First Marblehead Corporation Gate Holdings, Inc. v. Commissioner of Revenue (April 17, 2013)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



FIRST MARBLEHEAD CORPORATION	 v.	COMMISSIONER OF REVENUE
GATE HOLDINGS, INC.

Docket Nos.: C293487, C305217		Promulgated:		   	
		   C305240, C305241		April 17, 2013



	These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39(c) from the refusal of the appellee, the Commissioner of Revenue ("Commissioner"), to abate corporate excise and penalties assessed against or paid by First Marblehead Corporation ("FMC") for the tax years ended June 30, 2004, June 30, 2005, and June 30, 2006 ("tax years at issue") as well as financial institution excise and penalties assessed against or paid by GATE Holdings, Inc. ("Gate") for the tax years at issue.
	Chairman Hammond heard these appeals. Commissioners Scharaffa, Rose, Mulhern and Chmielinski joined him in the revised decision for the appellants.
	These findings of fact and report are made at the requests of the appellants and the appellee pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

	John S. Brown, Esq., George P. Mair, Esq., Donald-Bruce Abrams, Esq., and Darcy A. Ryding, Esq. for the appellants.

	Brett M. Goldberg, Esq., Kajal K. Chattopadhyay, Esq., and Mireille T. Eastman, Esq. for the appellee.


FINDINGS OF FACT AND REPORT
	These appeals were presented through a Statement of Agreed Facts with one-hundred-and-forty-two attached exhibits, as well as testimony and fifty-seven exhibits that were entered into evidence at the hearing of the appeals. The appellants offered two witnesses, Gary Francis Santo, Jr., FMC's Head of Capital Markets, and Paul B. Sheldon, Founder and Managing Director of Student Loan Capital Strategies, a financial advisory firm that provides counsel relating to the student loan industry. The Appellate Tax Board ("Board") qualified Mr. Sheldon as an expert in student lending and student loan capital markets. For her part, the Commissioner offered the testimony of Hal Stewart Scott, Professor of Law, Harvard Law School, whom the Board qualified as an expert in non-tax regulation of financial institutions.
	On the basis of the foregoing, the Board made the following findings of fact.
Procedural History
	At all times relevant to these appeals, FMC was a publicly traded Delaware corporation and the principal reporting corporation for a group of affiliated entities engaged in business in Massachusetts. FMC filed a Combined Massachusetts Corporate Excise Return ("Form 355C") for each of the tax years at issue on or about March 15, 2005, December 22, 2006, and January 23, 2007, respectively. 
Gate was a Delaware corporation and a wholly-owned subsidiary of FMC. For the tax year ended June 30, 2004, FMC's Form 355C included Gate as a member of the combined group. However, on September 15, 2006, representatives of FMC and Gate filed a voluntary disclosure request with the Commissioner's Voluntary Disclosure Unit reporting an intended change in Gate's filing status based on their conclusion that Gate qualified as a financial institution within the meaning of G.L. c. 63 § 1. 
Consistent with the appellants' stated intentions, on December 22, 2006, Gate filed a Massachusetts Financial Institution Excise Return ("Form 63FI") for each of the tax years ended June 30, 2004, and June 30, 2005. Gate filed its Form 63FI for the tax year ended June 30, 2006 on or about January 11, 2007. Also on December 22, 2006, FMC filed an Amended Form 355C as well as an Application for Abatement seeking abatement of corporate excise and penalties for the tax year ended June 30, 2004, based on its claim that Gate was a financial institution. 
By Notice of Abatement Determination dated July 9, 2007, the Commissioner gave notice to FMC that she had denied its abatement application in full. FMC timely filed its appeal with the Board on September 5, 2007. 
Following the Commissioner's audit of the returns filed by FMC for the tax years ended June 30, 2005, and June 30, 2006, the Commissioner issued a Notice of Intent to Assess to FMC dated October 25, 2009. The Commissioner subsequently issued a Notice of Assessment dated December 1, 2009, notifying FMC of additional assessments of corporate excise, interest, and penalties imposed pursuant to G.L. c. 62C, § 35A. On December 22, 2009, FMC filed an Application for Abatement seeking abatement of corporate excise and penalties for the tax years ended June 30, 2005, and June 30, 2006. The Commissioner gave notice of her denial of FMC's abatement application by Notice of  Abatement Determination dated February 24, 2010. FMC timely appealed the denial by filing a petition with the Board on March 22, 2010.
Following the Commissioner's audit of Gate's returns for the tax years at issue, the Commissioner issued a Notice of Intent to Assess to Gate dated October 25, 2009. The Commissioner later issued Notices of Assessment dated December 1, 2009, and December 3, 2009, notifying Gate of additional assessments of financial institution excise, interest, and penalties imposed pursuant to G.L. c. 62C, § 35A for the tax years at issue.
On December 22, 2009, Gate filed an Application for Abatement, seeking abatement of financial institution excise and penalties for the tax years at issue. By Notice of Abatement Determination dated March 4, 2010, the Commissioner denied this application in full. Gate timely filed a petition with the Board appealing the abatement denial for the tax year ended June 30, 2004, on March 16, 2010, and for the tax years ended June 30, 2005, and June 30, 2006, on March 22, 2010.
Based on the foregoing, the Board found and ruled that it had jurisdiction to hear and decide these appeals.
Factual Background
	Overview of the Appellants
	During the tax years at issue, FMC's business was focused on the issuance and securitization of private student loans that were used by students to finance the cost of post-secondary education. In particular, and as discussed in substantially greater detail below, FMC and its affiliates did not make any loans directly to student borrowers, but brought together various parties that participated in private student loan lending programs, including: schools attended by student borrowers; banks that issued loans to the borrowers ("Originating Banks"); guarantors of the loans; servicing entities that serviced outstanding loans; and underwriters involved in securitization of the loans through issuance of asset backed securities ("ABS").
FMC's wholly-owned subsidiaries included, among others, First Marblehead Data Systems, Inc. ("FMDS"), First Marblehead Education Resources, Inc. ("FMER") and, as previously stated, Gate. The principal offices of FMC, FMER and FMDS during the tax years at issue were located at 800 Boylston Street, Boston, Massachusetts.
	Gate was an integral part of the student loan securitization process coordinated by FMC and was formed to hold interests, directly or through its wholly owned subsidiary, National Collegiate Funding LLC ("NCFLLC"), in a number of Delaware statutory trusts ("Trusts") that purchased student loan portfolios ("Loan Portfolios") from the Originating Banks through the issuance of ABS. Gate had no employees, payroll, or tangible assets and did not own or lease office space. Substantially all of its material assets consisted of its interests in the Trusts.  
Gate's tax returns indicate that its principal office was, like FMC, at 800 Boylston Street. Gate's corporate books were maintained and its tax returns prepared in Boston. There is no dispute that Gate's commercial domicile was in Massachusetts during the tax years at issue. 
NCFLLC was a Delaware limited liability corporation that served as an intermediary in FMC's securitization transactions and held an interest in one Trust. NCFLLC had no employees, payroll, offices, or tangible assets during the tax years at issue and elected to be treated as a disregarded entity for both federal and Massachusetts income tax purposes. 
 	

