Tax Type
Bank Franchise Tax
Description
Bank Mergers
Topic
Accounting Periods and Methods
Computation of Tax
Date Issued
10-04-1999
October 4, 1999
Re: Ruling Request: Bank Franchise Tax
Dear***
This will reply to your letter in which you request a ruling on behalf of your client, ***** (the "Taxpayer'), regarding the application of the bank franchise tax when two or more banks merge to form a new bank on January 1.
FACTS
***** ("Old Bank'), a subsidiary of the Taxpayer, is a state bank chartered under the laws of Virginia. Currently, Old Bank conducts its banking business through bank branches in Virginia and several border states.
***** (the "Parent') is a bank holding company organized and existing under the laws of another state ("State A'), with its principal place of business in State A. The Parent owns a number of banks ("Other Banks') whose principal operations are in State A and several states bordering State A. None of Other Banks' branches are currently in Virginia.
The Parent acquired Old Bank in 1998. The Parent is contemplating a reorganization within the meaning of §368(a)(1)(A) of the Internal Revenue Code that would merge Old Bank and Other Banks into a one bank ("New Bank'). It is anticipated that the merger would be effective January 1, 2000.
You are requesting a ruling on the bank franchise tax implications if the merger is accomplished on January 1, 2000. Specifically, you ask whether New Bank and/or Old Bank will be liable for the bank franchise tax for 2000, and, if so, what base will be used to compute the tax?
RULING
Code of Virginia § 58.1-1207 requires every bank doing business, maintaining branches, and/or designating a principal office in Virginia as of January 1 to file a bank franchise tax return. Pursuant to Code of Virginia § 58.1-1205, the tax is imposed on a bank's net capital measured as of December 31 of the preceding year.
If the merger occurs on January 1, both Old Bank and New Bank would be doing business, maintaining branches, and/or designating a principal office in Virginia and, therefore, be considered to be banks subject to the bank franchise tax filing requirements. As such, both banks would be required to file 2000 bank franchise tax returns.
Old Bank would determine its bank franchise tax liability for 2000 based on the capital as reported on Old Bank's reports of condition and income ("report of condition') as of December 31, 1999. However, because New Bank would not come into existence until January 1, 2000, it would own no capital as of December 31, 1999 and, therefore, have no measure on which to compute a tax liability. As such, New Bank would be required to file a return with the appropriate local assessing officer, but would have no bank franchise tax liability.
If the merger were not to occur until January 2, 2000, New Bank would be relieved of the filing requirement, as well as, the bank franchise tax liability. However, if the merger were to occur before January 1, 2000, New Bank would be required to determine its tax qn an apportioned share of the combined capital of Old Bank and Other Banks while Old Bank would not be subject to the tax.
For all subsequent years, New Bank's bank franchise tax liability would be determined based on the value of its own net capital as of December 31 of the preceding year. I trust this will answer the questions posed in your letter; however, please contact ***** at ***** if you have additional questions or if we may be of further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
Re: Ruling Request: Bank Franchise Tax
Dear***
This will reply to your letter in which you request a ruling on behalf of your client, ***** (the "Taxpayer'), regarding the application of the bank franchise tax when two or more banks merge to form a new bank on January 1.
FACTS
***** ("Old Bank'), a subsidiary of the Taxpayer, is a state bank chartered under the laws of Virginia. Currently, Old Bank conducts its banking business through bank branches in Virginia and several border states.
***** (the "Parent') is a bank holding company organized and existing under the laws of another state ("State A'), with its principal place of business in State A. The Parent owns a number of banks ("Other Banks') whose principal operations are in State A and several states bordering State A. None of Other Banks' branches are currently in Virginia.
The Parent acquired Old Bank in 1998. The Parent is contemplating a reorganization within the meaning of §368(a)(1)(A) of the Internal Revenue Code that would merge Old Bank and Other Banks into a one bank ("New Bank'). It is anticipated that the merger would be effective January 1, 2000.
You are requesting a ruling on the bank franchise tax implications if the merger is accomplished on January 1, 2000. Specifically, you ask whether New Bank and/or Old Bank will be liable for the bank franchise tax for 2000, and, if so, what base will be used to compute the tax?
RULING
Code of Virginia § 58.1-1207 requires every bank doing business, maintaining branches, and/or designating a principal office in Virginia as of January 1 to file a bank franchise tax return. Pursuant to Code of Virginia § 58.1-1205, the tax is imposed on a bank's net capital measured as of December 31 of the preceding year.
If the merger occurs on January 1, both Old Bank and New Bank would be doing business, maintaining branches, and/or designating a principal office in Virginia and, therefore, be considered to be banks subject to the bank franchise tax filing requirements. As such, both banks would be required to file 2000 bank franchise tax returns.
Old Bank would determine its bank franchise tax liability for 2000 based on the capital as reported on Old Bank's reports of condition and income ("report of condition') as of December 31, 1999. However, because New Bank would not come into existence until January 1, 2000, it would own no capital as of December 31, 1999 and, therefore, have no measure on which to compute a tax liability. As such, New Bank would be required to file a return with the appropriate local assessing officer, but would have no bank franchise tax liability.
If the merger were not to occur until January 2, 2000, New Bank would be relieved of the filing requirement, as well as, the bank franchise tax liability. However, if the merger were to occur before January 1, 2000, New Bank would be required to determine its tax qn an apportioned share of the combined capital of Old Bank and Other Banks while Old Bank would not be subject to the tax.
For all subsequent years, New Bank's bank franchise tax liability would be determined based on the value of its own net capital as of December 31 of the preceding year. I trust this will answer the questions posed in your letter; however, please contact ***** at ***** if you have additional questions or if we may be of further assistance.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner