You inquire whether a trust, formed under a Pooling and Administration Agreement ('Pooling Agreement') among ('Sponsor'), ('Servicer') and ('Trustee'), is subject to tax under G.L. c. 62.
Each trust formed pursuant to this Pooling Agreement will qualify and elect to be treated as a real estate mortgage investment conduit (REMIC) under the definition in section 860D of the Internal Revenue Code of 1986 (I.R.C.). A pool of assets consisting of 'qualified mortgages' as defined by I.R.C. § 860G, will be transferred to the trustee in return for REMIC certificates. There will be multiple classes of regular interests and one class of residual interests. We conclude that these trusts are not subject to a trust-level tax pursuant to G.L. c. 62, 5 8(a).
Under the Pooling Agreement, substantially all the trust assets must consist of:
(1) mortgages, mortgage-backed securities, and other mortgage-related assets that are qualified mortgages as defined by I.R.C. § 86OG(a)(3); (2) cash flow investments as defined by I.R.C. § 86OG(a)(6); (3) qualified reserve assets as defined by I.R.C. § 86 OG(a)(7); and (4) foreclosure property as defined by I.R.C. § 86OG(a)(8). The Trustee may enforce the rights of the Trustee, on the behalf of the certificate holders in the event of a default on the qualified mortgages, execute the REMIC certificates, receive distributions from the mortgage assets and amounts paid on the cash flow investments, pay the expenses of the trust, distribute amounts due to the REMIC certificate holders, prepare and mail reports, and keep and make available trust records. The trustee may invest amounts received on assets in the reserve fund and amounts received as distributions on the qualified mortgages in short-term investments that shall mature prior to the next distribution date.
The trust must distribute all amounts received between distribution dates, except for assets held in a qualified reserve fund as defined by I. R. C. § 86OG (a)( 7) , no later than the next monthly distribution date. The sponsor may make substitutions of mortgage certificates no later than ninety days after the issuance of the REMIC certificates. The substitute mortgage certificate must be a qualified replacement mortgage as defined by I.R.C. § 86 OG(a)(4). Further, the substitute mortgage certificate must replace an original mortgage certificate of like kind; no more than forty percent in principal amount of the original mortgage certificates may be replaced; there may be no substitution for substitute mortgage certificates; and substitute mortgage certificates must have an aggregate value at least equal to the value of the original mortgage certificates.
"Any... trust, the beneficial interest of which is represented by transferable shares' is a corporate trust. Unless exempted pursuant to G.L. c. 62, § 8(b), 'a corporate trust engaged within the commonwealth in any business, activity or transaction" is subject to the taxes imposed by G.L. c. 62. G.L. c. 62, § 8(a). A fixed investment trust 'is not, as an entity, engaged in any business, activity or transaction for purposes of M.G.L. c. 62, s. 8(a).' 830 CMR 62.08(l). Because of the restrictions imposed by the Pooling Agreement on the discretion and activity of the trustee and on the the assets that can be held by the trusts, the trusts formed under this Pooling Agreement can undertake only activities that are conducted by fixed investment trusts. Because of the similarities between the provisions of the trusts formed under this Pooling Agreement and trusts that are classified as fixed investment trusts, we rule that such trusts are not engaged within the Commonwealth in any business, activity or transaction for purposes of G.L. c. 62, § 8(a). The trusts, therefore, are not subject to Massachusetts taxation under G.L. c. 62.
Very truly yours,
Ira A. Jackson
Commissioner of Revenue
February 26, 1987