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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