The Multistate Tax Commission has filed an amicus brief in the case of VAS Holdings and Investments LLC v. Commissioner of Revenue, Massachusetts Supreme Judicial Court No. SJC-13139. At issue in the case is whether Massachusetts had the statutory and constitutional authority to impose its income tax on the capital gain income recognized by an out of state investor on the sale of its ownership interest in a Massachusetts’-based LLC. The taxpayer concedes that the state had sufficient “nexus” to impose tax on its income derived from operations of the LLC within the state but argues that the absence of a unitary business relationship between the out of state owner and the in-state LLC precludes taxation of capital gain income. The Commission’s brief argues that the state had sufficient constitutional authority to tax the out of state owner based on the in-state source of the income, obviating the need to analyze whether the taxpayer was engaged in a unitary relationship with the in-state business. The Commission’s brief notes that Massachusetts’ imposition of tax on non-resident owners of pass-through entities based on “investee apportionment” principles is not an outlier among the states: currently 13 states have adopted specific rules for assigning capital gain income from the disposition of interests in pass-through entities that are similar to the Massachusetts’ rule. The brief further notes that the federal government applies a similar rule for sourcing capital gain income of foreign partners of a U.S. based partnership. You can read the brief by clicking here .