Stephen G. Murphy (Mass.

BBO # 542427) Counsel to the Commissioner Massachusetts Department of Revenue Litigation Bureau 100 Cambridge Street, P. O. Box 9565 Boston, MA 02114 (617) 626-3305 Attorney for Navjeet K. Bal, Commissioner of Revenue for the Commonwealth of Massachusetts

Hearing date: May 24, 2011, at 11:00 p.m. Response deadline: May 17, 2011, at 4:00 p.m.

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ____________________________________ ) In re: ) Chapter 11 ) INNKEEPERS USA TRUST, et al. ) Case No. 10-13800 (SCC) ) (Jointly Administered) DEBTORS ) ____________________________________) RESPONSE BY COMMISSIONER OF MASSACHUSETTS DEPARTMENT OF REVENUE TO DEBTORS FOURTH OMNIBUS OBJECTION TO CLAIMS (INSUFFICIENT SUPPORT CLAIMS, NO LIABILITY CLAIMS, CLAIMS TO BE RECLASSIFIED, CLAIMS TO BE ADJUSTED, CLAIMS TO BE REDUCED, AND EQUITY INTEREST CLAIM) TO THE HONORABLE SHELLEY C. CHAPMAN, UNITED STATES BANKRUPTCY JUDGE: NOW COMES Navjeet K. Bal, as she is Commissioner of Revenue for the Commonwealth of Massachusetts (hereinafter, MDOR), and responds in opposition to the Debtors Fourth Omnibus Objection to Claims (Insufficient Support Claims, No Liability Claims, Claims to be Reclassified, Claims to be Adjusted, Claims to be Reduced, and Equity Interest Claim) (hereinafter, the Objection). The claim filed by MDOR at issue in the Objection is Claim No. 846 in the priority unsecured amount of $1,068.02 and general unsecured amount of $191.42, which relates to the minimum corporate excise taxes due for the debtor Innkeepers Financial Corporation for several tax periods. The Debtors assert in the Objection that no such liability exists. For the reasons set forth herein, the Objection should be over-ruled and Claim No. 846 should be deemed allowed. In support thereof, MDOR states as follows:

I. 1.

FACTUAL BACKGROUND

On July 19, 2010, the debtor, Innkeepers USA Trust and several of its affiliates

(hereinafter, the Debtors), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the Petition Date). The cases of all of these Debtors are being jointly administered in accordance with the orders of this court. Among the Debtors is an affiliate known as Innkeepers Financial Corporation (hereinafter, IFC). 2. On or about January 1, 1996, IFC filed with the Massachusetts Secretary of State

a Foreign Corporation Certificate of Registration pursuant to M.G.L. c. 156B (succeeded, by amendment, to 156D 15.03) (the Registration). As a result of this registration, IFC became qualified and legally authorized to conduct business in the Commonwealth of Massachusetts. However, the grounds for revocation of the authority of a foreign corporation to transact business in the Commonwealth are the failures to either file any tax return or to pay any tax under M.G.L. chapters 62C or 63 for two or more consecutive years. M.G.L. c. 156D, 15.30. 3. According to the Registration, IFC was organized as a corporation under the laws

of the State of Virginia on February 21, 1995. Its fiscal year ends of December 31st. 4. For tax years ending before January 1, 2009, which for IFC in this instance would

be the years 2007 and 2008, M.G.L. c. 62C, 11, provided in pertinent part that every domestic business corporation and every foreign corporation shall, on or before the fifteenth day of the third month following the close of each taxable year, make a return giving such information as the commissioner [of revenue] may deem necessary for the determination of the taxes imposed upon them by chapter sixty-three. 5. For tax years ending before January 1, 2009, which for IFC in this instance would

be the years 2007 and 2008, M.G.L. c. 63, 39 addressed the taxation of a foreign corporation

