Out-of-state mortgage lender nexus explained

North Carolina: Out-of-state mortgage lender nexus explained

An out-of-state mortgage lender has nexus with North Carolina for North Carolina franchise and corporate income tax purposes if it

* makes more than $5 million of loans secured by real property in North Carolina, regardless of the borrower’s location, and

* performs services or activities in North Carolina through employees, agents, or independent contractors, to solicit or finalize loans. Services and activities performed in North Carolina that create nexus include

* accepting loan applications to be forwarded outside the state for approval;

* collecting and processing customer payments;

* closing loans, conducting title searches, or valuing or appraising property located in North Carolina;

* collecting delinquent accounts or investigating credit worthiness;

* filing, litigating, or defending actions in North Carolina courts;

* filing deeds of trust, mortgages, judgments or liens; foreclosing on real property located in North Carolina; and

* promoting, protecting, establishing, or maintaining the market for potential or existing customers.

An out-of-state corporation’s title to real estate, located in North Carolina and acquired due to foreclosure, creates nexus. Income derived from the sale or rental of a foreclosed property must be allocated and apportioned to North Carolina for corporate income tax purposes.

A corporation that invests in a loan secured by North Carolina real property by buying it, in whole or in part, does not have nexus with the state, provided that it is not the loan originator. A loan to an affiliate by an out-of-state corporation, secured by real property located in North Carolina, does not by itself define the out-of-state corporation as a mortgage lender with nexus for tax purposes. (Directive No. CD-99-1, North Carolina Department of Revenue, February 19,1999.)

See also Directive No. CD-99-1 under “Miscellaneous Taxes.”

Copyright Commerce Clearing House, Inc. Mar 15, 1999

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