In a case of interest for any taxpayer with substantial securitization activities, First Marblehead Corporation and Gate Holdings, Inc. have requested United State Supreme Court review of a recent determination of the Massachusetts Supreme Judicial Court (“SJC”), by way of this petition. The petition for review can be found here.
The case involves the sourcing of securitized loans for property factor purposes under Massachusetts’ rules for financial institutions. For property factor purposes, Massachusetts sources loans of financial institutions based on the location of five factors, referred to as the SINAA factors (solicitation, investigation, negotiation, approval and administration). However, in the case of the taxpayer, which was formed to hold securitized loans, the Court found that it had no SINAA factors because it did not originate or service its loans (as is typical of a securitization entity).
The SJC found that because the taxpayer had no SINAA factors, the statute required that all loans held in its securitization trusts be sourced to the location of the taxpayer’s commercial domicile— Massachusetts. While the determination produced a harsh result for the taxpayer—a 100% Massachusetts property factor—it may create opportunities for taxpayers with substantial securitization activities that are commercially domiciled outside of Massachusetts.
For more on the SJC’s decision in this case and opportunities the decision may create for taxpayers in Massachusetts and other states that have adopted the MTC model statute for financial institutions, see our previous alerts here, here and here.