under chapter 63. Section 39 then provided, in pertinent part, that every foreign corporation, exercising its charter, or qualified to do business or actually doing business in the commonwealth shall pay, on account of each taxable year, the excise provided in subsection (a) or (b) of this section, whichever is greater. The tax imposed under this section upon a foreign corporation is the greatest of a) the tax under the property measure or the tax under the income measure, or b) the minimum tax of $456. 6. In the 2008 legislative session, a number of amendments to M.G.L. c. 63 and

certain companion sections of M.G.L. c. 62C were enacted to take effect for tax years beginning on January 1, 2009. As it concerns the MDOR Claim, these changes were predominately stylistic. 7. For tax years beginning on or after January 1, 2009, which for IFC on this

instance would be the year 2009 M.G.L. c. 62C, 11 (as amended), provides in pertinent part that every business corporation, as defined in section 30 of chapter 63, shall, on or before the fifteenth day of the third month following the close of each taxable year, make a return giving such information as the commissioner [of revenue] may deem necessary for the determination of the taxes imposed upon them by chapter 63. 8. M.G.L. c. 63, 30 defines business corporation as any corporation, or any

other entity as defined in section1.40 of chapter 156D, whether the corporation or other entity may be formed, organized, or operated in or under the laws of the Commonwealth or any other jurisdiction, whether organized for business or for non-profit purposes, that is classified for the taxable year as a corporation for federal income tax purposes. 9. For tax years beginning on or after January 1, 2009, which for IFC on this

instance would be the year 2009 M.G.L. c. 62C, 11 (as amended), provides in pertinent part

that every business corporation, organized under the laws of the commonwealth, or exercising its charter or other means of legal authority, or qualified to do business or actually doing business in the commonwealth shall pay, on account of each taxable year, the excise provided in clause (2) of subsection (a) or subsection (b), whichever is greater. The tax imposed under this section upon a foreign corporation is the greatest of a) the tax under the property measure or the tax under the income measure, or b) the minimum tax of $456. 10. IFC was required to file a return for the Massachusetts taxes imposed under

M.G.L. c. 63 for the years 2007, 2008 and 2009, but did not file those returns. 11. On or about October 25, 2010, MDOR filed a proof of claim in the priority

unsecured amount of $1,068.02 and in the general unsecured amount of $191.42, which claim has upon information and belief been designated as Claim No. 846 in the register (the MDOR Claim). This claim consists of M.G.L. c. 63 taxes for the years 2007, 2008 and 2009 in the amount of the minimum amount of $456 for both years, with interest up to the petition date. The general unsecured portion of the claim consists of the penalties and other statutory additions for these taxes. The tax for these three years were assessed by MDOR pursuant to M.G.L. c. 62C, 26 on or about October 18, 2010, and notice of the same was issued to IFC on or about October 19, 20101. II. 12. LEGAL STANDARD

When the substantive law that creates a tax obligation places the burden of proof

on a taxpayer, the burden of proof on the tax claim remains where that substantive law places it in the context of a bankruptcy proceeding. Raleigh v. Illinois Department of Revenue, 530 U.S.

The tax assessed for the year 2007 was also the minimum amount, $456. However, there was at the time of assessment an estimated payment of $356 on account for that tax year, which was then netted resulting in a tax balance of $100, as shown on the MDOR Claim.

15 (2000). The claim to which the Objection relates to arises under the tax laws of Massachusetts and under those laws the burden is upon the taxpayer (and in this instance, the Debtors) to establish that the claim should not be allowed against the estate. M & T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 140 (1988), and Towle v. Commissioner of Revenue, 397 Mass. 599, 603 (1986). 13. A proof of claim filed in accordance with the Bankruptcy Rules is prima facie

evidence of the validity and the amount of the claim. Fed. R. Bank. P. Rule 3001(f); In re Hemingway Transport, Inc., 993 F.2d 915, 925 (1st Cir. 1993), cert denied, 506 U.S. 891 (1993); United States v. Braunstein, 209 B.R. 152, 155, 157 (Bankr. D. Mass. 1997). To rebut the presumption that attaches to a proof of claim, the objecting party must come forward with "substantial evidence" in support of his asserted grounds. Hemingway Transport, 993 F.2d at 925. The mere filing of an objection to a proof of claim with nothing more is in itself "insufficient to overcome the rebuttable presumption." In re White, 168 B.R. at 828. 14. The basis of the MDORs claim is statutory the statutes being the tax laws of the

