Tax Type
Bank Franchise Tax
Description
VIRGINIA BANK FRANCHISE TAY REGULATIONS
Topic
Reports
Date Issued
01-01-1984
see date
VIRGINIA BANK FRANCHISE TAX REGULATIONS
INTRODUCTION
These regulations for the Virginia Bank Franchise Tax are published by the authority granted the State Tax Commissioner under Virginia Code § 58-48.6 (§ 58.1-203 effective January 1, 1985) and are subject to amendment, revision and supplemental regulations as required or appropriate.
Amendments, revisions and updates to these regulations will be issued as replacement pages, each replacement page having on it the date of revision.
Each regulation section is numbered to reference the section of Title 58.1 of the Code of Virginia which it interprets. The first three digits, 630, identify these regulations, for purposes of the Virginia Register of Regulations, as regulations of the Department of Taxation. The digits following the first hyphen indicate the tax type, and the digits following the second hyphen indicate the section of Title 58.1 being interpreted. For example, the section number 630-15-1201, identifies the agency (630), the bank franchise tax (15), and the section of Title 58.1, Code of Virginia, which is interpreted (1201).
W. H. Forst
State Tax Commissioner
Virginia Department of Taxation
P. O. Box 6-L
Richmond, Virginia 23282
EFFECTIVE DATE: January 1, 1985, with retroactive effect according to Section 58-48.6 (recodified as § 58.1-203).
EXPIRATION DATE: N/A
SUPERSEDES: All previous documents and any oral directives in conflict herewith.
REFERENCES: Code of Virginia §58.1-1200 through 58.1-1217 are regulated herein.
AUTHORITY: § 58-48.6, Code of Virginia, and §58.1-203 on and after January 1, 1985.
SCOPE: Applicable to all financial institutions subject to bank franchise tax.
SUMMARY: These are initial regulations interpreting certain provisions of the Virginia bank franchise tax, consisting of §§ 630-15-1200 through 630-15-1217.
ADOPTION DATE: September 19, 1984
Regulation Section Page
630-15-1200 TITLE
630-15-1201 DEFINITIONS
630-15-1202 BANK CAPITAL ASSESSABLE
630-15-1203 REAL AND LEASED TANGIBLE PERSONAL
630-15-1204 RATE OF TAX
630-15-1205 COMPUTATION OF NET CAPITAL
630-15-1206 DEDUCTIONS FROM GROSS CAPITAL
630-15-1207 FILING OF RETURN AND PAYMENT OF TAX
630-15-1208&1209 CITY OR TOWN TAX
630-15-1210 COUNTY TAX
Generally
Apportionment of county tax
630-15-1211 BRANCH BANKS
Generally
Computation of the proportion of the taxable value
630-I5-1212 RECORD OF DEPOSITS THROUGH
630-15-1213 CREDIT AGAINST STATE TAX FOR AMOUNTS
630-15-1214 AUDITING OF RETURNS
630-15-1216 PENALTY UPON BANK FOR FAILURE TO
630-15-1217 STATE BANKS AND NATIONAL BANKS
630-15-1200. TITLE. Not regulated.
630-15-1201. DEFINITIONS. The following words, terms and phrases are defined herein for the tax imposed by Title 58.1, Chapter 12 only:
(1) Bank. Bank means any incorporated bank, banking association or trust company organized by or under the authority of the laws of this Commonwealth or any bank or banking association organized under the authority of the laws of the United States which (1) conducts a banking business in this Commonwealth or (2) maintains an office in this Commonwealth for the conduct of a banking business or (3) has a charter which designates any place within this Common-wealth as the place of its principal office regardless of whether or not the bank or banking association is authorized to transact business as a trust company. The term "bank" includes any joint stock land bank or any other bank organized by or under the authority of the laws of the United States which is conducting a banking business in the Commonwealth. Effective July 1, 1983, the Virginia General Assembly added Chapter 14, Title 6.1 to the Code of Virginia which authorizes bank holding companies from outside Virginia to acquire and own "financial service center banks," upon certain conditions, for the purpose of conducting multistate credit-card operations in Virginia. Such financial service center banks are required by Virginia law to be chartered as Virginia banks and are included in the term bank, subject to the Virginia bank franchise tax. The term "bank" does not include (1) corporations organized under the laws of other states, (2) corporations organized not as banks under the laws of this Commonwealth, and (3) natural persons and partnerships.
Example 1: Bank A, an out-of-state bank, has no office in Virginia, but makes loans to residents and businesses in Virginia secured by property located in Virginia.
The mere lending of money to residents or businesses in Virginia secured by property located in Virginia does not constitute the conduct of a banking business in this Commonwealth and since Bank A has no other activities in Virginia it is not considered a bank for franchise tax purposes.
Example 2: Bank B, an out of state bank, opens an office in Virginia which accepts loan applications. The operations of the loan origination office are limited to the acceptance of loan applications and offering limited assistance in completing the application. The applications are approved or rejected at its out-of-state banking office. Unless the activities are conducted by a bank organized and operated under the authority of the State Corporation Commission, Bureau of Financial Institutions as a bank, such limited activities do not constitute the conduct of a banking business for purposes of bank franchise tax. However income earned from sources within Virginia is subject to Virginia income tax, if not derived from the conduct of a banking business.
Example 3: Corporation D is a stockbroker with offices in many states, including Virginia. Corporation D offers the following services to its customers: a money market mutual fund with check writing privileges, unsecured loans and loans secured by marketable securities. Corporation D is not a bank because it is not organized as a bank under the laws of Virginia or the United States.