	The Student Loan Industry
	The formation and growth of the appellants' business are best understood in the broader context of the student loan industry, which Mr. Sheldon explained grew out of the Higher Education Act of 1965, Pub. L. No. 89-329 (1965), and provided for federally guaranteed student loans. These loans were issued under the Federal Family Education Loan Program ("FFELP") and made up by far the largest segment of the student loan market.  FFELP loans were originated by private lenders and were guaranteed against default by the federal government.
	Private loan programs, which constituted a relatively small portion of the market and did not carry a federal guarantee, were established because federally guaranteed programs had maximum limits on the amount that students could borrow. In many instances, financial aid and FFELP loans failed to cover a student's cost of attendance at a given institution and private loans were made available to bridge the gap. 
Student loans were distinct from other consumer loans in several respects. While most consumer loans had terms of three to five years, FFELP loans had an initial ten-year term. Further, repayment of consumer loans generally began immediately upon their issuance, but repayment of student loans was typically deferred until graduation. Once a loan entered repayment status, repayment may have been further deferred if a student pursued advanced studies or through "forbearance," which was made available to borrowers who were unable to make their loan payments but did not otherwise qualify for deferment. The variable repayment status made loan maturities somewhat unpredictable, often extending initial loan terms to twenty or thirty years. Finally, the terms of interest accrual and repayment on student loans, which had floating rates, often changed based on a loan's status.
	Because FFELP loans were long-term, floating-rate loans that had uncertain maturities, financing the loans was difficult, and the student loan market grew slowly. Growth in this area was further complicated for private lenders whose loans lacked a federal guarantee.
	In 1993, SLM Corporation, more commonly known as Sallie Mae, sponsored an exemption from the Investment Company Act of 1940, Pub. L. No. 76-768 (1940), which allowed the issuance of ABS backed by student loans. These securitized products avoided the prohibitive costs attendant to registration of an offering with an investment company. Easy access to the ABS structure, which shifted the risk of holding Loan Portfolios to ABS investors, promoted its use for securitization of most student loans, both federally guaranteed and private. This change, coupled with a growing student population and rising tuition costs, fueled dramatic growth in the student loan industry. FMC entered the industry during this growth phase. 
	FMC's Business
FMC was designed to facilitate private student loan programs. It developed back office origination operations, organized servicing for the loans, and developed loan financing and disposition strategies for lenders. Securitization of student loans was central to FMC's business. Mr. Sheldon testified to FMC's role as a pioneer in the private student loan industry. In particular, FMC explored new openings in the market created by the increasing demand for private loans and, through its activities, facilitated banks' origination of more student loans than would otherwise have been made.
FMC's clients were principally Originating Banks that had the capacity to issue large numbers of student loans. Some banks, which retained the loans they made, were known as "make and hold" lenders. The clients for which FMC designed loan programs were "make and sell" banks that sold their loans. FMC's operations involved only private loans, the vast majority of which were marketed through the "direct-to-consumer" channel.  FMC's business fell into two segments, which together facilitated origination and securitization of billions of dollars of student loans. The larger segment, by far, involved programs in which loans were guaranteed by The Educational Resources Institute ("TERI"), a private, non-profit guarantor of student loans whose guarantees provided substantial credit enhancement to the Loan Portfolios. TERI also processed loans and maintained an extensive database of student loan information. In 2001, TERI sold its database as well as its loan application processing activities to FMC, and the employees engaged in these activities were transferred to FMER. All of the TERI-guaranteed loans were marketed through the direct-to-consumer channel.
	The second, significantly smaller segment of FMC's business consisted of loans securitized through the Guaranteed Access to Education ("GATE") program, FMC's original loan program. GATE loans were offered through the school channel and were designed to replace school private-loan programs with an underwritten product serviced by an experienced entity. While GATE loans did not carry a guaranty from TERI, schools provided alternative forms of credit enhancement which included, at times, guaranties issued by the schools themselves or by Originating Banks.
	The Originating Banks
	The Originating Banks were lenders who acted as underwriters and originators of student loans in FMC's loan programs. Bank One, Bank of America and Charter One were FMC's largest clients in the TERI-guaranteed programs. Bank of America was the sole Originating Bank for the GATE programs during the tax years at issue. 
	The Originating Banks were responsible for ensuring that promissory notes, marketing materials and loan terms were permissible within their respective jurisdictions. For TERI-guaranteed loans, the lenders outsourced origination activities to TERI, which were provided through FMER.
	The Originating Banks entered into agreements with FMC that committed the Banks and FMC to future securitization transactions. These included loan origination agreements, note purchase agreements, and guaranty agreements. The agreements were bank and program specific, but were similar in form and function. When a loan program was created, FMC and an Originating Bank entered into a note purchase agreement that required FMC to use its best efforts to purchase and securitize loans after their origination and gave FMC the exclusive right to purchase the loans. Originating Banks that participated in TERI-guaranteed loan programs entered into loan origination agreements that specified TERI's loan origination responsibilities and included provisions relating to various aspects of the program including the form of promissory note, disbursement provisions, and servicing and marketing arrangements. The agreements also provided for the outsourcing of TERI's responsibilities, other than its guaranty, to FMER. The Originating Banks entered into guarantee agreements with TERI by which TERI guaranteed payment of principal and interest associated with loans made by the Banks. 
	For loans made through the GATE program during the tax years at issue, Bank of America set the terms of the loans, processed loan applications, and was responsible for loan servicing, which was outsourced to an unrelated third party. As with TERI-guaranteed loans, FMC and Bank of America executed agreements anticipating purchase of the loans by FMC and securitization of the loans through the issuance of ABS. 
The Securitization Transactions
	In broad brush, through their arrangements with FMC, the Originating Banks financed their student loans by selling them to special purpose vehicles, which were designed to be bankruptcy remote entities. The Trusts served as these vehicles for all of FMC's programs and financed their purchases of the loans by issuing ABS, which were typically purchased by investors from underwriters of the transactions. The proceeds received from the sale of bonds were used to purchase the loans from the Originating Banks and the loans served as security for repayment of the bonds.
	FMC determined various aspects of an ABS offering including its timing and structure. Timing was based on the contracts with the Originating Banks and market conditions, which included activities of competitors that may have been pursuing the same pool of investors at the same time. The ABS structure for each offering was developed by FMC and the underwriters of the offering. The ABS issued by the Trusts were sold through public offerings and private placements, although those involving GATE loans were typically done through private placements.
	Offerings often included more than one class of ABS with varying repayment priorities. A class with a lower repayment priority had a higher degree of risk. Similarly, tranches within a given class may have carried varying risks depending on the terms of the loans. Once FMC had assembled a Loan Portfolio for an offering, it performed an analysis of the offering's characteristics to be used in cash flow models that were presented for evaluation to underwriters and rating agencies.
	Underwriters served as a conduit to the investment marketplace by purchasing the ABS that had been issued by the Trusts and selling them to investors. The underwriters performed several administrative functions in furtherance of the securitization process and were involved in structuring offerings to maximize the cash flow coming out of the Trusts. As each underwriter typically had a strong relationship with a particular group of investors, an offering usually had multiple underwriters, which gave the Trusts exposure to as many investors as possible in a finite marketplace. 
Once FMC determined that the elements of an offering were satisfactory, the offering was "closed" in a multi-step process that took place in a single day. Typically, on the closing or "settlement" date, Gate and TERI formed a new Delaware statutory trust and received ownership shares of the trust, as discussed further below. The newly created trust issued ABS to the underwriters for cash and the underwriters immediately sold the ABS to investors. The cash, minus expenses and fees that were due to FMC, was transferred to NCFLLC which, beginning in 2003, was used as an intermediary between the Originating Banks and the Trusts. NCFLLC used the cash to buy a Loan Portfolio from the Originating Banks and immediately transferred the pool of student loans to the newly created trust.
The Trusts  
	As of the end of the tax years at issue, Gate held a beneficial interest, directly or indirectly, in each of sixteen Trusts which, in turn, held all of the student loans that had been securitized by FMC and its affiliates.  Gate was the sole owner of two trusts that had elected to be treated as disregarded entities for federal income tax purposes, and held a majority interest in the balance of the Trusts that were treated as partnerships for federal income tax purposes. These Trusts also filed returns as partnerships in Massachusetts, which the Commissioner did not disturb during the course of her audits relating to these appeals. The returns filed by the Trusts reported the interest on the loans in the Loan Portfolios as gross interest income, which was passed through to Gate and comprised substantially all of Gate's gross income for the tax years at issue. 
	TERI also had a beneficial interest in the Trusts that held loans issued under TERI-guaranteed programs. TERI received this interest in exchange for providing its guaranty. Gate generally held a smaller interest in the Trusts that purchased loans under the GATE program than those in the TERI program. Participating schools, which also received interests in exchange for entering into credit enhancing agreements, and occasionally TERI, held the balance of the interests in the GATE program Trusts.
	The interest held by GATE and the Trusts' other owners were residual interests that were subordinated to the ABS that had been issued by the Trusts. These interests typically would only have yielded returns after all other debt obligations associated with the ABS had been satisfied. Ultimately, Gate never received a distribution on its residual interests from any of the Trusts.
Pursuant to the trust agreements that established the Trusts, the Trusts were imbued with certain attributes. Each Trust had a maximum duration of a fixed term based on a life in being plus twenty-one years. A Trust could not merge or consolidate with another entity as long as bonds that were part of the ABS were outstanding and conditions were imposed on a Trust's ability to initiate claims. Each Trust had two trustees, an owner trustee and an indenture trustee. The owner trustee acted on behalf of the owners of the Trust. The indenture trustee acted on behalf of the owners of the ABS issued by the Trust and made sure that the trust agreement was enforced. FMDS served as the trust administrator and performed these tasks for both the owner and indenture trustees.
	After acquiring the loans, the Trusts typically "closed" and no longer acquired new loans or issued more bonds. Once a Trust was closed, it owned a fixed pool of loans that gradually decreased over time. As borrowers paid off, defaulted on, or cancelled their loans, the loans left the Trust. During the tax years at issue, the Trusts had no assets beyond the Loan Portfolios, cash, and other related assets and had no employees, payroll or offices.	
The Student Loan Servicers
Once student loans were approved and funds disbursed to borrowers, they had to be serviced.  Servicing required putting loans "onto a system," accounting for accrued interest, billing, receiving and processing payments, and working with borrowers through various delinquency stages.  Both the Originating Banks and FMC outsourced loan servicing to unrelated third parties, and neither FMC nor its affiliates were involved in any loan servicing activities. More than ninety percent of TERI-guaranteed loans were serviced by the Pennsylvania Higher Education Assistance Agency ("PHEAA"), a governmental agency whose principal office was in Harrisburg, Pennsylvania. Other loan servicers included Nelnet, ACS (Affiliated Computer Services), First Mark, and Great Lakes. None of the servicers (collectively, the "Loan Servicers") was located in Massachusetts.
The Loan Servicers were the custodians of loan records and all the paper documents relating to the loans. These records included comprehensive information concerning the loans and the borrowers including, but not limited to: whether loans were in repayment or deferral; principal balances of the loans; payment data; accrued interest; and borrowers' addresses.
Professor Scott's Testimony
	The principal issue in these appeals was whether Gate should be classified as a financial institution under G.L. c. 63, § 1.  The Commissioner offered the testimony of Professor Scott in support of her argument that it should not. Professor Scott testified regarding his understanding of terms in G.L. c. 63, § 1 as they were used in the financial industry as well as the activities of Gate, NCFLLC and the Trusts. Professor Scott generally discussed the entities described in clauses (a) through (d) of the definition of a financial institution. He also discussed his understanding of the entities contemplated in clause (e) and gave his opinion of what the term "lending activities," which is contained in clause (e), meant in the financial industry. Professor Scott opined that lending activities included "lending, just strictly lending" and "things that were done to facilitate . . . lending, to make possible . . . lending," which "further[ed] the bank's ability to make . . . loans." According to Professor Scott, these activities included "preparing documents for the bank" and "processing applications." 
	Applying his definitions to the activities of Gate, NCFLLC, and the Trusts, Professor Scott concluded that these entities, whether taken separately or together as a single "hypothetical entity," did not engage in lending activities as that term was used in the financial industry.  
	As previously noted, Professor Scott was qualified as an expert in the non-tax regulation of financial institutions. He was not an expert in tax law and did not have special knowledge of tax statutes. Nor did he claim that he knew what the Legislature intended when it enacted the definitions in G.L. c. 63, § 1. Because Professor Scott was not an expert with respect to interpretation of tax statutes, and in particular the definition of a financial institution within the context of the Financial Institution Excise Tax ("FIET"), the Board found that his opinions relating to the definition and its application to the activities of Gate, NCFLLC and the Trusts had little probative value with respect to the classification issue.
Gate's Status as a Financial Institution

