Would a federally tax-exempt common trust fund owe New Hampshire business profits tax when it used a nominee trust to hold New Hampshire real estate?

Plain-English summary

M Bank's N Fund held assets of qualifying pension and profit-sharing plans and individual retirement accounts. The fund proposed using a New Hampshire nominee trust to hold title to New Hampshire real property solely for the fund's benefit. The petition said the nominee would be disregarded for federal tax purposes and treated together with the fund for this ruling.

The Department found that N Fund was exempt under IRC § 501(a), was therefore outside the definition of a “business organization” in RSA 77-A:1, I, and was not subject to New Hampshire business profits tax (BPT) under RSA 77-A:2. The result applied to the stated fund and nominee arrangement; it was not a general exemption for every trust holding real estate.

What this means for you

The ruling turns on the fund's federal tax exemption and the nominee's limited role. A trust or fund without that status, or a nominee with different activities, is outside the facts decided here.

Common questions

Q: Did owning New Hampshire real estate through the nominee trigger BPT for N Fund? A: No. On the represented facts, the Department found N Fund was not a taxable business organization.

Q: Why did federal tax status matter?
A: The ruling applied RSA 77-A:1, I and Rev 301.03(a), which excluded the described federally exempt enterprise from BPT.

Q: Did the Department separately tax the nominee?
A: It treated references to N Fund as including the nominee under the petition's representation that the nominee was a mere instrumentality. Its explicit final finding names N Fund.

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

Citations and source limits

The holding cites RSA 77-A:1, I and RSA 77-A:2, with Rev 301.03(a) and IRC § 501(a) supplying the federal-exemption premise. The source mentions attached transaction documents but does not reproduce them in the extracted text. The PDF labels Doc. #3035 effective June 7, 1985, and separately dates the signed ruling June 7, 1985.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: Doc. #3035

Original ruling text

IN THE MATTER OF THE PETITION OF

"M" BANK

FOR A DECLARATORY RULING

Doc. #3035, Effective 6-7-85

Pursuant to RSA 541-A:1, IV, RSA 541-A:2, I, (d) and Rev 104.04, New Hampshire Code of Administrative Rules, the "M" Bank, a national bank association having its principal place oF business at .................. , and.......... "N" Fund ..............................., a common trust fund established by Bank to hold the assets of certain pension and profit-sharing plans ("Plans") qualifying for preferential tax treatment under section 401 (a) of the Internal Revenue Code of 1954, as amended ("IRC"), and certain individual retirement accounts ("IRA's") qualifying

under IRC 408, petition the Department of Revenue Administration for a declaratory ruling as to the New Hampshire Business Profits Tax ("BPT") consequences of the proposed transaction described below.

In order that "N" Fund may invest in New Hampshire real property on a confidential basis, it is proposed that a New Hampshire nominee trust ("Nominee") be established to hold title to this property solely for the benefit of "N" Fund. Three individuals would serve as trustees and could act only with "N" Fund consent. "Nominee" would be ignored, for federal tax purposes, as a mere instrumentality of its beneficiary. Since "N" Fund and "Nominee" is thus, in substance, the same entity, all references to "N" Fund hereinafter will constitute reference to both "N" Fund and "Nominee".

In connection with the transaction described in the Petition and related documents appended thereto, the Petitioner requests that a declaratory ruling be issued as to the following matter:

Inasmuch as "N" Fund is exempt from federal income taxation for purposes of RSA 77-A:1, (I), neither "N" Fund nor "Nominee" is subject to taxation under RSA 77-A:2.

RSA 77-A:1, (I) defines a "business organization" as any enterprise, whether corporation, partnership, proprietorship, association, business trust, real estate trust or any other form of organization, organized for gain or profit, carrying on business activity within the state, except such enterprises as are expressly made exempt from income taxation under the United States Internal Revenue Code (1 E54), as amended.

RSA 77-A:2 requires that a tax at the statutory rate be imposed upon the taxable business profits of every "business organization".

New Hampshire Administrative Rules Rev 301.03, (a) expressly states that those "business organizations" which are made exempt from taxation under Internal Revenue Code Section 501, shall be exempt from tax under RSA 77-A of the New Hampshire statutes.

"N" Fund, which through its nominee holds assets or certain pension and profit-sharing plans, qualified for preferential tax treatment under Section 401 (a) IRC, and certain individual retirement accounts qualified under Section 408 IRC, is exempt from taxation under IRC 501 (a) of the Internal Revenue Code (1954), as amended.

In view of the foregoing representation, and specifically based upon them, the Department of Revenue Administration finds that "N" Fund................, is not a business organization within the meaning of RSA 77-A:1, (I) , and; therefore, is not subject to the Business Profits Tax as assessed under RSA 77-A:2.

June 7, 1985

Everett V. Taylor, Commissioner