(2) Bank holding company. Bank holding company means any corporation organized under the laws of this State and doing business in this State which is a bank holding company under the provisions of the Federal Bank Holding Company Act of 1956, 12 U.S.C.A. § 1841 et. seq., as amended.
630-15-1202. BANK CAPITAL ASSESSABLE. A. Generally. Every bank or trust company shall pay an annual franchise tax. The tax shall be measured by the bank or trust company's net capital as defined in Regulation 630-15-1205.
B. Bank franchise tax in lieu of certain other taxes. The bank franchise tax shall be in lieu of all other taxes whatsoever for State, county or local purposes except: (1) real estate and tangible personal property taxes enumerated in §58.1-1203 and Regulation 630-15-1203, (2) retail sales and use taxes under Chapter 6 of Title 58.1, (3) recordation taxes under § 58.1-800 et. seq., (4) motor vehicle sales and use taxes under Chapter 24 of Title 58.1, (5) watercraft sales and use taxes under Chapter 14 of Title 58.1, (6) aircraft sales and use taxes under Chapter 13 of Title 58.1, (7) utility taxes properly assessable upon users of such services, and (8) local license taxes in connection with the sale of tangible personal property sold by banks in connection with promotions or otherwise.*
630-15-1203. REAL AND LEASED TANGIBLE PERSONAL PROPERTY OF BANKS TO BE ASSESSED AS OTHER REAL AND PERSONAL PROPERTY. A. Real Estate. The real estate of banks shall be assessed on the land books with other real estate and taxed in the same manner as such other real estate.
B. Tangible personal property. The tangible personal property of banks which is leased for a consideration to customers or other lessees shall be assessed for local property taxation in the same manner as any other tangible personal property held for lease by any other lessor.
Example 1: Bank C is the lessor of a fleet of automobiles to Corporation B. The leased automobiles shall be assessed in the name of the bank for local property taxation as any other property held for lease by any other lessor.
Example 2: Bank D rents safe deposit boxes as part of its service to customers. The charges for safe deposit boxes are fees of the bank for security services provided by the bank and not rental of tangible personal property.
630-15-1204. RATE OF TAX. Generally. The bank franchise tax is levied upon the net capital of each bank and no deduction is allowed for shares of a bank's stock which are owned by exempt institutions. The tax rate is $1.00 per each $100 of net capital.*
630-15-1205. COMPUTATION OF NET CAPITAL. A. Generally. The net capital of a bank is computed as follows:
Compute gross capital by adding the following accounts as reported on the report of condition:
1. preferred stock,
2. common stock,
3. surplus,
4. undivided profits and reserve for contingencies and other capital reserves
Deducting from the gross capital:
1. assessed value of real estate as set forth in Regulation 630-15-1206,
4. certain capital accounts of bank subsidiaries as set forth in Regulation 630-15-1206,
5. the total of (a) the applicable amount of any reserve for loan losses as regulated herein and (b) the applicable amount of any reserve for marketable securities valuation as regulated herein.
B. Terms used in this regulation. The terms used in this regulation, requiring further explanation, and which are not regulated elsewhere are as follows:
1. Capital stock. Capital stock shall include all outstanding shares of capital stock of all classes as shown on the official report of condition of the bank or trust company.
2. Surplus. Surplus shall be the amount as shown on the official report of condition of the bank or trust company and shall include, if any, reserves for contingencies and other capital account reserves.
3. Undivided profits. Undivided profits shall be the amount as shown on the official report of condition of the bank or trust company.
4. Gross capital. Gross capital shall be the total of capital stock, surplus, and undivided profits as regulated herein.
5. Reserve for loan losses. An established reserve for loan losses, not in excess of the amount of reserve allowable by the Internal Revenue Service for federal income tax purposes, is allowable in computing the net taxable capital of a bank.
6. Valuation reserve for marketable securities. For purposes of computing net taxable capital, an established reserve carried on the books of the bank for valuation of marketable securities is allowable to the extent that such valuation reserve does not decrease the carrying value of securities (gross value of securities included in report of condition less valuation reserve) below the current market value of the securities on December 31 next preceding the due date for filing the bank franchise tax return.
7. Official report of condition. Official report of condition shall be the report of condition required by the Comptroller of the Currency, Department of the Treasury, or the Bureau of Financial Institutions, State Corporation Commission.
630-15-1206. DEDUCTIONS FROM GROSS CAPITAL. A. Generally. In addition to items explained in Regulation 630-15-1205B, deductions from gross capital include the (1) assessed value of real estate, (2) book value of certain tangible personal property, (3) capital attributable to qualifying U.S. government obligations, and (4) amount of capital accounts of certain bank subsidiaries. These items are regulated herein.
B. Assessed value of real estate. Deductible assessed value of real estate for bank franchise tax purposes is limited to the assessed value of real estate if otherwise taxed in this Commonwealth which is (1) owned by such bank, or (2) used or occupied by such bank if held in the name (a) of a majority-owned subsidiary of the bank or (b) of a bank holding company which owns a majority of the capital stock of such bank or (c) of any wholly owned subsidiary of the bank holding company which owns a majority of the capital stock of such bank. If real estate is in the nature of improvements to real estate owned by and assessed in the name of another person (the underlying land owner) and such improvements are (a) owned by the bank, or (b) used or occupied by the bank and owned by a majority-owned subsidiary or by a wholly owned subsidiary of a bank holding company, the assessed value up to the amount of unencumbered equity is deductible. The unencumbered equity shall be deemed to mean the assessed value of such improvements less the unpaid balance of all encumbrances thereto.
Example 1: Bank F constructs a bank building on land owned by and leased from Corporation C. While the total value is assessed in the name of Corporation C, the land owner, Bank F may deduct the portion of the total real estate tax assessment attributable to the value of the building to the extent not encumbered.
Real estate used or occupied by a subsidiary or real estate originally conveyed as collateral for loans made by a subsidiary of the bank and reacquired upon foreclosure of mortgage loans will be deemed to be used or occupied by the bank.
1) The assessed value for the deduction of real estate shall be the value for the most recent tax assessment made prior to January 1 of the current bank franchise tax year for real estate owned by the bank or affiliate on January 1 of the current franchise tax return year and shall include the assessment for real estate acquired during the preceding year even though assessed for such preceding year in the name of the prior owner.
2) If the same real estate is assessed by more than one taxing jurisdiction, such as town, district and county, the assessed value of only one of such jurisdictions may be deducted from gross capital.
3) If the real estate is owned by a majority-owned subsidiary of a bank, and the bank does not own all the stock of such subsidiary, the bank shall be entitled to deduct only such portion of the assessed value of the real estate as the common stock it owns in such subsidiary bears to the outstanding common stock of such corporation.
C. Book value of certain tangible personal property. Tangible personal property qualifying for deduction must be (1) owned by the bank or a majority-owned subsidiary of the bank, and (2) must be held for lease, and (3) must be otherwise taxed in Virginia.
1) The deductible amount shall be the book value of the qualifying tangible personal property owned as of January 1 of the current year franchise tax return.
2) If the tangible personal property is owned by a majority-owned subsidiary, and the bank does not own all the stock of such subsidiary, the bank shall be entitled to deduct only such portion of the book value of such tangible personal property as the common stock it owns in such subsidiary bears to the whole issue of common stock of such corporation.
D. Capital attributed to U.S. Government obligations. The allowable deduction for government obligations shall be an amount which shall equal the same percentage of. the gross capital account at December 31 next preceding the bank franchise tax year, as the obligations of the United States bear to the total assets of the bank. Qualifying government obligations means all obligations of (1) the United States exempt from taxation under 31 U.S.C. § 3124, or the United States Constitution or any other statute, or (2) any instrumentality or agency of the United States which obligations shall be exempt from State or local taxation under the United States Constitution, or any statute of the United States.
2) Merger of banks. Banks merging during the year must use the four most recent quarterly Reports of Condition, including any reports filed in the name of the banks prior to merger, to compute the capital attributable to U.S. government obligations. Those quarterly Reports of Condition filed in the name of each bank prior to merger, and used in the computation of capital attributed to U.S. obligations, must be combined on a quarterly basis to properly reflect the total U.S. obligations and total assets of the merging banks.
E. Retained earnings and surplus of certain subsidiaries. The deduction from gross capital of the bank is limited to the amount of increase in the bank's recorded investment in its subsidiaries resulting from undistributed earnings of such subsidiaries.
The deduction from gross capital of the bank is limited to the amount included in gross capital on the bank's report of condition which represents the undistributed earnings of its subsidiaries during the period of the bank's investment in such subsidiaries. Accordingly, it may be applicable only if a bank reports its subsidiary investment accounts at equity values.
630-15-1207. FILING OF RETURN AND PAYMENT OF TAX. A. Filing of return. On or before March 1 of each year, each bank is required to file a bank franchise tax return with the commissioner of the revenue, or comparable assessing officer, of the locality where the bank's principal office is located. The return must measure net capital of the bank as of January 1 of the current year. The return must be filed in duplicate. The commissioner of the revenue, or comparable assessing officer, will certify a copy of the bank's return with schedules and timely submit the certified copy to the Department of Taxation. In addition, each bank having branch banks in jurisdictions other than where the principal office is located must file with each locality schedules showing:
B. Filing of Real Estate Deduction Schedule and Local Taxes Apportionment Schedule. The bank shall file a copy of the real estate deduction schedule and the local taxes apportionment schedule with the appropriate assessing officer of each political subdivision imposing a tax on the filing bank.
C. Payment of tax. On or before June 1 of each year, every bank will pay into the State treasury the State taxes assessed under Chapter 12, Title 58.1 of the Code of Virginia. In addition, on or before June 1 of each year, every bank will pay into the office of the treasurer, or other official of the local political subdivisions, all taxes assessed
by such political subdivision as local bank franchise taxes.*
630-15-1208 and 1209. CITY OR TOWN TAX. A. Generally. Any Virginia city, or any incorporated town, which has a bank located therein, may, by ordinance, impose a bank franchise tax on the banks located in such locality. The tax shall not exceed 80% of the State bank franchise tax rate.
B. Apportionment of city or town tax. If a bank located in a city, or incorporated town, has offices located outside the corporate limits of such locality, the bank franchise tax shall be apportioned as provided in Regulation 630-15-1211.*
630-15-1210. COUNTY TAX. A. Generally. Any Virginia county which has a bank located in the county and outside any incorporated town therein, may, by ordinance, impose a bank franchise tax on the banks located in such county. The tax shall not exceed 80% of the State bank franchise tax rate.
B. Apportionment of county tax. If a bank located in a county, has offices located outside such county or within the corporate limits of any town within such county, the bank franchise tax shall be apportioned as provided in Regulation 630-15-1211.*
630-15-1211. BRANCH BANKS. A. Generally. If any bank has offices located in two or more political subdivisions, including cities, towns and counties, the bank franchise tax which may be imposed by the political subdivision shall be imposed upon the proportion of the taxable value of net capital deemed in such political subdivision.
B. Computation of the proportion of the taxable value of net capital. The proportion of net taxable capital shall be the proportion of total deposits of such branch or offices located inside the taxing subdivision to total deposits of the bank as of December 31 of the preceding year. This proportion shall be applied to the taxable value of net capital computed under Regulation 630-15-1204.
C. Branch offices in towns and counties. For purposes of this regulation and computations related thereto, a branch bank located within an incorporated town shall not be deemed to be located within the county where such town is located.*
630-15-1212. RECORD OF DEPOSITS THROUGH BRANCHES REQUIRED. A. Generally. Each bank, which as of January 1 of any tax year has branches located in any political subdivision other than the political subdivision where the bank's principal office is located, shall maintain a record of the deposits through each such branch as of the beginning of the tax year.
B. Reporting record of branch deposits. Each bank shall submit to the commissioner of the revenue, with the bank franchise tax return, a report of the branch deposits as required herein.*
630-15-1213. CREDIT AGAINST STATE TAX FOR AMOUNTS PAID CITIES, TOWNS AND COUNTIES. Generally. Banks paying the Virginia city, town and county bank franchise tax shall credit such payment against the State tax assessed against it for the same year. The credit shall be allowed by the Department of Taxation upon the bank's presentation of the authenticated receipts of the treasurer or other collecting officer of the city, town or county where such taxes were paid or other evidence of payment. In no event shall the credit exceed the total city, town or county taxes paid.*
630-15-1214. AUDITING OF RETURNS. Generally. The Department of Taxation may audit the bank franchise tax returns. If the department makes any corrections or adjustments in the return, it shall notify the bank concerned. The department shall also notify every political subdivision imposing a tax upon the bank for which the bank claimed a credit against the State bank franchise tax.*
630-15-1215. BANKS IN LIQUIDATION. A. Generally. Any bank winding up its affairs under §§ 6.1-100 and 6.1-102 of the Code of Virginia, 1950 (as amended), or the comparable sections of the National Banking Act, shall be required to file a bank franchise tax return annually during liquidation; however, no tax shall be paid except as provided in this regulation.
B. Filing of returns for banks in liquidation. Persons having custody or control of the assets of a bank winding up its affairs as provided in this regulation, must file a return of such bank's net capital as of January 1 of each year the bank is liquidating.
If any surplus remains after payment of all creditors and depositors, the liquidating officer shall pay the appropriate tax for each year prior to any distribution of such surplus.
C. Late filing penalty not applicable. If the tax required of liquidating banks is paid late, but in accordance with B above, the tax on such bank shall not be subject to penalty.*
630-15-1216. PENALTY UPON BANK FOR FAILURE TO COMPLY WITH CHAPTER.
A. Generally. Any bank failing to file a return or pay the full amount of tax due thereon by its due date shall be subject to a penalty of five percent of the unpaid tax due.
B. Waiver of penalty; interest due. If the State Tax Commissioner is satisfied that the bank's failure to file the bank franchise tax return or pay the state tax required, is due to providential or other good cause, the return and tax due will be accepted without penalty. The tax due and paid on such late return shall be subject to interest computed in accordance with §58.1-15.*
630-15-1217. STATE BANKS AND NATIONAL BANKS TREATED THE SAME IN MATTER OF TAXATION. Generally. For purposes of this Chapter, state banks
shall be treated the same as national banks and if any court of competent jurisdiction holds that national banks, as a class, are exempt from any Virginia state or local tax, then the same exemption will be applied to State banks.*
*This is statutory language. No further interpretation is required.
VIRGINIA BANK FRANCHISE TAX REGULATIONS
VIRGINIA DEPARTMENT OF TAXATION
January 1, 1985
INTRODUCTION
These regulations for the Virginia Bank Franchise Tax are published by the authority granted the State Tax Commissioner under Virginia Code § 58-48.6 (§ 58.1-203 effective January 1, 1985) and are subject to amendment, revision and supplemental regulations as required or appropriate.
Amendments, revisions and updates to these regulations will be issued as replacement pages, each replacement page having on it the date of revision.
Each regulation section is numbered to reference the section of Title 58.1 of the Code of Virginia which it interprets. The first three digits, 630, identify these regulations, for purposes of the Virginia Register of Regulations, as regulations of the Department of Taxation. The digits following the first hyphen indicate the tax type, and the digits following the second hyphen indicate the section of Title 58.1 being interpreted. For example, the section number 630-15-1201, identifies the agency (630), the bank franchise tax (15), and the section of Title 58.1, Code of Virginia, which is interpreted (1201).
W. H. Forst
State Tax Commissioner
Virginia Department of Taxation
P. O. Box 6-L
Richmond, Virginia 23282
VIRGINIA BANK FRANCHISE TAX REGULATIONS
EFFECTIVE DATE: January 1, 1985, with retroactive effect according to Section 58-48.6 (recodified as § 58.1-203).
EXPIRATION DATE: N/A
SUPERSEDES: All previous documents and any oral directives in conflict herewith.