	On the basis of the evidence presented and reasonable inferences drawn therefrom, the Board found that Gate was properly classified as a financial institution within the meaning of G.L. c. 63, § 1 for the tax years at issue. The Board's finding was based on an examination of the specific facts of these appeals, with particular focus on facts leading to the conclusion that Gate derived more than fifty percent of its gross income from lending activities in substantial competition with other financial institutions as required by § 1. These facts included, but were not limited to, the following: Gate owned beneficial interests in the Trusts; the Trusts purchased Loan Portfolios comprised of student loans from the Originating Banks, which made the loans; banks regularly made or purchased student loans similar to the loans purchased by the Trusts; the Trusts that were treated as partnerships for federal income tax purposes filed partnership returns in Massachusetts; banks regularly engaged in securitizations of student loans similar to those arranged by FMC and its affiliates; the securitization transactions facilitated lending by the banks; the appellants' purchase and securitization of loans reduced investment opportunities available to other banks and financial institutions; substantially all of Gate's income consisted of interest on the loans in the Loan Portfolios that was passed through to Gate from the Trusts; and banks earned the same type of income as Gate by making, purchasing and securitizing the same type of loans as those in the Loan Portfolios. 
Apportionment
Gate apportioned its income under the apportionment provisions of the FIET for each of the tax years at issue. As Gate, NCFLLC and the Trusts had no employees or payroll, Gate determined its apportionment percentage by applying the average of its property and receipts factors. See G.L. c. 63, § 2A.
	A financial institution that has income from business activity that is "taxable" both in Massachusetts and at least one other state may apportion its income under G.L. c. 63, § 2A. The statute specifies thresholds of activity above which a taxpayer will be presumed to be "engaged in business" and therefore "taxable" under the FIET. G.L. c. 63, §§ 1, 2. The appellants submitted into evidence detailed data that had been provided by the Loan Servicers, the accuracy of which the Commissioner did not dispute. The data reflected, for each of the tax years at issue, the principal of outstanding loans owned by the Trusts, annual interest, and borrowers' locations as represented by their billing addresses. Taking into account the Trusts' activities, the data indicated that the criteria for taxability under the FIET had been satisfied by Gate in all fifty states. Thus, the Board found and ruled that Gate was entitled to apportion its income for the tax years at issue.   
The appellants also argued that Gate was taxable outside Massachusetts because the Trusts, through their agents, were engaged in servicing their loans in all fifty states. The appellants, however, did not present evidence to establish that the Loan Servicers were, in fact, agents of the Trusts or, in turn, Gate. Nor did they offer another basis for the attribution of their activities to Gate. The Board therefore rejected the appellants' claim that the Loan Servicers' activities rendered Gate taxable under the FIET.
Gate's Receipts Factor
As substantially all of Gate's income was interest from the Loan Portfolios that was passed through to Gate from the Trusts, this income comprised the whole of Gate's receipts factor and was included in its numerator or denominator based on the location of the borrowers. See G.L. c. 63, § 2A(d). The data provided by the Loan Servicers described Gate's share of the Trusts' income for each of the tax years at issue, broken down by borrowers' location as represented by their billing addresses. The data further showed that Gate's share of the interest from borrowers located in Massachusetts represented approximately two percent of Gate's total receipts, consistent with Gate's Forms 63FI as filed. Thus, the Board found that the receipts factors reported on Gate's returns were correct for the tax years at issue.  
	Gate's Property Factor
For purposes of the property factor, a loan is "properly assigned to the regular place of business with which it has a preponderance of substantive contacts." G.L. c. 63, § 2A(e)(vi)(A)(2). Gate assigned all of the loans in its property factor outside of the Commonwealth and calculated a property factor of zero on each of its Forms 63FI for the tax years at issue. 
 As previously noted, neither Gate nor the Trusts had an office or employees. Thus, as the parties agreed, Gate had no regular place of business within the meaning of G.L. c. 63, § 1. Under these circumstances, all of Gate's loans were presumed to be located in Massachusetts, Gate's commercial domicile. See G.L. c. 63, § 2A(e)(vi)(3)(B). This presumption was subject to rebuttal by Gate "on a showing supported by the preponderance of evidence" that the preponderance of substantive contacts with the loans occurred outside of Massachusetts. Id.; G.L. c. 63, § 2A(e)(vi)(3)(C). The appellants concluded that the Trusts' and Gate's only substantive contacts with the loans were made through the Trusts' agents, the Loan Servicers, and that those activities occurred outside of Massachusetts. For the reasons discussed above, however, the Board rejected the appellants' contention that the activities of the Loan Servicers should be attributed to Gate. Absent other evidence of substantive contacts between Gate and the loans outside of Massachusetts, the Board found that Gate had not rebutted the presumption that the loans included in Gate's property factor were properly assigned to its commercial domicile, Massachusetts. In turn, the Board found and ruled that Gate had a one-hundred percent property factor for each of the tax years at issue.
Conclusion
	The Board found and ruled that Gate was a financial institution within the meaning of G.L. c. 63, § 1 because it was engaged in lending activities in substantial competition with other financial institutions, from which Gate derived more than fifty percent of its gross income. The Board also found and ruled that Gate was entitled to apportion its income under G.L. c. 63, § 2A, and had properly reported its receipts factors on its Forms 63FI for the tax years at issue. Finally, the Board found and ruled that Gate's property factors were one-hundred percent for the tax years at issue, not zero as had been reported on its returns. On this basis, the Board issued a revised decision for the appellants in these appeals and ordered abatements for the tax years at issue in the amount of $8,134,549 to FMC and $4,382,870 to Gate.