Commonwealth. Courts have consistently rejected the argument that this documentation requirement extends to claims based upon statutory, rather than written, obligations. United States v. Braunstein (In re Pan), 209 B.R. 152, 156 (D. Mass. 1997)(insufficient documentation not a basis for objection to or for disallowance of IRS responsible person assessment). See, also, State Board of Equalization v. Los Angeles International Airport Hotel Associates (In re Los Angeles International Airport Hotel Associates), 106 F.3d 1479, 1480 (9th Cir. 1997)(insufficient documentation not a basis for objection to or for disallowance of state use tax assessment) and In re White, 168 B.R. 825, 829 (Bankr. D. Conn. 1994)(same for

estimated federal income taxes). The assertion by the Plan Administrator concerning the documentation annexed to the proof of claim is not sufficient to sustain an objection. 15. Under Massachusetts law, if a taxpayer has failed to file a required tax return, the

commissioner [MDOR] may determine the tax due, according to his best information and belief. M.G.L. chapter 62C, 28. The bankruptcy courts have long recognized the right and even the necessity of a taxing authority to file a claim based upon an estimate of liability. See, e.g., In re Callery, 274 B.R. 51, 57 (Bankr. D. Mass. 2002) and White, 168 B.R. at 829. III. THE GROUNDS PRESENTED BY THE DEBTOR ARE INSUFFICIENT TO DISALLOW THE MDOR CLAIM, CLAIM NO. 180

16.

The MDOR Claim is based upon assessments lawfully made and as appear in the

records required to be maintained by the Commissioner of Revenue under applicable nonbankruptcy law. An allegation to the effect that a taxpayers records or books of account do not show the liability is not a ground for the abatement or other relief from a tax assessment under applicable non-bankruptcy law. Shulam v. Commissioner of Revenue, Mass. A.T.B. No. C287963, 2008 Mass. Tax LEXIS 27 (2008). In the absence of substantial, credible evidence establishing that the subject assessment was excessive in amount or illegal, the assessment is presumed to be correct, Pippins v. Commissioner of Revenue, Mass. A.T.B. No. 203199, at 8, 1997 Mass. Tax LEXIS 13 (1997), affirmed 44 Mass. App. Ct. 1108 (1998). 17. IFC had and continues to have a legal duty to file returns for the Massachusetts

taxes imposed under M.G.L. c. 63 for the years 2007, 2008 and 2009 that it has neglected. The assessed amounts and the amounts presented in the MDOR Claim are at the statutory minimum, and are lawfully due under applicable non-bankruptcylaw.

18.

The Debtor has failed to raise or to prove sufficient grounds under applicable non-

bankruptcy law or under the Bankruptcy Code to disallow the MDOR Claim. 19. In the Objection, the Debtor asserts that the MDOR Claim is against a Qualified

REIT Subsidiary and there are no tax returns at this level. While that may be accurate for Federal taxation, the rules for the reporting and the assessment of tax measured on income differ on the State level, and in particular, the Massachusetts level. See, e.g., M.G.L. c. 63, 38B, Technical Information release 03-9, and DOR Directive 02-12. 20. The Objection appears to indicate that the income attributable to IFC was reported

on a combined return per M.G.L. c. 63, 32B, with Innkeepers USA Trust as the principal reporting corporation. While the income of the affiliated or combined group is taxed on a combined basis, and each member of the group are jointly and severally liable for the tax under the income measure, each member of the group remains liable for its own tax under the property measure or the statutory minimum corporate tax of $456. For the years at issue, Section 32B provided that: nothing in this section shall be construed to eliminate the requirement that each corporation participating in a combined return compute its nonincome measure and the minimum excise if applicable in accordance with sections 32 and 39 [of chapter 63]. 21. For the years at issue (2007, 2008 and 2009), IFC was and continues to be foreign

corporation registered to do business in Massachusetts, and as such it was required to file an annual Massachusetts corporate excise tax return and to pay at least the statutory minimum tax of $456. IFC did not do so, and the MDOR Claim presents as of the Petition Date the consequences and liabilities of IFCs failure to file and pay its Massachusetts taxes for those years.

