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CT Ruling 90-55 Sales and Use Taxes 1990-07-09

Were fees for servicing Connecticut Housing Finance Authority home mortgage loans subject to Connecticut sales and use tax?

Short answer: No. Although mortgage servicing fees were generally taxable as a business management service under the historical rule, fees for servicing Connecticut Housing Finance Authority loans were exempt. CHFA was a Connecticut political subdivision, so the governmental exemption in Conn. Gen. Stat. § 12-412(1) applied. DRS marks the ruling not current and obsoleted by AN 94(4).

Apply this to your situation

This page answers the general question as of 1990. Ezel answers yours, under current Connecticut tax law, with citations.

Currency note: this ruling is from 1990
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official 1990 Connecticut Department of Revenue Services Ruling reflecting the mortgage-service and governmental-exemption rules then in effect. DRS expressly marks it 'not current' and says it was obsoleted by Announcement (AN) 94(4). Current treatment of mortgage servicing and transactions involving CHFA must be confirmed. Connecticut imposes sales and use tax solely at the state level: there are no local or municipal sales taxes. This summary is informational only and is not legal or tax advice. Consult a licensed Connecticut tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Note -- obsolete historical guidance. DRS marks this ruling "not current" and states that it was obsoleted by Announcement (AN) 94(4).

Plain-English summary

A lender originated home mortgage loans for the Connecticut Housing Finance Authority (CHFA), assigned the loans to CHFA, collected and processed borrowers' monthly payments, deducted a servicing fee, and sent the balance to CHFA.

DRS said mortgage servicing fees were ordinarily taxable as a business management service. These fees were nevertheless exempt because CHFA was a political subdivision of Connecticut and qualified for the governmental exemption in Conn. Gen. Stat. § 12-412(1).

What this means for you

Under this historical ruling, the customer's governmental status changed the result: the service was generally taxable, but the charge to CHFA was exempt. AN 94(4) later obsoleted the ruling.

Common questions

Were mortgage servicing fees generally taxable? Yes, as a business management service under the historical provision cited by DRS.

Why were the CHFA servicing fees exempt? CHFA was a Connecticut political subdivision, so the governmental exemption applied.

Citations and references

  • Conn. Gen. Stat. § 12-407(2)(i)(J).
  • Conn. Gen. Stat. § 12-412(1).
  • Conn. Gen. Stat. § 8-244.
  • Announcement (AN) 94(4).

Source

Original ruling text

Ruling 90-55, Mortgage Services / Exemptions - Governmental

This information is not current and is being provided for reference purposes only

Ruling 90-55

Mortgage Services

Exemptions - Governmental

This Ruling has been obsoleted by   AN 94(4)

ISSUE:

Whether the exemption from sales and use tax provided in Section 12-412(1) of the General Statutes applies to the servicing fee that a bank or mortgage company ("Lender") collects on the home mortgage loans which it services for the Connecticut Housing Finance Authority (CHFA).

FACTS:

THE CHFA is a political subdivision of the State of Connecticut pursuant to Section 8-244. Lenders originate home mortgage loans in Connecticut on behalf of the CHFA which are then assigned to the CHFA. The CHFA and each Lender have a servicing agreement whereby the Lender will service loans on behalf of the Authority. After collecting and processing the monthly mortgage payments from the borrowers, the Lender deducts a certain percentage of the servicing fee and transmits the balance of the funds to the CHFA.

RULING:

Mortgage servicing fees are taxable as a business management service under Sections 12-407(2)(i)(J). However, because the CHFA is a political subdivision of the State of Connecticut, the mortgage servicing fees are exempt from the sales and use tax pursuant to Section 12-412(1).

LEGAL DIVISION

July 9, 1990

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