December 1, 1980
In your letter of November 19, 1980, you request certain rulings with respect to the Massachusetts income taxation of a Trust now being organized by ********** (MMC), a Wisconsin corporation registered to do business in Massachusetts as a foreign corporation.
The Trust will be organized to hold a pool of residential mortgage loans purchased from Massachusetts lenders. The loans are secured by single family owner-occupied properties. For purposes of this ruling, it is assumed that all or substantially all of the properties securing the loans are located in Massachusetts. The Trustee will be a Wisconsin Bank with its principal office in Milwaukee, Wisconsin. Beneficial interest in the Trust will be evidenced by certificates representing fractional undivided interests in the mortgage pool. The certificates will be transferable and exchangeable at the office of the Trustee. The certificateholders will be the Massachusetts Teachers Annuity Fund and the State Employees Annuity Fund ("Funds").
Under the proposed plan MMC will purchase the residential mortgage loans from the Massachusetts lenders and assign them to the Trustee, who will deliver the certificates to MMC in exchange for the mortgage loans. Interest and principal will be payable to the certificateholders in monthly installments.
MMC, in connection with its purchase of the loans will enter into servicing agreements with the originators of the loans whereby the originators agree they will service the loans, including making collections, foreclosing and otherwise maintaining contacts with the mortgagors.
The Trustee has no power to reinvest proceeds attributable to the mortgages and it may not substitute new mortgages for the original mortgages. However the Trustee may require MMC to repurchase mortgages included in the pool that do not meet the representations given by MMC in its assignment to the pool.
MMC has received a letter ruling from the Internal Revenue Service with respect to a previously organized pass-through trust stating that, for federal income tax purposes, said trust is a grantor trust and not an association taxable as a corporation; that each certificateholders will be treated as the owner of an undivided interest in the entire trust; and that the income of the trust will be treated as income of the certificateholders.
Massachusetts General Laws Chapter 62, Section 1(j) defines a "corporate trust" as "any partnership, association or trust, the beneficial interest of which is represented by transferable shares". Chapter 62, Section 8(a) states that a corporate trust engaged within the Commonwealth in any business, activity or transaction, whether or not it maintains an office or place of business within the Commonwealth, shall be subject to the taxes imposed by Chapter 62.
Based on the foregoing, it is ruled that for Massachusetts income tax purposes, the Trust will be a corporate trust as defined in Massachusetts General Laws Chapter 62, Section 1(j) and will be subject to taxation in accordance with Section 8 of Chapter 62.
Very truly yours,
/s/L. Joyce Hampers
L. Joyce Hampers
Commissioner of Revenue