OPINION

	The primary question presented for consideration in these appeals is whether Gate should have been classified  as a "financial institution" within the meaning  of  G.L. c. 63,  § 1,  or  a "foreign corporation" under G.L. c. 63, § 30(2)(as in effect prior to St. 2008, c. 173, § 38) for the tax years at issue. As a financial institution, Gate would have been subject to the FIET, its income taxed separately under G.L. c. 63, § 2. If Gate was a foreign corporation, its income would have been taxed on the combined returns filed by FMC under G.L. c. 63, § 32B (as in effect prior to St. 2008, c. 173, § 48). 
	The parties also disputed whether Gate would be  entitled to apportion its income under G.L. c. 63, § 2A, and if so, how to apply the apportionment rules properly under the FIET.
Gate's Status as a Financial Institution      
	The term "financial institution" is defined in G.L. c. 63, § 1, which contains five subcategories, (a)-(e) (individually and collectively, "Clauses (a)-(e)"), that identify the various institutions that fall within the purview of the statute. The parties agreed that Clauses (a)-(d) did not apply to Gate. Unlike the Commissioner, however, the appellants contended that Gate qualified as a financial institution under Clause (e), a catchall provision that includes:
[A]ny other corporation organized under the laws of  the United States, the commonwealth or any other state or a foreign country which, in  substantial competition with financial institutions as defined in any or all of clauses (a) to (d), inclusive, derives more than 50 per cent of its gross income, excluding nonrecurring, extraordinary items, from loan origination, from  lending activities, including discounting obligations, or from credit card activities; but, corporations described in section 1 of chapter 171 shall be excluded from the definition of financial institution.