REFERENCES: Code of Virginia §58.1-1200 through 58.1-1217 are regulated herein.
AUTHORITY: § 58-48.6, Code of Virginia, and §58.1-203 on and after January 1, 1985.
SCOPE: Applicable to all financial institutions subject to bank franchise tax.
SUMMARY: These are initial regulations interpreting certain provisions of the Virginia bank franchise tax, consisting of §§ 630-15-1200 through 630-15-1217.
ADOPTION DATE: September 19, 1984
TABLE OF CONTENTS
Regulation Section Page
630-15-1200 TITLE
630-15-1201 DEFINITIONS
-
-
-
- Bank
- Bank holding company
- Bank
-
-
630-15-1202 BANK CAPITAL ASSESSABLE
-
-
-
-
- Generally
-
-
-
630-15-1203 REAL AND LEASED TANGIBLE PERSONAL
-
-
-
- PROPERTY OF BANKS TO BE ASSESSED AS
OTHER REAL AND PERSONAL PROPERTY
Real estate
Tangible personal property
- PROPERTY OF BANKS TO BE ASSESSED AS
-
-
630-15-1204 RATE OF TAX
-
-
-
-
- Generally
-
-
-
630-15-1205 COMPUTATION OF NET CAPITAL
-
-
-
-
- Generally
-
-
-
630-15-1206 DEDUCTIONS FROM GROSS CAPITAL
-
-
-
-
- Generally
Book value of certain tangible personal property- Capital attributed to U.S.
- Retained earnings and surplus of certain subsidiaries
-
-
-
630-15-1207 FILING OF RETURN AND PAYMENT OF TAX
-
-
-
-
- Filing of return
- Filing of real estate deduction schedule and local taxes apportionment schedule
Payment of tax
- Filing of real estate deduction schedule and local taxes apportionment schedule
- Filing of return
-
-
-
630-15-1208&1209 CITY OR TOWN TAX
-
-
-
-
-
- Generally
-
-
-
-
630-15-1210 COUNTY TAX
Generally
Apportionment of county tax
630-15-1211 BRANCH BANKS
Generally
Computation of the proportion of the taxable value
-
-
-
- of net capital
-
-
630-I5-1212 RECORD OF DEPOSITS THROUGH
-
-
-
-
-
- BRANCHES REQUIRED
Reporting record of branch deposits -
-
-
-
630-15-1213 CREDIT AGAINST STATE TAX FOR AMOUNTS
-
-
-
- PAID CITIES, TOWNS AND COUNTIES
Generally
- PAID CITIES, TOWNS AND COUNTIES
-
-
630-15-1214 AUDITING OF RETURNS
-
-
-
- Generally
- Generally
-
-
-
-
-
- Generally
Filing of returns for banks in liquidation
Late filing penalty not applicable
- Generally
-
-
630-15-1216 PENALTY UPON BANK FOR FAILURE TO
-
-
-
- COMPLY WITH CHAPTER
- Generally
Waiver of penalty; interest due
-
-
630-15-1217 STATE BANKS AND NATIONAL BANKS
-
-
-
- TREATED THE SAME IN MATTER OF
TAXATION
Generally
- TREATED THE SAME IN MATTER OF
-
-
630-15-1200. TITLE. Not regulated.
630-15-1201. DEFINITIONS. The following words, terms and phrases are defined herein for the tax imposed by Title 58.1, Chapter 12 only:
(1) Bank. Bank means any incorporated bank, banking association or trust company organized by or under the authority of the laws of this Commonwealth or any bank or banking association organized under the authority of the laws of the United States which (1) conducts a banking business in this Commonwealth or (2) maintains an office in this Commonwealth for the conduct of a banking business or (3) has a charter which designates any place within this Common-wealth as the place of its principal office regardless of whether or not the bank or banking association is authorized to transact business as a trust company. The term "bank" includes any joint stock land bank or any other bank organized by or under the authority of the laws of the United States which is conducting a banking business in the Commonwealth. Effective July 1, 1983, the Virginia General Assembly added Chapter 14, Title 6.1 to the Code of Virginia which authorizes bank holding companies from outside Virginia to acquire and own "financial service center banks," upon certain conditions, for the purpose of conducting multistate credit-card operations in Virginia. Such financial service center banks are required by Virginia law to be chartered as Virginia banks and are included in the term bank, subject to the Virginia bank franchise tax. The term "bank" does not include (1) corporations organized under the laws of other states, (2) corporations organized not as banks under the laws of this Commonwealth, and (3) natural persons and partnerships.
Example 1: Bank A, an out-of-state bank, has no office in Virginia, but makes loans to residents and businesses in Virginia secured by property located in Virginia.
The mere lending of money to residents or businesses in Virginia secured by property located in Virginia does not constitute the conduct of a banking business in this Commonwealth and since Bank A has no other activities in Virginia it is not considered a bank for franchise tax purposes.
Example 2: Bank B, an out of state bank, opens an office in Virginia which accepts loan applications. The operations of the loan origination office are limited to the acceptance of loan applications and offering limited assistance in completing the application. The applications are approved or rejected at its out-of-state banking office. Unless the activities are conducted by a bank organized and operated under the authority of the State Corporation Commission, Bureau of Financial Institutions as a bank, such limited activities do not constitute the conduct of a banking business for purposes of bank franchise tax. However income earned from sources within Virginia is subject to Virginia income tax, if not derived from the conduct of a banking business.
