You have inquired whether interest paid by an issuer to the holder of a "Mortgage Backed Certificate Guaranteed by Government National Mortgage Association" is subjec to the excise tax on savings and loan associations. These certificates may be either "straight pass through" or fully-modified pass through" certificates. Each is described in pertinent Revenue Rulings, the former in Rev. Rul. 70-544, the latter in Rev. Rul. 70-545. In each instance, neither the issuer nor the holder is the United States or any of its agencies or instrumentalities, including GNMA. In each, however, GNMA guarantees timely payment of the amounts required to be paid by the issuer of the certificate, in the case of default stating that "the full faith and credit of the United States is pledged to the payment" thereof. An undated opinion of William H. Rehnquist, then Assistant Attorney General, to George Romney, then Secretary of Housing and Urban Development concludes that GNMA "is authorized to make the proposed quaranties and that they would constitute general obligations of the United States backed by its full faith and credit." (Emphasis added.)
- 105-228.24 imposes an excise tax on each savings and loan association at the rate of 7 1/2% of its "net taxable income", which is the same as "net income" for corporate income tax purposes. Such "net income" is the same as federal "taxable income", plus or minus certain adjustments.
- 105-130.3. The aforesaid revenue rulings require interest to be included for federal income tax purposes and such interest is thus required to be included for North Carolina corporate income tax purposes (and likewise, for purposes of the excise tax imposed by G.S. 105-228.24) unless, it is covered in one of the adjustments referred to above.
- 105-130.5(b) sets out the adjustments which must be made, in the form of deductions from federal taxable income, in order to determine State net income. The only one which appears pertinent is in subsection (1), which permits deduction of "interest upon the obligations of the United States . . . to the extent included in federal taxable income," and, since neither the United
States nor its creature, GNMA, issues the certificates in question, the certificates are not federal obligations and that deduction appears to be inapplicable. Note, too, that the opinion of the United States Assistant Attorney General is careful to limit its description of "general obligations of the United States" to "the proposed guaranties", not to the certificate itself. We conclude, therefore, that interest received from a "Mortgage Backed Certificate Guaranteed By Government National Mortgage Association" is subject to the excise tax imposed by G.S. 105-228.24. See our memorandum of 4 August 1976 to W. L. Cole, Acting Administrator, to the same effect. Any opinion of this office to the contrary, oral or written, is modified to conform to the opinion herein expressed. We also note that the subject was discussed with Mr. Carl Lindstrom, Assistant Director of the Mortgage Backed Securities Program of GNMA by telephone on 28 July 1976. Mr. Lindstrom expressed the same view re taxability of interest received from these certificates as has been expressed above.
No opinion is expressed herein upon the question of taxability of interest paid by GNMA pursuant to its guaranty.
Rufus L. Edmisten Attorney General
Myron C. Banks Special Deputy Attorney General