	The appellants did not claim that Gate derived income from loan origination or credit card activities. The dispute, therefore, focused on two elements of the definition: whether and to what degree Gate derived its gross income from lending activities; and whether Gate was in substantial competition with financial institutions as defined in Clauses (a)-(d).
	Lending Activities 
	As explained in greater detail below, the appellants argued that the Trusts, by virtue of their purchase and servicing of the Loan Portfolios, engaged in lending activities. Because Gate derived substantially all of its income from these activities, Gate argued that it derived more than fifty percent of its gross income from lending activities. The Board agreed, in part, with the appellants' arguments.
	The term "lending activities" is not defined in G.L. c. 63 § 1 or by regulation. "Because the statute itself did not define the term, the Board must consider 'the natural import of words according to the ordinary and approved usage of the language when applied to the subject matter of the act,' as reflective of the Legislature's intent." Duracell, Inc. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2007-903, 913 (quoting Boston & Me. R.R. v. Billerica, 262 Mass. 439, 444 (1928)). General Laws c. 63, § 1, refers to "lending activities," not just "lending." As such, the term must encompass more than only the making of loans. See, e.g., Board of Appeals of Hanover v. Housing Appeals Committee in Dept. of Community Affairs, 363 Mass. 339, 364 (1973), (quoting Commonwealth v. McCaughey, 9 Gray 296, 297 (1857)(in construing a statute "'no clause, sentence or word shall prove superfluous, void or insignificant, if, by any other construction they may all be made useful and pertinent.'")).
	The Commissioner offered her interpretation of the meaning of lending activities through the testimony of Professor Scott who opined that in the financial industry, lending activities means "lending, just strictly lending" and "things that were done to facilitate . . . lending, to make possible . . . lending," which "further[ed] the bank's ability to make . . . loans." Professor Scott applied this definition to the activities of Gate, NCFLLC, and the Trusts, concluding that these entities, whether taken separately or together as a single "hypothetical entity," did not engage in lending activities as the term is used in the financial industry. Rather, the Commissioner posited that Gate, via the Trusts, was appropriately viewed simply as the recipient of passive investment income throughout the tax years at issue.  
	The Board qualified Professor Scott as an expert in the non-tax regulation of financial institutions. He was not an expert in tax law and did not have special knowledge of tax statutes. Nor did he maintain that he knew what the Legislature intended when it enacted the definitions in G.L. c. 63, § 1. Thus, the Board found that his opinions relating to the definition of a financial institution and its application to the activities of Gate, NCFLLC and the Trusts were beside the point. Moreover, Professor Scott's view of the meaning of lending activities did not account for other relevant elements of the statute. 
	A statute must be construed to form a "consistent and harmonious whole," without "overemphasiz[ing] one word or part at the expense of another word or part." DeBlois v. Comm. of Corps. & Tax'n, 276 Mass. 437, 438 (1931). Further, "[t]he words of a statute must be construed in association with the general statutory plan." Commissioner of Revenue v. Wells Yachts South, Inc., 406 Mass. 661, 664 (1990)(citing Polaroid Corp. v. Commissioner of Revenue, 393 Mass. 490, 497 (1984)). The definition of financial institution, taken as a whole, provides insight into the FIET's general statutory plan. Clauses (a)-(d) apply to banks and similar institutions whose business involves the making of loans. Clause (e), a catchall provision, extends the FIET to entities that include, inter alia, those that derive most of their income from "lending activities." This extension evidences a statutory plan that encompasses entities whose activities fall outside those connected only with the making of loans.    
	The meaning of lending activities is also informed by the statute's express definition of the term "loan" as "any extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of such extension of credit from another." G.L. c. 63, § 1. (emphasis added.) The first part of the definition, which relates to "extension of credit resulting from direct negotiations between the taxpayer and its customer" reflects the distinction in Massachusetts tax law between lending money and investing in securities. See Industrial Finance Corp. v. State Tax Commission, 367 Mass. 360, 367 (1975). The second part, which adds "the purchase, in whole or in part, of such extension of credit from another," indicates that the essential character of a loan remains unchanged when owned by a purchaser to whom it is sold. This fact logically reflects an intention to consider those who purchase loans as being engaged in lending and not investment activities. Thus, it is reasonable to infer that as purchasers of the loans that comprised the Loan Portfolios, the Trusts, like the Originating Banks that issued the loans, were engaged in lending activities. In turn, Gate, taking into account the activities of the Trusts, was not simply the recipient of passive investment income as advocated by the Commissioner.
The Board also found that the appellants' activities facilitated lending by the Originating Banks by coordinating and effecting securitization of Loan Portfolios. Further, student loan securitization was a significant contributing factor in the growth of the student loan industry that incentivized banks' origination of more student loans than would otherwise have been made. The Board concluded that such activities, while not within the narrow view of "facilitation" offered by Professor Scott, properly fell within the meaning of lending activities as contemplated by Clause (e).
In sum, bearing in mind the factors discussed above, including the tenets of statutory construction, the Board found that Gate, taking into account the Trusts' activities, was engaged in lending activities within the meaning of Clause (e).
Attribution of the Trusts' Activities to Gate
	The Commissioner argued that even if the Trusts' activities qualified as lending activities, those of Gate did not. That the Commissioner raised such an argument is curious, as the Trusts, with two exceptions, each filed partnership returns in Massachusetts, which were not disturbed by the Commissioner during the course of the audits giving rise to these appeals. Under these filings, the Trusts would concededly have been "pass-through" entities whose activities were attributable to Gate. See G.L. c. 62, § 17(c). Regardless, during the course of the proceedings relating to the appeals, the Commissioner argued that the Trusts, which were Delaware statutory trusts, were not properly classified as partnerships but instead were foreign corporations within the meaning of G.L. c. 63, § 30(2).  Accordingly, their activities were not attributable to Gate. The Board did not find the Commissioner's argument persuasive.

