Think your tax bill is bad? Check out Biogen Idec's.
The Cambridge biotechnology company says it was stung with an order to pay $38.9 million in additional taxes, interest, and penalties by the Massachusetts Department of Revenue, according to a filing last week with the Securities and Exchange Commission.
Biogen Idec Inc. says the Revenue Department denied its initial appeal in 2006. But the biotech isn't giving up. Biogen Idec filed a petition last year with the Massachusetts Appellate Tax Board seeking the reversal of more than $50 million in state taxes for the 2001, 2002, and 2003 tax years.
"We intend to contest this matter vigorously," Biogen Idec said in the SEC filing. A tax board spokesman said the case is slated to be argued in April.
Tax lawyers said it's hard to predict the outcome, since the Department of Revenue has not filed a formal response to Biogen Idec's complaint and some facts could be disputed.
"We're only seeing one side," said Kenneth P. Brier, a partner with Needham law firm Brier & Geurden LLP.
But the case illustrates the large amount of money that can sometimes turn on arcane tax issues.
In the case of Biogen Idec, much of the case focuses on whether a portion of Biogen Idec's sales should be counted toward its Massachusetts revenue.
Biogen Idec argues the sales at issue were handled by sales representatives based in North Carolina, not Massachusetts. In addition, Biogen Idec says it transferred the North Carolina sales office to a subsidiary, Biogen US Corp., which Biogen Idec argues should further shield it from paying Massachusetts taxes on the sales.
But according to Biogen Idec's filing, the Department of Revenue decided to ignore the existence of Biogen US and treat all of the sales as though they were made by Biogen Idec in Massachusetts.
Brier said companies frequently haggle with Massachusetts over what portion of their sales can be counted in the state. Brier said companies frequently try to structure their operations, including using subsidiaries, to minimize state taxes, while Massachusetts tax collectors try to make sure the state receives its fair share.
"It's an ongoing undercurrent in state taxation," Brier said. "I don't know if there are any cutting-edge legal issues involved. But the dollars are big."
In January, the Massachusetts Commission on Corporate Taxation recommended the state adopt a combined reporting system, an effort to discourage companies from avoiding taxes by shifting income to subsidiaries in other states. Under a combined reporting system, corporations would be required to report their combined profits from all their subsidiaries, including those in other states, and then determine what portion of the total profits are attributable to each state using standard formulas. More than 20 states use such an approach. Brier said the change could potentially address the issues raised in the Biogen Idec case.
In addition, Biogen Idec argued it should be credited with other deductions for certain expenses related to research and clinical testing. And Biogen Idec said it mistakenly failed to report a $28.6 million loss from a subsidiary that should further lower its taxes.
Both Biogen Idec and the Department of Revenue declined to comment on the case.
Regardless, the tax bill still amounts to a small percentage of Biogen's overall profits. The company earned $638 million last year, triple its 2006 total.
Todd Wallack can be reached at firstname.lastname@example.org.