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WHEREFORE, Navjeet K. Bal, as she is Commissioner of Revenue for the Commonwealth of Massachusetts, respectfully requests that this Honorable Court deny the Debtors Fourth Omnibus Objection to Claims (Insufficient Support Claims, No Liability Claims, Claims to be Reclassified, Claims to be Adjusted, Claims to be Reduced, and Equity Interest Claim) as it concerns the MDOR Claim, claim no. 180, and for such other and further relief as may be just and meet.

Respectfully submitted, Dated: May 12, 2011 NAVJEET K. BAL COMMISSIONER MASSACHUSETTS DEPARTMENT OF REVENUE By his attorneys, MARTHA COAKLEY ATTORNEY GENERAL OF MASSACHUSETTS Kevin W. Brown, General Counsel Special Assistant Attorney General

// Stephen G. Murphy // Stephen G. Murphy (BBO # 542427) Counsel to the Commissioner Massachusetts Department of Revenue Litigation Bureau 100 Cambridge Street, P. O. Box 9565 Boston, MA 02114 (617) 626-3305 Email: murphys@dor.state.ma.us

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ____________________________________ ) In re: ) Chapter 11 ) INNKEEPERS USA TRUST, et al. ) Case No. 10-13800 (SCC) ) (Jointly Administered) DEBTORS ) ____________________________________) CERTIFICATE OF SERVICE I, Stephen G. Murphy, hereby certify that I have this day served a copy of the within
RESPONSE BY COMMISSIONER OF MASSACHUSETTS DEPARTMENT OF REVENUE TO DEBTORS FOURTH OMNIBUS OBJECTION TO CLAIMS (INSUFFICIENT SUPPORT CLAIMS, NO LIABILITY CLAIMS, CLAIMS TO BE RECLASSIFIED, CLAIMS TO BE ADJUSTED, CLAIMS TO BE REDUCED, AND EQUITY INTEREST CLAIM), electronically upon filing or by first class mail,

postage prepaid, upon the parties or persons appearing on the accompanying SERVICE LIST as indicated.

_// Stephen G. Murphy //__ Stephen G. Murphy, Esquire Dated: May 12, 2011

SERVICE LIST In re INNKEEPERS USA TRUST, et al., Chapter 11, Case No. 10-13800 (SCC) Jointly Administered

David G. Aelvoet Philip D. Anker

sanantonio.bankruptcy@publicans.com philip.anker@wilmerhale.com, ross.firsenbaum@wilmerhale.com

Lee Stein Attanasio lattanasio@sidley.com, emcdonnell@sidley.com;mcnelson@sidley.com Allison R Axenrod allison@claimsrecoveryllc.com zachary.bancroft@lowndes-law.com

Zachary James Bancroft

Paul M. Basta pbasta@kirkland.com, jacob.goldfinger@kirkland.com;beth.friedman@kirkland.com Martin J. Bienenstock martin.bienenstock@dl.com, tkarcher@dl.com;haaronson@dl.com;lsaal@dl.com Anthony D. Boccanfuso Patrick M. Bryan Anthony_Boccanfuso@aporter.com

patrick.bryan@kirkland.com

Schuyler G. Carroll scarroll@perkinscoie.com, JonathanParsons@perkinscoie.com;DocketNYC@perkinscoie.com Jeannette Conrad Gary F. Eisenberg jeannette_conrad@gshllc.com, ecf_@gshllp.com geisenberg@herrick.com, courtnotices@herrick.com

Mark A. Fink mfink@kilpatricktownsend.com, rveal@kilpatricktownsend.com;jpolonsky@kilpatricktownsend.com Jonathan L. Flaxer jflaxer@golenbock.com, eneuman@golenbock.com;mweinstein@golenbock.com Daniel A. Fliman David M. Friedman dfliman@kasowitz.com, courtnotices@kasowitz.com DFriedman@kasowitz.com, courtnotices@kasowitz.com

