Tax Type
Bank Franchise Tax
Description
Computation of net capital; Multi-state banks
Topic
Basis of Tax
Date Issued
12-08-1994
December 8, 1994
Re: Request for ruling; Bank Franchise Tax
Dear***************
You have requested a ruling on the impact on a bank's liability for the Virginia Bank Franchise Tax should it have branches in states other than Virginia. Current federal banking law permits a national bank to move its headquarters office 30 miles without regard to state jurisdictional lines. Thus, depending upon the location of the principal office of a national bank, the bank may move its principal office across state lines and then merge national banks currently conducting business in separate jurisdictions to form a "multi-state" bank. Although no bank has announced any plans to move a principal office across Virginia state lines, such moves are currently in progress in other states. In addition, the Interstate Banking and Branching Efficiency Act of 1994 (the "Act") became law on September 29, 1994. Once it has been fully implemented, the Act will generally permit a bank to operate branches in states other than that in which its principal office is located.
The Virginia bank franchise tax (Chapter 12 of Title 58.1 of the Code of Virginia) is imposed upon the net capital of banks. The bank franchise tax currently provides for statutory apportionment of a bank's net capital among Virginia localities in which the bank has branch offices on the basis of total deposits. When a bank has branch offices in more than one county, city or town, the tax on net capital imposed by each such locality is apportioned based upon the ratio which the total deposits located in each respective locality bear to the bank's total deposits. Code of Virginia §58.1-1211.
However, the statute has no provision apportioning the net capital of a multi-state bank among branch offices within and without Virginia. In the event that a multi-state bank becomes subject to the Virginia bank franchise tax, some method must be used to determine the bank's net capital taxable by Virginia in order to avoid constitutional challenges. See Complete Auto Transit v. Brady, 430 U.S. 274 (1977).
In the absence of action by the General Assembly to specify the method of apportioning a multi-state bank's net capital, the Department would permit a bank subject to the Virginia bank franchise tax which accepts deposits at branch offices in another state, including the District of Columbia, to apportion net capital based on a deposit oriented methodology similar to that currently specified by the General Assembly for apportionment among Virginia localities.
However, for purposes of interstate apportionment, the Department believes that the existing statutory method should be modified to reflect "core" deposits, that is, excluding time certificates of deposit of $100,000 or more jumbo C.D.'s). These "jumbo C.D.'s" are often marketed by mail or phone or through brokers and the volume and booking office may not reflect actual banking activity within the states in which the bank has branch offices. A more appropriate apportionment formula for multi-state banks would be a ratio of Virginia core deposits to total bank core deposits. Core deposits would, of course, be computed in the same manner as, and must reconcile to, amounts reported on the quarterly official reports of condition ("Call" reports).
The bank franchise tax forms have already been prepared for 1995. Therefore, in the event that a multi-state bank becomes subject to the bank franchise tax prior to January 1, 1995, it would prepare the return in the normal manner (i.e., based on total bank capital and other items) except for:
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- 1. The net taxable capital of the total bank would be computed without the deductions for assessed value of real estate or the book value of tangible personal property otherwise taxed.
2. The amount computed in step 1 would be multiplied by a fraction, the numerator of which is the core deposits of branch offices in Virginia and the denominator of which is the total core deposits of the bank.
3. From the amount computed in step 2 would be subtracted the assessed value of real estate in Virginia that would otherwise be reportable on line 5 of Form 64, and the book value of tangible personal property otherwise taxed by a Virginia locality that would otherwise be reportable on line 6 of Form 64.
4. The amount computed in step 3 would be reported as the "net taxable capital" on line 13 of Form 64.
5. For the purpose of apportioning the amount computed in step 4 among Virginia localities pursuant to Code of Virginia §58.1-1211, the total deposits (not core deposits) in each locality shall be computed in the normal manner, but the denominator of the fraction shall be the total deposits in Virginia.
- 1. The net taxable capital of the total bank would be computed without the deductions for assessed value of real estate or the book value of tangible personal property otherwise taxed.
This method of apportioning the net capital of a multi-state bank may only be used in the absence of legislation by the General Assembly addressing the taxation of multi-state banks or until the Department modifies this method in a subsequent ruling.
If you have any questions about this ruling, please contact********************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8567C
Rulings of the Tax Commissioner