Tax Type
Bank Franchise Tax
Description
Refunds
Topic
Taxpayers' Remedies
Date Issued
03-29-1999
March 29, 1999
Re: Ruling Request: Bank Franchise Tax
Dear**************
This will respond to your letter concerning refunds pursuant to amended Bank Franchise Tax (BFT) returns. We have treated your letter as a request for ruling.
FACTS
In Public Document (P.D.) 96-357 (12/6/96) (copy enclosed) the department ruled that the inclusion of an adjustment for a deferred tax asset in the reserve for loan loss reconciliation on Schedule G of Form 64 is appropriate. In reconciling the loan loss reserve on the Official Report of Condition and Income (the "Book Reserve') and the reserve for loan losses allowed for federal income tax purposes (the "Tax Reserve'), the deferred income tax asset directly attributable to the difference between the Book Reserve and the Tax Reserve is subtracted from the Book Reserve.
As a result of this ruling, a number of banks filed amended BFT returns for refunds. Because of the variety of ways in which the loan loss reconciliation was treated on the original and amended returns, questions were raised as to the proper procedures for preparing Schedule G. After resolving these questions, the amended returns were processed, refunds were issued for the state tax, and localities were notified of the refundable portion of the local tax. A number of refund requests where denied because amended returns were not filed within the period of limitations set forth under Code of Virginia § 58.1-1823.
You have raised the question as to whether the Commissioners of the Revenue have the authority to issue the local portion of the tax because the banks did not file claims with localities within the three-year period of limitations pursuant to Code of Virginia §§ 58.1-3980 and 58.1-3984.
RULING
Code of Virginia § 58.1-1202 imposes a state franchise tax on the net capital of banks and trust companies. The state tax rate is statutorily set at 1% of net capital. In addition, the Code of Virginia allows cities, counties, and towns to impose a bank franchise tax at a rate of up to 80% of the state rate. As such, local assessment is based on a state tax. Accordingly, unlike local taxes on tangible personal property, machinery and tools, merchants' capital, or business, professional or occupational licenses which are imposed and administered by local governments, the BFT is administered by the state.
While the Code of Virginia requires banks to file annual returns with the local commissioner of the revenue or comparable assessing officer, the statutes covering the BFT are silent as to amended returns. Therefore, because this tax is administered by the department, rules regarding the filing of amended BFT returns demure to the general Virginia statutes concerning amended returns.
Pursuant to Code of Virginia § 58.1-1823 any taxpayer filing a tax return for any tax administered by the state may file an amended return with the department within three years from the due date of the return. As such, a bank only needs to file an amended BFT return with the department and is not required to file an amended return with localities. In this case, amended BFT returns that were filed within the period of limitations were processed and localities were notified by the department of the amount of the local refund due.
While I appreciate your questions concerning your authority to issue refunds to banks in your locality, Code of Virginia §§ 58.1-3980 and 58.1-3984 are not applicable in this case. For purposes of the BFT, you are authorized to make the refunds to the banks pursuant to Code of Virginia § 58.1-1823. 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
OTP/21171O
Re: Ruling Request: Bank Franchise Tax
Dear**************
This will respond to your letter concerning refunds pursuant to amended Bank Franchise Tax (BFT) returns. We have treated your letter as a request for ruling.
FACTS
In Public Document (P.D.) 96-357 (12/6/96) (copy enclosed) the department ruled that the inclusion of an adjustment for a deferred tax asset in the reserve for loan loss reconciliation on Schedule G of Form 64 is appropriate. In reconciling the loan loss reserve on the Official Report of Condition and Income (the "Book Reserve') and the reserve for loan losses allowed for federal income tax purposes (the "Tax Reserve'), the deferred income tax asset directly attributable to the difference between the Book Reserve and the Tax Reserve is subtracted from the Book Reserve.
As a result of this ruling, a number of banks filed amended BFT returns for refunds. Because of the variety of ways in which the loan loss reconciliation was treated on the original and amended returns, questions were raised as to the proper procedures for preparing Schedule G. After resolving these questions, the amended returns were processed, refunds were issued for the state tax, and localities were notified of the refundable portion of the local tax. A number of refund requests where denied because amended returns were not filed within the period of limitations set forth under Code of Virginia § 58.1-1823.
You have raised the question as to whether the Commissioners of the Revenue have the authority to issue the local portion of the tax because the banks did not file claims with localities within the three-year period of limitations pursuant to Code of Virginia §§ 58.1-3980 and 58.1-3984.
RULING
Code of Virginia § 58.1-1202 imposes a state franchise tax on the net capital of banks and trust companies. The state tax rate is statutorily set at 1% of net capital. In addition, the Code of Virginia allows cities, counties, and towns to impose a bank franchise tax at a rate of up to 80% of the state rate. As such, local assessment is based on a state tax. Accordingly, unlike local taxes on tangible personal property, machinery and tools, merchants' capital, or business, professional or occupational licenses which are imposed and administered by local governments, the BFT is administered by the state.
While the Code of Virginia requires banks to file annual returns with the local commissioner of the revenue or comparable assessing officer, the statutes covering the BFT are silent as to amended returns. Therefore, because this tax is administered by the department, rules regarding the filing of amended BFT returns demure to the general Virginia statutes concerning amended returns.
Pursuant to Code of Virginia § 58.1-1823 any taxpayer filing a tax return for any tax administered by the state may file an amended return with the department within three years from the due date of the return. As such, a bank only needs to file an amended BFT return with the department and is not required to file an amended return with localities. In this case, amended BFT returns that were filed within the period of limitations were processed and localities were notified by the department of the amount of the local refund due.
While I appreciate your questions concerning your authority to issue refunds to banks in your locality, Code of Virginia §§ 58.1-3980 and 58.1-3984 are not applicable in this case. For purposes of the BFT, you are authorized to make the refunds to the banks pursuant to Code of Virginia § 58.1-1823. 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
OTP/21171O
Rulings of the Tax Commissioner