Tax Type
Property Tax
Description
Bank Shares Tax;Imposition of Tax Before Bank Has Authority to Receive Deposits
Topic
Property Subject to Tax
Date Issued
02-06-1978
This is in response to your request for an opinion in regard to the bank stock tax imposed by Chapter 10 of Title 58 of the Code of Virginia (1950), as amended. Your inquiry poses three questions which I will paraphrase as follows:
- 1. Do the bank share tax provisions of §§ 58-465 through -485 apply to banks in the process of formation and organization where the bank has, under Virginia law, a corporate existence under Title 13.1 of the Code, and where the bank is soliciting and has received stock subscriptions (but not issued any shares), but has not yet been granted authority under § 6.1-13 to receive deposits from the general public?
2. Is the physical issuance of the shares before the granting of authority to receive deposits significant?
3. If the answer to question 2 is yes, does that result violate the requirements of § 58-466.1, since national banks receive their grant of corporate existence and the grant of authority to conduct a banking business by the same act?
I will answer your questions in order.
1. Section 58-466 states that "[n]o tax shall be assessed upon the capital of any bank but the stockholders in such banks shall be assessed and taxed on their shares of stock therein.' [Emphasis added]. It is to be noted that capital stock subscriptions are not shares of stock. A share of corporate stock is "[a] proportional part of certain rights in the management and profits of a corporation during its existence, and its assets upon dissolution, and evidence of the stockholder's ratable share in the distribution of the assets on the winding up of the corporation's business.' Black's Law Dictionary 1542 (4th ed. 1951). A subscription is a written contract between a person and the corporation by which the corporation binds itself to sell, and the person agrees to buy, a certain number of shares in the corporation, generally subject to certain conditions. 43 N.J., "Corporations,' § 53-56. I am advised that the general practice in Virginia is that payments received for such subscriptions are placed in escrow and held subject to refund in the event that authority to receive deposits is not granted. Such contract rights do not rise to the level of shares of corporate stock and would not be subject to the reporting requirements of § 58-470 or to the tax imposed by § 58-473.
2. However, the physical issuance of shares of the corporation is of significant moment. Such a corporation has a corporate existence under Title 13.1 and can exercise the powers authorized by both its charter and by law. In the example you give, such a corporation is a "bank,' as that term is defined in § 53-463. §58-465 provides that the word "bank' means "any incorporated bank . . . organized by or under the authority of the laws of this State . . . .' The issuance of the certificate of incorporation gives life to the corporate entity. Organization occurs on that date and although additional authority, in the form of the certificate required by § 6.1-13, is needed before deposits can be received, § 58-465 cannot be construed to require more than "organization.' Doubts as to this conclusion are dispelled when the nature of the bank stock tax is examined. Shareholders are taxed upon their shares of stock, and this intangible asset comes into being upon issuance of the shares. That business has not yet commenced in no way alters the fact that the shares of stock are an intangible asset of the stockholders, and taxable as such. Furthermore, I am advised that this has been the consistent position of the Department of Taxation since at least the late 1950's.
3. Your third question deals with § 58-466.1, which states that if "any State or local tax is held by a court of competent jurisdiction to be invalid in its application to national banks, such tax shall not thereafter be assessed against State banks.' This provision reflects the Commonwealth's policy of treating State banks the same as national banks in tax matters. See, § 1-12, Virginia Retail Sales and Use Tax Rules and Regulations (1969). However, the bank stock tax is imposed on shareholders, not on the banking entity. If any inequality of treatment exists, it exists at the shareholder level and is not within the purview of § 58-466.1. This disparate treatment is the result of the differing State and federal regulation of the banking industry and cannot be construed as a violation of the spirit or letter of § 58-466.1. This result can be avoided by delaying issuance of the stock until the certificate of authority under § 6.1-13 is granted.
Attorney General's Opinion