Example 3: Corporation D is a stockbroker with offices in many states, including Virginia. Corporation D offers the following services to its customers: a money market mutual fund with check writing privileges, unsecured loans and loans secured by marketable securities. Corporation D is not a bank because it is not organized as a bank under the laws of Virginia or the United States.
(2) Bank holding company. Bank holding company means any corporation organized under the laws of this State and doing business in this State which is a bank holding company under the provisions of the Federal Bank Holding Company Act of 1956, 12 U.S.C.A. § 1841 et. seq., as amended.
630-15-1202. BANK CAPITAL ASSESSABLE. A. Generally. Every bank or trust company shall pay an annual franchise tax. The tax shall be measured by the bank or trust company's net capital as defined in Regulation 630-15-1205.
B. Bank franchise tax in lieu of certain other taxes. The bank franchise tax shall be in lieu of all other taxes whatsoever for State, county or local purposes except: (1) real estate and tangible personal property taxes enumerated in §58.1-1203 and Regulation 630-15-1203, (2) retail sales and use taxes under Chapter 6 of Title 58.1, (3) recordation taxes under § 58.1-800 et. seq., (4) motor vehicle sales and use taxes under Chapter 24 of Title 58.1, (5) watercraft sales and use taxes under Chapter 14 of Title 58.1, (6) aircraft sales and use taxes under Chapter 13 of Title 58.1, (7) utility taxes properly assessable upon users of such services, and (8) local license taxes in connection with the sale of tangible personal property sold by banks in connection with promotions or otherwise.*
630-15-1203. REAL AND LEASED TANGIBLE PERSONAL PROPERTY OF BANKS TO BE ASSESSED AS OTHER REAL AND PERSONAL PROPERTY. A. Real Estate. The real estate of banks shall be assessed on the land books with other real estate and taxed in the same manner as such other real estate.
B. Tangible personal property. The tangible personal property of banks which is leased for a consideration to customers or other lessees shall be assessed for local property taxation in the same manner as any other tangible personal property held for lease by any other lessor.
Example 1: Bank C is the lessor of a fleet of automobiles to Corporation B. The leased automobiles shall be assessed in the name of the bank for local property taxation as any other property held for lease by any other lessor.
Example 2: Bank D rents safe deposit boxes as part of its service to customers. The charges for safe deposit boxes are fees of the bank for security services provided by the bank and not rental of tangible personal property.
630-15-1204. RATE OF TAX. Generally. The bank franchise tax is levied upon the net capital of each bank and no deduction is allowed for shares of a bank's stock which are owned by exempt institutions. The tax rate is $1.00 per each $100 of net capital.*
630-15-1205. COMPUTATION OF NET CAPITAL. A. Generally. The net capital of a bank is computed as follows:
Compute gross capital by adding the following accounts as reported on the report of condition:
1. preferred stock,
2. common stock,
3. surplus,
4. undivided profits and reserve for contingencies and other capital reserves
Deducting from the gross capital:
1. assessed value of real estate as set forth in Regulation 630-15-1206,
-
- 2. book value of certain tangible personal property as set forth in Regulation 630-15-1206,
4. certain capital accounts of bank subsidiaries as set forth in Regulation 630-15-1206,
5. the total of (a) the applicable amount of any reserve for loan losses as regulated herein and (b) the applicable amount of any reserve for marketable securities valuation as regulated herein.
B. Terms used in this regulation. The terms used in this regulation, requiring further explanation, and which are not regulated elsewhere are as follows:
1. Capital stock. Capital stock shall include all outstanding shares of capital stock of all classes as shown on the official report of condition of the bank or trust company.
2. Surplus. Surplus shall be the amount as shown on the official report of condition of the bank or trust company and shall include, if any, reserves for contingencies and other capital account reserves.
3. Undivided profits. Undivided profits shall be the amount as shown on the official report of condition of the bank or trust company.
4. Gross capital. Gross capital shall be the total of capital stock, surplus, and undivided profits as regulated herein.
5. Reserve for loan losses. An established reserve for loan losses, not in excess of the amount of reserve allowable by the Internal Revenue Service for federal income tax purposes, is allowable in computing the net taxable capital of a bank.
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- If a portion of the reserve for loan losses allowable for federal income tax purposes is included in gross capital (surplus, undivided profits or surplus reserves) on the bank's official report of condition, such portion may be deducted from total capital in computing net taxable capital.
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- If the amount of reserve for loan losses deducted by the bank in computing total capital accounts shown on its report of condition exceeds the amount of reserve for loan losses allowable for federal income tax purposes, such excess must be added to total capital accounts in computing net taxable capital.
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- The details of all reserves for loan losses and any such deduction or addition must be reflected in Schedule G of Form 64, Bank Franchise Tax Return.
6. Valuation reserve for marketable securities. For purposes of computing net taxable capital, an established reserve carried on the books of the bank for valuation of marketable securities is allowable to the extent that such valuation reserve does not decrease the carrying value of securities (gross value of securities included in report of condition less valuation reserve) below the current market value of the securities on December 31 next preceding the due date for filing the bank franchise tax return.
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- If any portion of such allowable reserve is included in total capital accounts on the bank's report of condition, such portion may be deducted from total capital in computing net taxable capital.
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- Any portion of a valuation reserve included in computing total capital accounts which is in excess of an allowable reserve must be added to total capital in computing net taxable capital.
