Would an out-of-state mortgage company owe New Hampshire BPT when it bought New Hampshire mortgages and hired local independent servicers?

Plain-English summary

M Company, an out-of-state mortgage banker, planned to buy already closed mortgage loans from New Hampshire banks and hire independent contractors to service them. It would have no New Hampshire office or employees and was not registered to do business in the state.

The Department still found enough New Hampshire connection for business profits tax (BPT). It treated the mortgage investments as property in the state and the servicing contractors as labor and business activity there. It concluded that M was a “business organization” under RSA 77-A:1, I and that BPT would apply to income derived from the proposed New Hampshire activity.

What this means for you

For the described mortgage business, the absence of a local office or employees did not prevent BPT nexus. The Department relied on both intangible mortgage interests and local contractor services. The ruling does not calculate M's taxable income or decide a company with different servicing arrangements.

Common questions

Q: Did buying New Hampshire mortgages create nexus despite no local office? A: Yes, together with the planned use of independent contractors to service the loans.

Q: Did independent contractors count in the analysis?
A: Yes. The Department treated their servicing work as labor and business activity in New Hampshire.

Q: What income did the Department say BPT would apply to? A: Income derived from M Company's proposed New Hampshire activity. The source gives no dollar calculation.

Q: May another lender rely on this ruling?
A: No. The official archive limits declaratory rulings to the petitioner and represented facts.

Citations and source limits

The holding applies RSA 77-A:1, I and discusses Concord Investment Corporation v. New Hampshire Tax Commission. Citation checking resolved the case using the source's 114 NH 105 reporter citation in standard dotted form, but did not resolve its printed “316 A2d 452” parallel citation. Both printed strings remain unchanged in the original text below. The PDF labels “DOC #1773, Effective June 12, 1981” but gives no separate issue date.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: DOC #1773

Original ruling text

In The Matter of the Petition of "M" Company
for a Declaratory Ruling

DOC #1773, Effective June 12, 1981

Pursuant to RSA 541-A:8, the "M" Company, a mortgage banking company and wholly owned subsidiary of "N" Corporation, a bank holding company, has petitioned the Department of Revenue Administration for a declaratory ruling with regard to the potential applicability of the New Hampshire Business Profits Tax Law (RSA Chapter 77-A), and specifically the applicability of RSA 77-A:1, I et seq., as amended effective August 24, 1979, given its proposed activity within the State. Through its Assistant Vice President and Counsel, and New Hampshire attorneys, "M" Company represents the following:

1. "M" Company intends to purchase mortgage loans which will have already been closed from
   banks operating in New Hampshire.

2. "M" Company is a non-New Hampshire corporation and is not registered as a foreign
   corporation qualified to do business in this State.

3. "M" Company intends to contract with independent contractors to service the mortgage
   loans purchased by "M" Company.

4. "M" Company does not intend to establish or maintain offices or personnel within the State
   of New Hampshire.

In view of the foregoing representations, and specifically based upon them, the Department of Revenue Administration finds the following:

1. The Business Profits Tax Law (RSA Chapter 77-A) is a direct tax on net income of business
   organizations whose activities have a minimal connection (nexus) with the State of New Hampshire. The jurisdictional standard is stated in RSA 77-A:1, I and consists of the employment of property or labor or both or the carrying on of any business activity within the state.

2. The Supreme Court of New Hampshire in Concord Investment Corporation v. New
   Hampshire Tax Commission (1974) 114 NH 105, 316 A2d 452 ruled that the word "property" as contained in RSA 77-A:1, I is not limited to tangible property, but as specifically set forth in the Report of the Citizen's Task Force, on which the statute is based, is intended to include intangible property. It further held that the employment of attorneys to handle legal and financial matters constituted the employment of labor within the State.

3. Intangible property, a term used chiefly in the law of taxation, means such property as has
   no intrinsic or marketable value, but is merely the representative or evidence of value, such as certificates of stock, bonds, promissory notes and franchises.

4. "M" Company, by its intended investment in mortgages on property in New Hampshire and
   its retention of independent contractors to service these mortgage loans will be employing property and labor and engaging in business activity within New Hampshire sufficient to create a "nexus" with this State and would be a "business organization" within the meaning of RSA 77-A:1, I.

Wherefore, under the specific circumstances represented, the Department of Revenue Administration hereby rules that the New Hampshire Business Profits Tax (RSA Chapter 77-A) would apply to the income of Company, which would be derived from its proposed activity within New Hampshire.

Lloyd M. Price, Commissioner