Adam J. Goldberg adam.goldberg@lw.com, alice.burke@lw.com;Kamil.redmond@lw.com Irena M. Goldstein igoldstein@dl.com, pabelson@dl.com;lsaal@dl.com lawrence.gottesman@bryancave.com, dortiz@bryancave.com

Lawrence P. Gottesman

Brian E. Greer

brian.greer@dechert.com

Christopher Harris Christopher.harris@lw.com, cameron.smith@lw.com;rachel.feld@lw.com Juandisha Harris Michael G. Helms William Heuer harrisj12@michigan.gov, holcombm@michigan.gov mghelms@mghlawfirm.com

wheuer@duanemorris.com

Timothy Q. Karcher tkarcher@dl.com, haaronson@dl.com;lsaal@dl.com;jbishop@dl.com;mallon@dl.com Richardo I. Kilpatrick Mindy Y. Kubs ecf@kaalaw.com, lrobertson@kaalaw.com

mkubs@maynardcooper.com

Brian S. Lennon brian.lennon@kirkland.com, beth.friedman@kirkland.com;jacob.goldfinger@kirkland.com;ray.schrock@kirkland.co m;anna.delrosario@kirkland.com;bgiordano@kirkland.com;ryan.dahl@kirkland.com Jennifer Marines jennifer.marines@kirkland.com, asathy@kirkland.com;clangbein@kirkland.com;wguerrieri@kirkland.com;tschwartz@kir kland.com;jzinman@kirkland.com;jgoldfinger@kirkland.com;gvogt@kirkland.com Lorenzo Marinuzzi Jil Mazer-Marino Frank McGinn lmarinuzzi@mofo.com jmazermarino@msek.com, kgiddens@msek.com ffm@bostonbusinesslaw.com michelle.mcmahon@bryancave.com, dortiz@bryancave.com

Michelle McMahon Todd C. Meyers Brett H. Miller David M. Neff

tmeyers@kilpatrickstockton.com, sramsey@kilpatrickstockton.com bmiller@mofo.com dneff@perkinscoie.com, nsaldinger@perkinscoie.com lenard.parkins@haynesboone.com, paul.fabsik@haynesboone.com

Lenard M. Parkins

John D. Penn john.penn@haynesboone.com, whiteca@haynesboone.com;paul.fabsik@haynesboone.com;mark.elmore@haynesboone. com Lauren Podesta Melissa W. Rand Margery N. Reed Martha E. Romero lpodesta@herrick.com, courtnotices@herrick.com mrand@saul.com mreed@duanemorris.com romero@mromerolawfirm.com

Kathlyn Schwartz Joseph R. Sgroi

kathlyn.schwartz@akerman.com jsgroi@honigman.com

Andrea Sheehan sheehan@txschoollaw.com, coston@txschoollaw.com;ashee1@yahoo.com;garza@txschoollaw.com Kevin M. Shelley Carren B. Shulman kshelley@kaufmanngildin.com, dkaufmann@kaufmanngildin.com cshulman@sheppardmullin.com, jshah@sheppardmullin.com gsollows@galyen.com

William E. Gene Sollows Sandra R. Stanfield

sstanfield@rtcelaw.com

Bonnie Steingart steinbo@ffhsj.com, nydocketclrk@ffhsj.com,Matthew.Roose@friedfrank.com,cedrick.mendozatolentino@friedfrank.com Rachel C. Strickland Robert W. Tapscott Scott T. Tross Phillip K. Wang Elizabeth Weller maosbny@willkie.com, rstrickland@willkie.com rtapscott@maynardcooper.com

stross@herrick.com pwang@duanemorris.com dallas.bankruptcy@publicans.com wdw@mccarthywhite.com swisotzkey@kmksc.com, kmksc@kmksc.com

William Douglas White Samuel C. Wisotzkey