Tax Type
Individual Income Tax
Description
Investors, Banking
Topic
Basis of Tax
Date Issued
05-13-1982
May 13, 1982
Re: §58-1118 Application
Capital Not Otherwise Taxed
For the Year 1980
Dear ***************
This ruling is issued in response to your application under §58-1118, Code of Virginia, and information furnished the department's operations staff.
FACTS
Taxpayer contends that repurchase agreements are not includable as a part of other taxable property for capital tax purposes. In protest you take the position that repurchase agreements should be treated as money for capital tax purposes. You provided a letter from your bank which describes a repurchase agreement "as a transaction whereby you participate in a pool of collateral (i.e. C.D's and other market instruments), you are paid a specified rate and you can terminate the agreement at anytime, cash on demand."
Your bank's letter also stated that the money is collateralized and completely liquid.
DETERMINATION
The department has consistently defined money to include checking accounts, savings accounts and certificates of deposit since these are held by the banking institution as deposits and are included in the financial institution's basis for federal depository insurance.
The repurchase agreements in question, however, represent obligations of the financial institution not secured by federal depository insurance, but rather, secured by a pool of collateral. The purchasers of such agreements are not depositors, but investors, in securities of the financial institution. Furthermore, such investors do not have participatory ownership in the underlying pool of collateral since the pool only secures the repurchase agreements sold by the financial institution.
Based upon a strict interpretation of §58-411A(4) which excludes from the definition of capital "money on hand and on deposit," the repurchase agreement does not meet the strict exclusion and for the reasons stated above, I find no error in audit computations of taxable capital or in the deficiencies assessed. Your application for correction is therefore denied.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner