|Organization:||Massachusetts Department of Revenue|
|Referenced Sources:||Massachusetts General Laws|
Sales and Use
November 15, 2001
You have requested a letter ruling on behalf of *************** (the "Non-profit Corporation" or the "Non-profit"), a Massachusetts non-profit corporation formed by the Roman Catholic Archdiocese of Boston as the planning and real estate development entity of the Archdiocese. In particular, you ask whether the Non-profit's purchase of building materials and supplies used in the construction of a certain affordable housing project will be exempt from the sales tax imposed under Massachusetts General Laws, chapter 64H, § 2.
The following is your representation of the facts upon which we base this letter ruling. The Non-profit is exempt from taxation under § 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and is classified as a public charity under Massachusetts law. The Non-profit has obtained and is currently the holder of a valid sales and use tax Certificate of Exemption (Form ST-2). The purposes for which the Non-profit was formed are as follows: To design, develop and articulate plans for the future role of the Archdiocese of Boston in urban affairs; to develop programs of an educational nature to effectuate the aforesaid plans; and to encourage and promote co-operation and mutual assistance through the exchange of ideas among all organizations and individuals that work towards the improvement of urban communities; and to buy, sell, hold, lease, rent, mortgage or otherwise deal in real estate or personal property as required to accomplish the foregoing purposes.
In furtherance of the Non-profit's charitable objectives, the primary activity of the Non-profit is the construction, development, operation and sale of affordable housing within the Commonwealth of Massachusetts. The affordable housing projects that the Non-profit develops, including the Project identified below, typically consist of affordable housing units to be rented or sold to individuals within various income limits such that a portion of the units in a particular project is provided to low income persons and a portion to moderate income persons. In addition, a portion of the units are sold at the "market rate" for purposes of maintaining the financial viability and overall stability of the affordable housing project. The construction and development of the Project is in furtherance of the charitable purposes of the Non-profit and will not adversely affect its status as an organization exempt from taxation under § 501(c)(3) of the Code.
The Non-profit has entered into an arrangement to acquire certain real property located in the South End of Boston (the "Project Site"). The Non-profit is to construct an affordable housing development on the Project Site consisting of 184 condominium units, 275 underground parking spaces, 6 surface parking spaces and associated walkways, driveways, and other amenities (the "Project"). The Massachusetts Housing Finance Agency has approved and, along with other public and private lenders, will finance the Project.
The Non-profit formed several entities for the purpose of acquiring and constructing the Project. The result is that an LLC and Limited Partnership are tenants in common as to the Project through the vehicle of a nominee trust. The Non-profit is the sole member of the LLC, which is therefore a disregarded entity for Federal and State income tax purposes. The Limited Partnership is a Massachusetts Limited Partnership with a corporate general partner and a corporate limited partner, both wholly owned by the Non-profit. Finally, the Realty Trust was formed as a "nominee trust" and does not pay tax. The beneficial interests in the Trust are owned solely by the LLC and the Limited Partnership, which, as stated above, are solely owned by the Non-profit. A nominee trust is an arrangement for holding title to real property under which one or more persons or corporations, pursuant to a written declaration of trust, declare that any property acquired by the trustees is held for the benefit of one or more undisclosed beneficiaries.
The LLC and the Limited Partnership are independent entities and are not partners or joint venturers for common law purposes or Federal, State or local income tax purposes. An undivided portion of the Project, which constitutes 81.11% of the entire Project (the "LLC Portion"), is owned and held in the nominee trust for the Non-profit through its ownership of the LLC. An undivided portion of the Project, which constitutes 18.89% of the entire Project ("the LP Portion"), is owned and held in the nominee trust for the Non-profit through its ownership of the Limited Partnership. At a later date, after construction is completed, the limited partner interest in the Limited Partnership will be conveyed to a taxable person, *************** Bank, unrelated to the Non-profit (the "Tax Credit Investor"). The general partner interest in the Limited Partnership will continue to be owned by the corporate general partner, which will continue to be wholly owned by the Non-profit.
The LLC and the Limited Partnership have entered into a cost sharing arrangement pursuant to which the Limited Partnership will bear 18.89% of the development costs of the Project and the LLC will bear 81.11% of the development costs of the Project. During the construction period, the Tax Credit Investor will loan funds (the "Loan") to the Limited Partnership. The Loan will bear interest at the "applicable federal rate" (as defined in the Internal Revenue Code), will be due and payable on or before December 31, 2004, and will be secured by pledges of the Limited Partnership interests. The Limited Partnership will contribute the proceeds of the Loan to the Trust. Currently, and until the completion of construction, the Project is held in the Trust entirely for the benefit of entities wholly owned by the Non-profit. During the construction period, a substantial amount of building materials and supplies will be purchased to construct the Project.
II. RULING REQUESTED
Pursuant to G.L. c. 64H, § 6(f), the building materials and supplies used in the construction of the Project will be exempt from the sales tax imposed under G.L. c. 64H, § 2. 
Sales are exempt from tax if they include building materials and supplies to be used in the construction, reconstruction, alteration, remodeling or repair of any building or structure owned by or held in trust for the benefit of any corporation, foundation, organization or institution described in chapter 64H, § 6(e) and used exclusively in the conduct of its religious, scientific, charitable or educational purposes. G.L. c. 64H, § 6(f).
The Department has ruled in the past that the imposition of the sales tax on materials and supplies used in the rehabilitation of two public housing developments for a local housing authority under a so-called "turnkey project" was proper. The materials and supplies purchased by the contractor for the rehabilitation of the project were subject to the sales tax because the exemption provided under G.L. c. 64H, § 6(f) did not apply. This was so because the property being rehabilitated was not owned by or held in trust for the local authority during the construction period. See Letter Ruling 87-16.
In Northgate Construction Company, Inc. v. State Tax Commission, 377 Mass. 205 (1979), the Court considered whether materials and supplies purchased by a private for-profit developer in the construction of two low-income housing projects were subject to the sales tax. The projects were built for the Malden Housing Authority but were owned by the developer during the construction period. Id. at 208. Based on the fact that the project was not owned by or held in trust for the Malden Housing Authority, the Court determined that the sales of building materials and supplies were not exempt from the Massachusetts sales tax. Id. at 209.
In the present case, however, the Corporation is a § 501(c)(3) corporation and therefore is a Non-profit corporation described in chapter 64H, § 6(e). The building materials and supplies are and will continue to be used exclusively in the conduct of the Non-profit's charitable purposes. During the entire construction period and until the conveyance of the limited partner interest in the LP Portion to the Tax Credit Investor, the Project will be held in a nominee trust. The trust beneficiaries will be entities that are wholly owned by the Non-profit. Therefore, the purchase of supplies and materials for the Project are exempt from the sales tax pursuant to Massachusetts General Laws, chapter 64H, § 6(f).
The property being rehabilitated by the Non-profit is and will continue to be owned by or held in trust for the Corporation during the entire construction period. The purchase of building materials and supplies is exempt from the sales tax.
Very truly yours,
/s/Bernard F. Crowley, Jr.
Bernard F. Crowley, Jr.
Acting Commissioner of Revenue
 You also ask us to rule that the building materials and supplies used in the construction of the Project are exempt from the sales tax under G.L. c. 64H, § 6(e). We decline to rule on the application of G.L. c. 64H, § 6(e) to your facts since the materials and supplies are exempt from sales tax under G.L. c. 64H, § 6(f).