Tax Type
Bank Franchise Tax
Description
Part-year operation taxed on prorated basis
Topic
Basis of Tax
Computation of Tax
Rate of Tax
Date Issued
07-26-1999
July 26, 1999
Dear***
This will reply to your letter in which you request a ruling concerning the first taxable year in which your client, ***** (the "Bank'), would be subject to the bank franchise tax.
FACTS
The State Corporation Commission approved the Bank's application on December 7, 1998 to commence business. Pursuant to this authorization, the Bank was permitted to open for business during 1998 or 1999. The Bank chose to open as of December 28, 1998. However, for the remainder of 1998, the Bank did not solicit business from the general public. During that period of time, deposit accounts were opened only for shareholders and directors of the Bank. The Bank did not begin opening accounts for or transacting business with the general public until after January 1, 1999. You request a ruling as to whether the Bank is required to file a 1999 bank franchise tax return and pay a prorated tax.
DETERMINATION
Code of Virginia Sec. 58.1-1204.1 provides that banks that do not operate for a full year, pay bank franchise tax on a prorated basis determined by when the bank begins transacting business. Under this section, "transacting business' means "accepting deposits from customers in the regular course of doing business.'
You assert that the Bank did not accept deposits from general public in the regular course of doing business before January 1, 1999. Deposits were accepted from shareholders and directors for the purpose [of] testing its systems and procedures in advance of its solicitation of deposits from the general public. You believe that the statute, as applied, would not require payment of franchise tax by the Bank for the fourth quarter of 1998, but that its tax liability would commence during the first quarter of 1999.
The Code of Virginia does not specify that deposits must be accepted from the general public. The law only requires that the deposits be accepted from customers in the normal course of business. When the shareholders and directors made deposits, they became customers of the Bank. In addition, according to documentation the Bank filed with the State Corporation Commission, it opened for business on December 28, 1998. As such, because the Bank was opened for business and accepting deposits from customers, the Bank began transacting business for bank franchise tax purposes on December 28, 1998.
Accordingly, the Bank is subject to the bank franchise tax on a prorated basis for the 1999 taxable year. Because the Bank began operations before December 31, but not before October 1, the tax rate will be ***** on each ***** of net capital. The Bank should forward its 1999 bank franchise tax return to ***** Office of Customer Services, Department of Taxation, Post Office Box ***** Virginia within 30 days. Should you have any questions regarding this matter, please contact ***** at *****.
Dear***
This will reply to your letter in which you request a ruling concerning the first taxable year in which your client, ***** (the "Bank'), would be subject to the bank franchise tax.
FACTS
The State Corporation Commission approved the Bank's application on December 7, 1998 to commence business. Pursuant to this authorization, the Bank was permitted to open for business during 1998 or 1999. The Bank chose to open as of December 28, 1998. However, for the remainder of 1998, the Bank did not solicit business from the general public. During that period of time, deposit accounts were opened only for shareholders and directors of the Bank. The Bank did not begin opening accounts for or transacting business with the general public until after January 1, 1999. You request a ruling as to whether the Bank is required to file a 1999 bank franchise tax return and pay a prorated tax.
DETERMINATION
Code of Virginia Sec. 58.1-1204.1 provides that banks that do not operate for a full year, pay bank franchise tax on a prorated basis determined by when the bank begins transacting business. Under this section, "transacting business' means "accepting deposits from customers in the regular course of doing business.'
You assert that the Bank did not accept deposits from general public in the regular course of doing business before January 1, 1999. Deposits were accepted from shareholders and directors for the purpose [of] testing its systems and procedures in advance of its solicitation of deposits from the general public. You believe that the statute, as applied, would not require payment of franchise tax by the Bank for the fourth quarter of 1998, but that its tax liability would commence during the first quarter of 1999.
The Code of Virginia does not specify that deposits must be accepted from the general public. The law only requires that the deposits be accepted from customers in the normal course of business. When the shareholders and directors made deposits, they became customers of the Bank. In addition, according to documentation the Bank filed with the State Corporation Commission, it opened for business on December 28, 1998. As such, because the Bank was opened for business and accepting deposits from customers, the Bank began transacting business for bank franchise tax purposes on December 28, 1998.
Accordingly, the Bank is subject to the bank franchise tax on a prorated basis for the 1999 taxable year. Because the Bank began operations before December 31, but not before October 1, the tax rate will be ***** on each ***** of net capital. The Bank should forward its 1999 bank franchise tax return to ***** Office of Customer Services, Department of Taxation, Post Office Box ***** Virginia within 30 days. Should you have any questions regarding this matter, please contact ***** at *****.
Rulings of the Tax Commissioner