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- The details of all valuation reserves for marketable securities and the details of any such deduction or addition must be reflected on Schedule A of Form 64, Bank Franchise Tax Return.
7. Official report of condition. Official report of condition shall be the report of condition required by the Comptroller of the Currency, Department of the Treasury, or the Bureau of Financial Institutions, State Corporation Commission.
630-15-1206. DEDUCTIONS FROM GROSS CAPITAL. A. Generally. In addition to items explained in Regulation 630-15-1205B, deductions from gross capital include the (1) assessed value of real estate, (2) book value of certain tangible personal property, (3) capital attributable to qualifying U.S. government obligations, and (4) amount of capital accounts of certain bank subsidiaries. These items are regulated herein.
B. Assessed value of real estate. Deductible assessed value of real estate for bank franchise tax purposes is limited to the assessed value of real estate if otherwise taxed in this Commonwealth which is (1) owned by such bank, or (2) used or occupied by such bank if held in the name (a) of a majority-owned subsidiary of the bank or (b) of a bank holding company which owns a majority of the capital stock of such bank or (c) of any wholly owned subsidiary of the bank holding company which owns a majority of the capital stock of such bank. If real estate is in the nature of improvements to real estate owned by and assessed in the name of another person (the underlying land owner) and such improvements are (a) owned by the bank, or (b) used or occupied by the bank and owned by a majority-owned subsidiary or by a wholly owned subsidiary of a bank holding company, the assessed value up to the amount of unencumbered equity is deductible. The unencumbered equity shall be deemed to mean the assessed value of such improvements less the unpaid balance of all encumbrances thereto.
Example 1: Bank F constructs a bank building on land owned by and leased from Corporation C. While the total value is assessed in the name of Corporation C, the land owner, Bank F may deduct the portion of the total real estate tax assessment attributable to the value of the building to the extent not encumbered.
Real estate used or occupied by a subsidiary or real estate originally conveyed as collateral for loans made by a subsidiary of the bank and reacquired upon foreclosure of mortgage loans will be deemed to be used or occupied by the bank.
1) The assessed value for the deduction of real estate shall be the value for the most recent tax assessment made prior to January 1 of the current bank franchise tax year for real estate owned by the bank or affiliate on January 1 of the current franchise tax return year and shall include the assessment for real estate acquired during the preceding year even though assessed for such preceding year in the name of the prior owner.
2) If the same real estate is assessed by more than one taxing jurisdiction, such as town, district and county, the assessed value of only one of such jurisdictions may be deducted from gross capital.
3) If the real estate is owned by a majority-owned subsidiary of a bank, and the bank does not own all the stock of such subsidiary, the bank shall be entitled to deduct only such portion of the assessed value of the real estate as the common stock it owns in such subsidiary bears to the outstanding common stock of such corporation.
C. Book value of certain tangible personal property. Tangible personal property qualifying for deduction must be (1) owned by the bank or a majority-owned subsidiary of the bank, and (2) must be held for lease, and (3) must be otherwise taxed in Virginia.
1) The deductible amount shall be the book value of the qualifying tangible personal property owned as of January 1 of the current year franchise tax return.
2) If the tangible personal property is owned by a majority-owned subsidiary, and the bank does not own all the stock of such subsidiary, the bank shall be entitled to deduct only such portion of the book value of such tangible personal property as the common stock it owns in such subsidiary bears to the whole issue of common stock of such corporation.
D. Capital attributed to U.S. Government obligations. The allowable deduction for government obligations shall be an amount which shall equal the same percentage of. the gross capital account at December 31 next preceding the bank franchise tax year, as the obligations of the United States bear to the total assets of the bank. Qualifying government obligations means all obligations of (1) the United States exempt from taxation under 31 U.S.C. § 3124, or the United States Constitution or any other statute, or (2) any instrumentality or agency of the United States which obligations shall be exempt from State or local taxation under the United States Constitution, or any statute of the United States.
2) Merger of banks. Banks merging during the year must use the four most recent quarterly Reports of Condition, including any reports filed in the name of the banks prior to merger, to compute the capital attributable to U.S. government obligations. Those quarterly Reports of Condition filed in the name of each bank prior to merger, and used in the computation of capital attributed to U.S. obligations, must be combined on a quarterly basis to properly reflect the total U.S. obligations and total assets of the merging banks.
E. Retained earnings and surplus of certain subsidiaries. The deduction from gross capital of the bank is limited to the amount of increase in the bank's recorded investment in its subsidiaries resulting from undistributed earnings of such subsidiaries.
The deduction from gross capital of the bank is limited to the amount included in gross capital on the bank's report of condition which represents the undistributed earnings of its subsidiaries during the period of the bank's investment in such subsidiaries. Accordingly, it may be applicable only if a bank reports its subsidiary investment accounts at equity values.
630-15-1207. FILING OF RETURN AND PAYMENT OF TAX. A. Filing of return. On or before March 1 of each year, each bank is required to file a bank franchise tax return with the commissioner of the revenue, or comparable assessing officer, of the locality where the bank's principal office is located. The return must measure net capital of the bank as of January 1 of the current year. The return must be filed in duplicate. The commissioner of the revenue, or comparable assessing officer, will certify a copy of the bank's return with schedules and timely submit the certified copy to the Department of Taxation. In addition, each bank having branch banks in jurisdictions other than where the principal office is located must file with each locality schedules showing:
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- (i) the tax on net capital attributable to each political subdivision where a branch bank is located;
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- (ii) the real estate as assessed for the prior year.
