The First Marblehead Corporation & another v. Commissioner of Revenue

Summary

The Massachusetts Supreme Judicial Court affirmed the Appellate Tax Board's determination that GATE Holdings, Inc. qualified as a financial institution and that its securitized student-loan portfolios were properly assigned to Massachusetts for purposes of calculating its financial institution excise tax property factor. The court held that the statutory presumption based on the taxpayer's Massachusetts commercial domicile applied, and that the taxpayer failed to rebut the presumption by showing that the preponderance of substantive contacts concerning the loans occurred outside the Commonwealth.

Holdings

1. Under G. L. c. 63, § 2A (e) (vi) (B), when a taxpayer assigns a loan outside Massachusetts to a location that is not the taxpayer's regular place of business, and the taxpayer's commercial domicile was in Massachusetts when the loan was made, the loan is presumed to have its preponderance of substantive contacts in Massachusetts. The presumption applies even when the taxpayer was not the original lender.
2. Activities performed by independent loan servicers that are separate businesses with their own places of business and staff are not included in determining the preponderance of substantive contacts of a taxpayer's loans under G. L. c. 63, § 2A (e) (vi) (C). It is therefore irrelevant whether the servicers were GATE's agents.
3. The commercial-domicile presumption was not rebutted, so all of GATE's securitized student-loan property was properly located at GATE's Massachusetts commercial domicile. GATE's property factor was therefore one hundred percent, producing a Massachusetts apportionment percentage of approximately fifty-one percent when averaged with its two-percent receipts factor.
4. Applying the statutory apportionment method to GATE did not violate the Due Process Clause or Commerce Clause because GATE failed to show by clear and cogent evidence that the resulting attribution was out of all appropriate proportion to its Massachusetts business or produced a grossly distorted result.
5. The Appellate Tax Board did not violate G. L. c. 58A, § 7, because GATE itself placed the servicers' activities and their relationship to the loans in issue, giving it sufficient notice of the basis for the Board's decision.

Questions Presented

1. Whether G. L. c. 63, § 2A (e) (vi) (B), creates a rebuttable presumption that loans assigned outside Massachusetts to a place that is not the taxpayer's regular place of business have their preponderance of substantive contacts in Massachusetts when the taxpayer's commercial domicile is in Massachusetts.
2. Whether the activities of independent loan servicers located outside Massachusetts may be attributed to GATE in determining the loans' preponderance of substantive contacts under G. L. c. 63, § 2A (e) (vi) (C).
3. Whether applying the Massachusetts commercial-domicile presumption and treating all of GATE's loans as Massachusetts property violated the Due Process Clause or Commerce Clause.
4. Whether the Appellate Tax Board violated G. L. c. 58A, § 7, by resolving the appeal on a legal theory concerning attribution of the servicers' activities that GATE claimed was not raised before the Board.

Disposition

affirmed