During the tax years at issue, a foreign corporation was a: 
corporation, association or organization established, organized or chartered under laws other than those of the 	commonwealth, for purposes for which domestic corporations 	may be organized under chapter 156, chapter 156A, chapter 156B, chapter 156D . . . which has privileges, powers, rights or immunities not possessed by individuals or partnerships.  
 
G.L. c. 63 § 30(2)(as in effect prior to 2008, c. 173, § 38).
There was no dispute that the Trusts were organized under laws "other than those of the commonwealth, for purposes for which domestic corporations may be organized" under applicable statutory provisions, or that the Trusts were organized for profit. Id. The parties differed, however, as to whether the Trusts had "privileges, powers, rights or immunities not possessed by individuals or partnerships." Id. The Commissioner argued that the Trusts possessed these attributes, relying in large measure on the Board's decision in MASSPCSCO v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports, 2010-372, a property tax case in which the Board addressed how a taxpayer that had been organized as a Delaware statutory trust should be characterized for Massachusetts tax purposes. 
In MASSPCSCO, the Board, citing the Commissioner's prior rulings, found that construction of the phrase "privileges, powers, rights or immunities not possessed by individuals or partnerships" required an analysis "similar to the federal entity regulations in effect prior to 1997" under Treas. Reg. § 301-7701-2 (the "Kintner regulations").  MASSPCSCO, Mass. ATB Findings of Fact and Reports at 2010-413. Applying this analysis, the Board ruled that an entity should be classified as a corporation if it possesses a majority of the following six characteristics: 1. perpetual life; 2. transferable equity interests; 3. centralized management; 4. limited liability for debts of the entity on the part of the equity owners who participate in management; 5. the ability to merge or consolidate with corporations and other entities; and 6. the imposition of conditions on the ability to maintain a derivative action. Id. at 414-416. For a Delaware statutory trust, whether an entity has these attributes can be determined by examining the trust agreement. Id. at 415. The trust agreement reviewed in MASSPCSCO "[did] not eliminate any of those privileges, powers, rights and immunities." Id. The trust agreements in the present appeals indicated that the Trusts were structured so that they did not have a majority of the characteristics the Board gave weight to in MASSPCSCO. Thus, the Board found here that the Trusts did not possess the requisite "privileges, powers, rights and immunities not possessed by individuals or partnerships" to be classified as foreign corporations. 
	The Board first found that the Trusts did not have perpetual lives. The trust agreements reflect that each Trust had a maximum duration of a fixed term based on a life in being plus twenty-one years. Such a limit is inconsistent with the characteristic of perpetual life. See Eliot v. Freeman, 220 U.S. 178, 187 (1911) (finding that trusts that end "with lives in being and twenty years thereafter" do not have perpetual life). The Commissioner as well has ruled that a finite term is a "non-corporate characteristic." See Letter Ruling 01-7 (Sept. 4, 2001).  
	The trust agreements also explicitly provided that the Trusts could not merge or consolidate with any other entity so long as any of the bonds that were part of the ABS were outstanding. The Board therefore found that the Trusts did not have the ability to merge or consolidate with other business entities. 
	Finally, the Board found that derivative actions under the trust agreements relating to the Trusts, unlike the Delaware statutory trusts found to be corporations in MASSPCSCO and Letter Ruling 91-2, were not "governed by provisions substantially identical to those governing corporations. . . ." MASSPCSCO, Mass. ATB Findings of Fact and Reports at 2010-415. Thus, the factor involving imposition of conditions on the ability to maintain a derivative action was not applicable to the Trusts.
	In sum, the Board found that the Trusts did not possess a majority of the characteristics delineated in MASSPCSCO and were not foreign corporations within the meaning of G.L. c. 63, § 30(2). Further, consistent with their treatment as partnerships for federal income tax purposes and their filing of Massachusetts partnership returns, the Trusts were "pass-through" entities whose activities were attributable to Gate. See G.L. c. 62, § 17(c); see also 830 C.M.R. 63.39.1(8)(a)(partnership's activities attributed to corporate partner in determining apportionment factors and taxation of corporation in particular jurisdiction). 
	As stated above, substantially all of Gate's income consisted of interest income received from the Trusts.
Having concluded that the activities of the Trusts were attributable to Gate and that the Trusts were engaged in lending activities, the Board found and ruled that more than fifty percent of Gate's income was derived from lending activities as required by Clause (e). 

Substantial Competition 

As previously discussed, a corporation is taxable as a financial institution if it derives the majority of its income from lending activities that are "in substantial competition with" banks or other financial institutions described in Clauses (a)-(d). However, like the term "lending activities," the Legislature did not define "substantial competition." Consequently, as with lending activities, to discern the meaning of substantial competition, the Board considered "'the natural import of words according to the ordinary and approved usage of the language when applied to the subject matter of the act,' as reflective of the Legislature's intent." Duracell, Inc., Mass. ATB Findings of Fact and Reports at 2007-913 (quoting Boston & Me. R.R. v. Billerica, 262 Mass. 439, 444 (1928)).
	As the Commissioner noted, "competition" is "the effort or action of two or more commercial interests to obtain the same business from third parties." black's law dictionary, 322 (9th ed. 2009). Substantially all of the income derived by Gate through the Trusts, whose activities were attributable to Gate, consisted of interest on the loans in the Loan Portfolios. Moreover, as part of the securitization of the Loan Portfolios, the Trusts facilitated origination of student loans by providing a market for their subsequent sale. Banks earned the same type of income as Gate by making, purchasing and securitizing the same type of loans, all from a finite and overlapping group of borrowers and investors. Thus, the Board found that Gate was in competition with other financial institutions within the meaning of G.L. c. 63, § 1.
The Commissioner argued that because no entity competed with Gate for FMC's business and Gate did not seek to participate in the securitization of loan pools structured by any other party, Gate was not in competition with anyone. This argument ignores that Gate's competitive activities were part and parcel of those engaged in by its affiliates and the Trusts. Thus, the Board found the Commissioner's argument unavailing. 
	While the meaning of competition is apparent, the meaning of "substantial" is not so easily discerned. The Board therefore looked to how the Commissioner has otherwise construed the meaning of substantial in the context of G.L. c. 63. For example, in Letter Rulings that discuss qualification as a manufacturing corporation for purposes of G.L. c. 63 § 38(l), the Commissioner has explained that whether a company is engaged in "substantial manufacturing activity" depends on the portion of its annual receipts that are derived from manufacturing, which is a reflection of the amount of available resources that a taxpayer devotes to the activity. See Letter Ruling 11-8 (December 16, 2011); Letter Ruling 07-1 (February 16, 2007); see also 830 C.M.R. 58.2.1. 
The Board found that the Commissioner's interpretation was sensible and that it is similarly sensible, in the context of the FIET, to determine substantiality by comparing the competitive activities of a taxpayer to the taxpayer's overall activities. To do otherwise would result in application of the FIET based on distinctions between larger and smaller taxpayers as well as their relative size in the marketplace. "A statute or ordinance should not be construed in a way that produces absurd or unreasonable results when a sensible construction is readily available." Manning v. Boston Redevelopment Authority, 400 Mass. 444, 453 (1987)(citing Green v. Board of Appeal of Norwood, 358 Mass. 253, 258 (1970)). To define substantial competition with reference to a taxpayer's individual and relative size would produce just such an unreasonable result.
	Having concluded that Gate was in competition with other financial institutions as defined in Clauses (a)-(d), and based on the foregoing, the Board also found that Gate was in substantial competition as required by Clause (e). The Board so found because virtually all of Gate's income was derived from the lending activities of the Trusts, which were attributed to Gate. 
	Summary
On the basis of the foregoing, the Board found and ruled that Gate was a financial institution within the meaning of Clause (e). Gate was engaged in lending activities by virtue of the activities of the Trusts, which were attributed to Gate and from which Gate derived more than fifty percent of its gross income. Finally, Gate's lending activities were in substantial competition with other financial institutions as defined in Clauses (a)-(d). Therefore, Gate was properly classified as a financial institution within the meaning of G.L. c. 63 § 1 for the tax years at issue.  


