Bank of America Corp. owes the state $53 million, the Massachusetts Department of Revenue said, after a tax board ruled two of its real estate trusts engaged in sham tax-avoidance transactions that "lacked business purpose and economic substance."
The ruling, released Thursday by the Massachusetts Appellate Tax Board, which oversees tax disputes, marks a victory for the state Department of Revenue in one of several actions it has brought against what it calls captive trusts, which it says were set up to dodge taxes.
Revenue officials said Bank of America's predecessor, FleetBoston Financial Corp., improperly avoided taxes through a complex arrangement of companies it had set up in Massachusetts and Rhode Island. Bank of America, which purchased Fleet in 2004, continued pressing the trusts' case.
A spokesman for Bank of America in Charlotte, N.C., said in a prepared statement that "We're disappointed in the decision and are evaluating our options." It could appeal to state courts.
Massachusetts Revenue Commissioner Navjeet Bal and others praised the ruling, saying it underscores the need for tax-law changes Governor Deval L. Patrick's administration has proposed that would tax companies across their entire operation rather than on specific structures in certain states.
The state had previously settled similar cases with about 70 other financial companies, but will bring suits when they are required, as in the Bank of America situation, Bal said.
"We'll continue to litigate, but it's an expensive and inefficient method to collect revenue owed to the state," Bal said.
The case dates to 2000, when both of Fleet's real estate investment trusts set up in Massachusetts claimed deductions on dividends the trusts paid to shareholders that included two "passive investment companies" in Rhode Island. Bank of America had said the strategy was meant to save on taxes and raise capital, the ruling said.
Ross Kerber can be reached at kerber@globe.com.
