Directive CD-99-1

Subject: Nexus of An Out-of-State Mortgage Lender
Tax: Corporate Franchise and Income Taxes
Statute: G.S. 105-122 and G.S. 105-130.3; 17 NCAC 5C. 0102(a)(4)
Issued By: Corporate Income, Excise, and Insurance Tax Division
Date: February 19, 1999
Number: CD-99-1

This directive explains when an out-of-state mortgage lender corporation has nexus with this State and is therefore subject to corporate income and franchise tax. A mortgage lender corporation is a financial institution or a financial services company that makes loans to customers secured, in whole or in part, by real property located in North Carolina. Financial institutions include banks and savings and loan associations. Financial services companies include companies that offer mortgage or home equity loans.

A mortgage lender corporation that does not maintain a place of business in this State is "doing business" in this State if it meets both of the following descriptions:

  1. It makes more than $5,000,000 of loans secured by real property in this State, regardless of the location of the borrower.
  2. It uses employees, agents, or independent contractors to perform services or activities in this State for the purpose of soliciting or finalizing the loans. Examples of these in-state services or activities include the following:
    1. Accepting loan applications to be forwarded outside the State for approval.
    2. Collecting and processing payments from customers in this State.
    3. Closing loans, conducting title searches, or valuing or appraising property located in this State.
    4. Collecting delinquent accounts or investigating credit worthiness.
    5. Filing, litigating, or defending actions in State courts.
    6. Filing deeds of trust, mortgages, judgments, or liens in this State.
    7. Foreclosing on real property located in this State.
    8. Promoting, protecting, establishing, or maintaining the market for potential or existing customers in this State.

An out-of-state corporation that acquires title to real property located in this State as a result of a foreclosure has nexus with this State because it owns property located in this State. Income derived from the sale or rental of the foreclosed property must be allocated and apportioned to North Carolina in accordance with G.S. 105-130.4. This requirement applies regardless of the period of time the foreclosed property is owned.

A corporation that invests in a loan by buying it, in whole or in part, from an unrelated third party does not make the loan. Therefore, an out-of-state corporation that invests in loans that are secured by real property located in this State does not have nexus with this State based on its investment in the loans. Similarly, an out-of-state corporation that invests in an obligation issued by this State, a unit of State government, or a unit of local government of this State does not have nexus with this State based on its investment in the obligation.

An out-of-state corporation that is not a mortgage lender corporation does not become a mortgage lender corporation when it makes a loan to an affiliate secured by real property located in this State. Thus, an out-of-state corporation that is not a mortgage lender corporation and that makes a loan to an affiliate secured by real property located in this State does not have nexus with this State based on the loan to the affiliate.

If you have questions about this Directive, you may call the Corporate Tax Division of the North Carolina Department of Revenue at 919-814-1163. You may also write to the Division at P.O. Box 871, Raleigh, N.C., 27602-0871.