
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As to the royalty payments received from customers, SynQor raises the additional argument that they should not have been considered gross receipts from the enforcement of legal rights because (1) SynQor did not sue the customers and (2) SynQor instead received the royalty payments pursuant to licensing agreements. But, as noted above, SynQor was not in the business of entering into license agreements, and it did so here only as a result of enforcing its legal rights. In short, SynQor would not have received the royalty payments but for the enforcement of its legal rights. On this mixed question of law and fact, we defer to the boards reasonable conclusion that the royalty payments were gross receipts from the enforcement of legal rights. See Boston Professional Hockey Assn, 443 Mass. at 285.
Decision of the Appellate Tax Board affirmed.
FOOTNOTES
2
. General Laws c. 63, § 38, has been amended several times. We quote the version of § 38 (f) that was in effect during the 2011 tax year. By the 2013 tax year, § 38 (f) had been amended to include an additional provision for businesses “deriving receipts from operating a gaming establishment” that is not pertinent to our discussion. See St. 2011, c. 194, § 31. Other subsequent amendments to § 38 (f) have been more substantial, and had these amendments been in effect during the tax years at issue, the result we reach might be different.
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. Sales of tangible personal property are also considered Massachusetts sales if “the corporation is not taxable in the [S]tate of the purchaser and the property was not sold by an agent or agencies chiefly situated at, connected with or sent out from premises for the transaction of business owned or rented by the corporation outside this [C]ommonwealth.” G. L. c. 63, § 38 (f), par. 1.
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. The statute provides additional rules for when the income-producing activity is performed both in and outside Massachusetts. See G. L. c. 63, § 38 (f), par. 2.
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. As with the statute, the regulations have also since been amended.
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. SynQor argues that it makes no sense to treat sales from the licensing of patents differently in the following two scenarios: (1) if a third party to whom a patent is licensed pays pursuant to the terms of the license and (2) if a third party to whom a patent is licensed fails to pay and the patent holder must sue to collect payment. But that is not what occurred here.
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. Even assuming, as SynQor argues, that the boards interpretation is entitled to less weight as one developed during litigation, we would not reach a different result.
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. We are not persuaded by SynQors reliance on out-of-State cases interpreting statutes other than our own.