257 N.E.3d 78
Mass. App. Ct.2025Background
- Craig H. Welch founded and worked for AcadiaSoft, a Massachusetts-based corporation, from 2003 through 2015, primarily residing and working in Massachusetts until April 30, 2015.
- Welch acquired substantial AcadiaSoft stock soon after founding the company and consistently involved himself in building its value as a founder and executive.
- In 2015, after moving to New Hampshire, Welch sold his AcadiaSoft shares for over $4.7 million; the Welches did not report this gain as Massachusetts source income.
- The Massachusetts Commissioner of Revenue audited and assessed tax liability, determining the gain was Massachusetts source income due to its connection to Welch’s Massachusetts employment.
- The Welches sought abatement, which was denied by the tax board, and appealed the adverse decision, claiming it was not Massachusetts source income under the relevant statute and regulation.
Issues
| Issue | Welch's Argument | Commissioner's Argument | Held |
|---|---|---|---|
| Whether gain from the sale of AcadiaSoft stock by a nonresident former employee is Massachusetts source income under G.L. c. 62, § 5A (a) | The gain was not "derived from or effectively connected with" Welch's employment, as it was not expressly compensation and stock was acquired as an investment | The gain is tied to Welch’s employment—stock was acquired due to his founding/executive role and efforts at AcadiaSoft; thus, it is compensatory and Massachusetts source income | Court held the gain was effectively connected to Welch’s trade or business in Massachusetts, affirming the tax board |
Key Cases Cited
- Commissioner of Revenue v. Oliver, 436 Mass. 467 (pre-2003 amendment did not allow taxation of nonresident’s income from prior Massachusetts employment)
- VAS Holdings & Invs. LLC v. Commissioner of Revenue, 489 Mass. 669 (explaining post-2003 broadening of Massachusetts’ ability to tax nonresidents on income connected to prior in-state employment)
- U.S. Auto Parts Network, Inc. v. Commissioner of Revenue, 491 Mass. 122 (deference to tax board’s reasonable interpretations)
- Oracle USA, Inc. v. Commissioner of Revenue, 487 Mass. 518 (weight given to tax board expertise and interpretations)
- Boston Professional Hockey Ass'n v. Commissioner of Revenue, 443 Mass. 276 (deference to tax board on mixed questions of fact and law)