Gate's Right to Apportion
	Under G.L. c. 63, § 2A, a financial institution that has income from business activity which is "taxable" both in Massachusetts and at least one other state has the right to apportion its income for Massachusetts tax purposes. An entity is taxable in another state if the state "has jurisdiction" to tax its income "regardless of whether, in fact, the state does or does not." G.L. c. 63, § 1. Massachusetts imposes the FIET on a financial institution that is "engaged in business" in the commonwealth. G.L. c. 63, § 2.  "Engaged in business" is defined in G.L. c. 63, § 1 as:
(a) having a business location in the commonwealth;(b)having employees, representatives or independent contractors conducting business activities on its behalf in the commonwealth; (c) maintaining, renting or owning any tangible or real property in the commonwealth;  (e) regularly engaging in transactions with the customers in the commonwealth that involve intangible property and result in income flowing to the taxpayer from residents of the commonwealth; (f) regularly receiving interest income from loans secured by tangible personal or real property located in the commonwealth; or (g) regularly soliciting and receiving deposits from customers in the commonwealth. With respect to the activities described in clauses (d) to (g), inclusive, activities shall be presumed, subject to rebuttal, to be conducted on a regular basis within the commonwealth, if any of such activities are conducted with one hundred or more residents of the commonwealth during any taxable year or if the taxpayer has ten million dollars or more of assets attributable to sources within the commonwealth, or has in excess of five hundred thousand dollars in receipts attributable to sources within the commonwealth. (emphasis added).
The record in these appeals, which includes detailed data from the Loan Servicers indicating the principal of outstanding loans, annual interest and the location of borrowers in each of the fifty states, reflects that appellants were "engaged in business" within the meaning of G.L. c. 63, § 1 not only in Massachusetts, but all fifty states. Specifically, taking into account the activities of the Trusts, the data established that Gate exceeded the thresholds delineated in § 1 in every state. The Board therefore found and ruled that the appellants met their burden of demonstrating that Gate was entitled to apportion its income for the tax years at issue. See 830 C.M.R. 63.38.1(5)  
The appellants also argued that Gate was taxable in other states by virtue of the activities of the Loan Servicers, citing Letter Ruling 87-9 (September 18, 1987). In Letter Ruling 87-9, the Commissioner found that a taxpayer that had purchased a portfolio of loans would have activities in other states that included securing and servicing the loans. The Commissioner concluded that these activities provided a basis "upon which those states might assert jurisdiction to assess income taxes." The appellants focused on the taxpayer's loan servicing activities, which they claimed were present in these appeals, and which conferred the jurisdiction to tax. It is not certain, however, that loan servicing activities alone would have rendered the taxpayer in Letter Ruling 87-9 taxable in other states. More importantly, the loan servicers in Letter Ruling 87-9 were identified as agents of the taxpayer, providing a basis for attribution of their activities to the taxpayer. See, e.g., G.L. c. 63, § 38(f). In the present appeals, the appellants have not presented evidence to establish that the Loan Servicers were agents of the Trusts or, in turn, Gate. Nor have they offered any other basis in law for the attribution of their activities to Gate. The Board therefore rejected the appellants' claim that the Loan Servicers' activities rendered Gate taxable in other states.     
The Commissioner opposed the conclusion that Gate had a right to apportion its income, citing the Supreme Court's decision in Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768 (1992). In Allied-Signal, the Supreme Court examined the constitutional limitations on a state's power to tax the multistate income of a non-domiciliary corporation. Id. at 772. The Commissioner cited Allied-Signal for the proposition that "passive investment income," which the Commissioner argued encompassed all the income received by Gate, could not be taxed outside Massachusetts, Gate's commercial domicile, because the capital transactions giving rise to the income served an "investment" rather than an "operational function." Id. at 787. The Commissioner's argument, however, is predicated on her conclusions that Gate was a business corporation and consequently the activities of the Trusts were not attributable to Gate. As previously discussed, the Board disagreed with both of these conclusions. Further, the capital transactions that gave rise to the income at issue formed the core of the Trusts' business activities, the attributes of which passed through to Gate. As such, the transactions cannot be viewed as serving an investment  function potentially resulting in impermissible taxation of income "'derived from 'unrelated business activity' which constitutes a 'discrete business enterprise.'" Id. at 773 (quoting Exxon Corp. v. Department of Revenue of Wis., 447 U.S. 207, 224(1980))(additional citation omitted). Consequently, the Board found the Commissioner's argument unavailing.


