PROPOSED RULEMAKING
[61 PA. CODE CH. 155]
Single Factor Apportionment
[28 Pa.B. 380] The Department of Revenue (Department), under the authority contained in section 408 of the Tax Reform Code of 1971 (TRC) (72 P. S. § 7408), proposes amendments to § 155.10 (relating to single factor apportionment) to read as set forth in Annex A.
Purpose of the Proposed Amendment
It has long been the public policy of the Commonwealth to improve higher educational opportunities by assisting persons in meeting the educational expenses of higher education and by enabling the Pennsylvania Higher Education Assistance Agency, other lenders and postsecondary institutions to make loans available to students and the parents of students for postsecondary educational purposes. Financial assistance to students is provided through various Federal, State and private postsecondary student loan programs.
The business trust form is frequently used as a financing vehicle to increase the availability of financing for student loans. In these trust structures, a trust is established to acquire student loan notes from originators of student loans. The trust certificates of beneficial interest and debt securities issued by these trusts to raise funds to acquire student loans from originators are secured by the student loan notes acquired, related Federal and State guarantees and subsidies of the student loans, and certain other related assets commonly held by student loan trusts to facilitate the ownership, maintenance and management of, and investment in or purchase and sale of, student loans. Legal title to the student loan notes is typically held by a financial institution serving as trustee and qualifying to hold title to the loans under applicable student loan laws and regulations. The investment in student loans through these trust structures serves the public purpose of increasing liquidity in the student loan market and increasing the total funding available to make student loans.
The act of May 7, 1997 (P. L. __, No. 7) (Act 7) amended section 601 of the TRC (72 P. S. § 7601) so as to change the definitions of ''domestic entity'' and ''foreign entity'' with the effect of subjecting business trusts to the Capital Stock Tax/Foreign Franchise Tax, effective for tax years beginning on or after January 1, 1998.
Explanation of Regulatory Requirements
Currently, certain assets exempt from taxation by reason of public policy are listed in § 155.10(d)(4). Student loan assets have not previously been listed as exempt assets because prior to Act 7 trusts holding these assets were not included within the definition of ''domestic entity'' or ''foreign entity'' for purposes of the Capital Stock Tax/Foreign Franchise Tax since these trusts are not taxable as corporations for Federal income tax purposes. Treating student loan assets commonly held by these trusts to facilitate the securitization of student loans as taxable assets would contravene public policy in favor of promoting higher education and financial assistance to students pursuing higher education.
Therefore, it is the policy of the Department that for tax years beginning on or after January 1, 1998, student loan assets in § 155.10(d)(4)(vi) that are owned or held by a trust or other entity created or formed for the securitization of student loans, or by a trustee on its behalf, are exempt by reason of public policy from taxation for purposes of the taxable assets fraction under § 155.10.
Fiscal Impact
The Department has determined that the proposed amendment will have a negligible fiscal impact on the Commonwealth.
Paperwork
The proposed amendment will not generate additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The proposed amendment will become effective upon final publication in the Pennsylvania Bulletin. The regulation will be scheduled for review within 5 years of final publication. No sunset date has been assigned.
Contact Person
Interested persons are invited to submit in writing any comments, suggestions or objections regarding the proposal to Anita M. Doucette, Office of Chief Counsel, PA Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061, within 30 days of the date of the publication of this notice in the Pennsylvania Bulletin.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on January 13, 1998, the Department submitted a copy of this proposed amendment to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the House and Senate Committees on Finance. In addition to submitting the proposed amendments, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of this material is available to the public upon request.
If IRRC has objections to any portion of the proposed amendment, it will notify the Department within 10 days of the close of the Committees' review period. The notification shall specify the regulatory review criteria which have not been met by that portion. The Regulatory Review Act specifies detailed procedures for review of objections raised, prior to final publication of the amendment, by the Department, the General Assembly and the Governor.
ROBERT A. JUDGE, Sr.,
SecretaryFiscal Note: 15-397. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart B. GENERAL FUND REVENUES
ARTICLE VI. CORPORATION TAXES
CHAPTER 155. CAPITAL STOCK TAX AND FOREIGN FRANCHISE TAX § 155.10. Single factor apportionment.
* * * * * (d) Exempt and taxable assets. The following assets are exempt or taxable, as specified, for purposes of the taxable assets fraction. This listing is not exclusive.
* * * * * (4) Certain assets are exempt by reason of public policy. These include:
* * * * * (vi) Student loan assets that are owned or held by a trust or other entity created for the securitization of student loans, or by a trustee on its behalf, including:
(A) Student loan notes.
(B) Federal, State or private subsidies or guarantees of student loans.
(C) Instruments that represent a guarantee of debt, certificates or other securities issued by an entity created for the securitization of student loans, or by a trustee on its behalf.
(D) Contract rights to acquire or dispose of student loans and interest rate swap agreements related to student loans.
(E) Interests in or debt obligations of other student loan securitization trusts or entities.
(F) Cash or cash equivalents representing reserve funds or payments on or with respect to student loan notes, the securities issued by an entity created for the securitization of student loans, or the other student loan assets exempted in this subsection. Solely for purposes of this public policy exemption for student loan assets, ''cash or cash equivalents'' include:
(I) Direct obligations of the United States Department of the Treasury.
(II) Obligations of Federal agencies which represent the full faith and credit of the United States of America.
(III) Investment grade debt obligations or commercial paper.
(IV) Deposit accounts.
(V) Federal funds and banker's acceptances.
(VI) Prefunded municipal obligations.
(VI) Money market instruments and money market funds.
* * * * *
[Pa.B. Doc. No. 98-124. Filed for public inspection January 23, 1998, 9:00 a.m.]
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