Massachusetts SJC Reverses Commissioner of Revenue in Redevelopment Tax Case

BOSTON, March 10, 2023 — The Massachusetts Supreme Judicial Court on Friday reversed a decision of the state’s Appellate Tax Board, finding that a tax concession granted to the developers of urban redevelopment projects extends to the capital gains realized from the sale of those projects.

The SJC had transferred the case on its own initiative from the Appeals Court. PioneerLegal submitted an amicus brief in the case.

James J. Reagan, Jr. was the owner of three limited partnership interests—St. James Company, Blackstone Company, and Kenmore Abbey Limited Partnership—that invested more than $45 million over the last 40-plus years to transform abandoned or vacant properties in Boston into housing for the elderly and individuals with disabilities.

The three projects, approved by the city of Boston between 1975 and 1982, were developed under Chapter 121A of the state laws, a 1940s-era law that sought to promote the rehabilitation of “blighted, decadent, and substandard areas” by providing an incentive for private investment.

When Reagan and his wife, Irene M. Reagan, filed their 2012 state tax return, they took the position that the capital gains they had realized from the sales of the projects were exempt from tax because they were “on account of” those projects—in keeping with the language of Chapter 121A.

The Commissioner of Revenue issued a notice of assessment to the Reagans in 2016, and their application for an abatement was denied in 2017. The state Appellate Tax Board upheld that assessment in July 2020, and the Reagans appealed.

In its ruling Friday, the SJC found that the increased value of the properties was causally related to the project, and that extending the tax exemption to a capital gain from the sale of a Chapter 121A project is “buttressed by the statute as a whole.”

The tax board’s conclusion, the SJC wrote “seems to rest on a misapprehension—namely, that capital gain is realized after the project is sold. To the contrary, capital gain is realized coincident with the sales transaction.”


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