Application of the FIET Apportionment Factors
Under G.L. c. 63, § 2A, a financial institution's income is generally apportioned by applying an apportionment percentage equal to the average of a taxpayer's receipts, property and payroll factors. See G.L. c. 63, § 2A(b). Each factor is a ratio, "the numerator of which is the [related activities] of the taxpayer in the commonwealth during the taxable year and the denominator of which is the [related activities] of the taxpayer within and without the commonwealth during the taxable year." G.L. c. 63, §§ 2A (d)-(f). Gate, however, did not have a payroll factor for the tax years at issue as none of Gate, NCFLLC or the Trusts had any employees or payroll. Gate's apportionment percentage, therefore, was the average of its receipts and property factors.
Receipts Factor
A financial institution's receipts factor is based on its gross income for federal tax purposes and is determined by dividing its receipts derived in Massachusetts by its total receipts. See G.L. c. 63, §§ 1, 2A, 2A(d). 
Substantially all of Gate's gross income consisted of interest income from the loans in the Loan Portfolios that was passed through to Gate from the Trusts. The statute provides that "the numerator of the receipts factor includes interest and fees or penalties in the nature of interest from loans not secured by real property if the borrower is located in the commonwealth," whereas receipts from borrowers located outside Massachusetts are included in the denominator. See G.L. c. 63, § 2A(d). When, as in these appeals, borrowers are consumers rather than businesses, a borrower's location is based on his or her billing address. See G.L. c. 63, § 1. 
The data provided by the Loan Servicers described Gate's share of the Trusts' income for each of the tax years at issue broken down by the borrowers' locations as  represented by their billing addresses. The data show that Gate's share of the interest from borrowers located in Massachusetts represented approximately two percent of Gate's total receipts, consistent with Gate's Forms 63FI as filed, a figure the Commissioner did not dispute. Thus, the Board found and ruled that the receipts factors reported on Gate's returns were correct for the tax years at issue.  
	Property Factor
A financial institution's property factor is generally determined by dividing a taxpayer's property in Massachusetts by the total amount of its property. See G.L. c. 63, § 2A(e). Loans comprised all of Gate's property includable in its property factor. The statute provides that a loan is "properly assigned to the regular place of business with which it has a preponderance of substantive contacts." G.L. c. 63, § 2A(e)(vi)(A)(2). On its Forms 63FI, Gate assigned all of its loans outside of the Commonwealth, and calculated property factors of zero for the tax years at issue. The Board found that Gate's assignment of its loans outside Massachusetts and the calculation of its property factors were improper.
 General Laws c. 63, § 1 defines a "regular place of business" as "an office at which the taxpayer carries on its business in a regular and systematic manner and which is consistently maintained, occupied and used by employees of the taxpayer."  G.L. c. 63, § 1. However, neither Gate nor the Trusts had an office or employees. Thus, as the parties agreed, Gate had no regular place of business within the meaning of § 1.
General Laws c. 63, § 2A(e)(vi)(3)(B) provides that:
[i]n the case of a loan which is assigned by the taxpayer to a place without the commonwealth which is not a regular place of business, it shall be presumed, subject to rebuttal by the taxpayer on a showing supported by the preponderance of evidence, that the preponderance of substantive contacts regarding the loan occurred within the commonwealth if, at the time the loan was made the taxpayer's commercial domicile, as defined in section one, was within the commonwealth.

As Gate had no regular place of business, it could not have a regular place of business in any state outside the Commonwealth. Therefore, all of Gate's loans, which it had assigned outside the Commonwealth, were presumed to be located in Massachusetts, its conceded commercial domicile. This presumption was subject to rebuttal by Gate "on a showing supported by the preponderance of evidence" of the location of the "preponderance of substantive contacts regarding the loan[s]. . ." Id.
 	The determination of where the preponderance of substantive contacts occurs is based on the facts and circumstances of each case, taking into account activities including "solicitation," "investigation," "negotiation," "approval" and "administration" of a loan. See G.L. c. 63, § 2A(e)(vi)(3)(C). The appellants acknowledged that the only type of contact relevant to these appeals was administration, "the process of managing the account," which includes "bookkeeping, collecting the payments, corresponding with the customer, reporting to management regarding the status of the agreement and proceeding against the borrower or the security interest if the borrower is in default." G.L. c. 63, § 2A(e)(vi)(3)(C)(5).
The appellants argued that the Trusts' and Gate's only substantive contacts with the loans were made through the Loan Servicers, whose activities fell within the definition of "administration" and occurred outside of Massachusetts. The appellants, as noted previously, characterized the Loan Servicers as agents of the Trusts and as such, attributed their activities to Gate. For the reasons discussed above, however, the Board rejected the appellants' contention that the activities of the Loan Servicers should be attributed to Gate. Lacking other evidence of substantive contacts outside of Massachusetts between Gate and the loans, and applying the statutory presumption cited above, the Board found and ruled that the loans were properly assigned to Gate's commercial domicile, Massachusetts. Thus, the Board found and ruled that Gate had a one-hundred percent property factor for each of the tax years at issue.
Conclusion
	The Board found and ruled that Gate was a financial institution within the meaning of G.L. c. 63, § 1 because it was engaged in lending activities in substantial competition with other financial institutions, from which it derived more than fifty percent of its gross income. The Board also found and ruled that Gate was entitled to apportion its income under G.L. c. 63, § 2A, and had properly reported its receipts factors on its Forms 63FI for the tax years at issue. Finally, the Board found and ruled that Gate's property factors for the tax years at issue were one-hundred percent, not zero as had been reported on its returns. On this basis, the Board issued a revised decision for the appellants in these appeals and ordered abatements for the tax years at issue in the amount of $8,134,549 to FMC and $4,382,870 to Gate.

					 THE APPELLATE TAX BOARD



 By: ________________________________
     Thomas W. Hammond, Jr., Chairman


A true copy,

Attest: ________________________
  	     Clerk of the Board 

In her post-trial reply brief, the Commissioner stated that she was "exercising her discretion to abate the penalties assessed against Gate and FMC for the years at issue." These findings of fact and report, therefore, need not and do not address the issue of whether the appellants were entitled to abatement of so-called "substantial underpayment penalties" that had been imposed pursuant to G.L. c. 62C, § 35A and were contested during the course of the appeals.   
 While the assessments issued to FMC are based on the Commissioner's conclusion that Gate was a foreign corporation taxable under G.L. c. 63, § 39, the assessments issued to Gate assume, in the alternative, that Gate is a financial institution taxable under G.L. c. 63, § 2.
 Student loans were marketed via one of two paths. The "school channel" or the "direct-to-consumer channel." In the school channel, the various activities associated with making a loan, from origination to disbursement of funds, were conducted through school financial-aid offices, without any direct contact between students and lenders. A portion of the private loan industry operated in the school channel, typically in concert with programs that issued FFELP loans that were offered to students from a group of "preferred lenders" sanctioned by a school to offer loans to its students. The larger segment of the private loan industry operated through the "direct-to-consumer" channel in which lenders solicited business directly from students and their families.  

 The GATE loan program acronym was distinct from the appellant, a corporate entity with the same name.
 The regulations are so-called because they were promulgated in response to United States v. Kintner, 216 F.2d 418 (9th Cir. 1954), to address the classification of business trusts.

ATB 2013-241