B. Filing of Real Estate Deduction Schedule and Local Taxes Apportionment Schedule. The bank shall file a copy of the real estate deduction schedule and the local taxes apportionment schedule with the appropriate assessing officer of each political subdivision imposing a tax on the filing bank.
C. Payment of tax. On or before June 1 of each year, every bank will pay into the State treasury the State taxes assessed under Chapter 12, Title 58.1 of the Code of Virginia. In addition, on or before June 1 of each year, every bank will pay into the office of the treasurer, or other official of the local political subdivisions, all taxes assessed
by such political subdivision as local bank franchise taxes.*
630-15-1208 and 1209. CITY OR TOWN TAX. A. Generally. Any Virginia city, or any incorporated town, which has a bank located therein, may, by ordinance, impose a bank franchise tax on the banks located in such locality. The tax shall not exceed 80% of the State bank franchise tax rate.
B. Apportionment of city or town tax. If a bank located in a city, or incorporated town, has offices located outside the corporate limits of such locality, the bank franchise tax shall be apportioned as provided in Regulation 630-15-1211.*
630-15-1210. COUNTY TAX. A. Generally. Any Virginia county which has a bank located in the county and outside any incorporated town therein, may, by ordinance, impose a bank franchise tax on the banks located in such county. The tax shall not exceed 80% of the State bank franchise tax rate.
B. Apportionment of county tax. If a bank located in a county, has offices located outside such county or within the corporate limits of any town within such county, the bank franchise tax shall be apportioned as provided in Regulation 630-15-1211.*
630-15-1211. BRANCH BANKS. A. Generally. If any bank has offices located in two or more political subdivisions, including cities, towns and counties, the bank franchise tax which may be imposed by the political subdivision shall be imposed upon the proportion of the taxable value of net capital deemed in such political subdivision.
B. Computation of the proportion of the taxable value of net capital. The proportion of net taxable capital shall be the proportion of total deposits of such branch or offices located inside the taxing subdivision to total deposits of the bank as of December 31 of the preceding year. This proportion shall be applied to the taxable value of net capital computed under Regulation 630-15-1204.
C. Branch offices in towns and counties. For purposes of this regulation and computations related thereto, a branch bank located within an incorporated town shall not be deemed to be located within the county where such town is located.*
630-15-1212. RECORD OF DEPOSITS THROUGH BRANCHES REQUIRED. A. Generally. Each bank, which as of January 1 of any tax year has branches located in any political subdivision other than the political subdivision where the bank's principal office is located, shall maintain a record of the deposits through each such branch as of the beginning of the tax year.
B. Reporting record of branch deposits. Each bank shall submit to the commissioner of the revenue, with the bank franchise tax return, a report of the branch deposits as required herein.*
630-15-1213. CREDIT AGAINST STATE TAX FOR AMOUNTS PAID CITIES, TOWNS AND COUNTIES. Generally. Banks paying the Virginia city, town and county bank franchise tax shall credit such payment against the State tax assessed against it for the same year. The credit shall be allowed by the Department of Taxation upon the bank's presentation of the authenticated receipts of the treasurer or other collecting officer of the city, town or county where such taxes were paid or other evidence of payment. In no event shall the credit exceed the total city, town or county taxes paid.*
630-15-1214. AUDITING OF RETURNS. Generally. The Department of Taxation may audit the bank franchise tax returns. If the department makes any corrections or adjustments in the return, it shall notify the bank concerned. The department shall also notify every political subdivision imposing a tax upon the bank for which the bank claimed a credit against the State bank franchise tax.*
630-15-1215. BANKS IN LIQUIDATION. A. Generally. Any bank winding up its affairs under §§ 6.1-100 and 6.1-102 of the Code of Virginia, 1950 (as amended), or the comparable sections of the National Banking Act, shall be required to file a bank franchise tax return annually during liquidation; however, no tax shall be paid except as provided in this regulation.
B. Filing of returns for banks in liquidation. Persons having custody or control of the assets of a bank winding up its affairs as provided in this regulation, must file a return of such bank's net capital as of January 1 of each year the bank is liquidating.
If any surplus remains after payment of all creditors and depositors, the liquidating officer shall pay the appropriate tax for each year prior to any distribution of such surplus.
C. Late filing penalty not applicable. If the tax required of liquidating banks is paid late, but in accordance with B above, the tax on such bank shall not be subject to penalty.*
630-15-1216. PENALTY UPON BANK FOR FAILURE TO COMPLY WITH CHAPTER.
A. Generally. Any bank failing to file a return or pay the full amount of tax due thereon by its due date shall be subject to a penalty of five percent of the unpaid tax due.
B. Waiver of penalty; interest due. If the State Tax Commissioner is satisfied that the bank's failure to file the bank franchise tax return or pay the state tax required, is due to providential or other good cause, the return and tax due will be accepted without penalty. The tax due and paid on such late return shall be subject to interest computed in accordance with §58.1-15.*
630-15-1217. STATE BANKS AND NATIONAL BANKS TREATED THE SAME IN MATTER OF TAXATION. Generally. For purposes of this Chapter, state banks
shall be treated the same as national banks and if any court of competent jurisdiction holds that national banks, as a class, are exempt from any Virginia state or local tax, then the same exemption will be applied to State banks.*
*This is statutory language. No further interpretation is required.
Rulings of the Tax Commissioner