The Department of Revenue ("Department") is issuing this Technical Information Release ("TIR") to explain the effect of the repeal of Internal Revenue Code ("IRC") § 1103 on the definition of a "bank holding company" set forth in G.L. c. 63, § 38B(b).
A. General Laws Chapter 63, Section 38B
General Laws c. 63, § 38B provides preferential tax treatment to corporations which are classified as security corporations, if they otherwise meet the provisions of that section. Subsection (a) pertains to corporations which are not bank holding companies ("BHCs") under the IRC, while subsection (b), which provides a lower rate than subsection (a), pertains to corporations which are BHCs. Subsection (c) provides that any corporation taxable under G.L. c. 63, § 38B shall not be subject to the excise imposed by G.L. c. 63, §§ 32 or 39.
B. Definition of "Bank Holding Company" in G.L. c. 63, § 38B(b)
G.L. c. 63, § 38B(b), as amended by St. 1992, c. 13, § 406, states:
Every domestic business corporation or foreign corporation, which is engaged exclusively in buying, selling, dealing in, or holding securities on its own behalf and not as a broker, except securities of a corporation defined in this chapter as a DISC, and is a bank holding company under the Federal Internal Revenue Code, as amended and in effect for the taxable year, and which either applies to the commissioner to be classified as a security corporation before the end of the taxable year and is so classified, or has been so classified by the commissioner for a prior taxable year, shall pay, on account of each taxable year [a preferential rate].
1. Reference to IRC § 1103
Previously, the Department interpreted the term "bank holding company" in G.L. c. 63, § 38B(b) to refer to "a bank holding company as defined under Section 1103 of the Internal Revenue Code." See Corporation Excise Ruling 1967-1. IRC § 1103(a) defined a BHC as being a BHC within the meaning of the Bank Holding Company Act of 1956, as amended through December 31, 1970, 12 U.S.C. § 1841 et seq. (the "1970 BHCA"), or a BHC subsidiary within the meaning of the 1970 BHCA (a "Qualified BHC Subsidiary"). Consequently, the Department has previously permitted a Qualified BHC Subsidiary to be classified as a security corporation pursuant to G.L. c. 63, § 38B(b).
2. Repeal of IRC § 1103
IRC § 1103 was repealed as obsolete by P.L. 101-508, § 11801(a)(34), effective November 5, 1990 (the "Repeal Date"), and thereby ceased to be "in effect." Therefore, as of the Repeal Date, IRC § 1103 was no longer determinative for purposes of G.L. c. 63, § 38B(b).
There are three provisions in the IRC defining BHCs which are currently "in effect" and which were "in effect" as of the Repeal Date, IRC §§ 246A(c)(3)(B)(ii), 304(b)(3)(D)(ii) and 864(e)(5)(D)(i). Each of these IRC provisions defines a BHC as a BHC under the Bank Holding Company Act of 1956, 12 U.S.C. § 1841 et seq. (the "BHCA"), without reference to the 1970 BHCA, and without the inclusion of BHC subsidiaries. Consequently, as of the Repeal Date, the definition of a BHC for purposes of G.L. c. 63, § 38B(b) became that set forth in IRC §§ 246A(c)(3)(B)(ii), 304(b)(3)(D)(ii) and 864(e)(5)(D)(i). That is, as of the Repeal Date, G.L. c. 63, § 38B(b) referenced a BHC, as defined under the BHCA, without the inclusion of BHC subsidiaries.
3. BHC Subsidiaries Re-classified Under G.L. c. 63, § 38B(a)
Any Qualified BHC Subsidiary previously classified as a security corporation pursuant to G.L. c. 63, § 38B(b) is re-classified as a security corporation pursuant to G.L. c. 63, § 38B(a). This re-classification is effective for tax years ending on or after July 31, 1993.
/s/ Mitchell Adams
Commissioner of Revenue
July 21, 1993
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