SECTION 1. Section 1 of chapter 63 of the General Laws, as appearing in the 2004 Official Edition, is hereby amended by inserting at the end of the definition of financial institution the following: —

Provided further that for taxable years beginning on or after January 1, 1999, any partnership or any S corporation, as defined under section 1361 of the Internal Revenue Code that otherwise falls within this definition shall not be taxable as a financial institution under this chapter. The partners in such a partnership shall be subject to tax on their distributive share of the partnership’s income. Such an S corporation shall be subject to the provisions of section 32D of this chapter and its shareholders shall be subject to tax on their distributive share of the S corporation’s income. Where such a partnership or S corporation has income from business activity which is taxable both within and without this commonwealth, the provisions of sections 1 and 2A of this chapter shall apply for purposes of determining the net income taxable under said section 32D and the portion of partnership or S corporation distributive income taxable under this chapter or chapter 62.

SECTION 2. Section 1 of this act shall take effect retroactively to January 1, 1999.