HB2217: Bank franchise tax; changes tax by allowing affiliated banks to file a combined return, etc.
HOUSE BILL NO. 2217
Be it enacted by the General Assembly of Virginia:
1. That §§ 58.1-1201, 58.1-1202, 58.1-1204, 58.1-1205, 58.1-1208, 58.1-1209, 58.1-1210, and 58.1-1211 of the Code of Virginia are amended and reenacted and that the Code of Virginia is amended by adding sections numbered 58.1-1211.1 and 58.1-1211.2 as follows:
§ 58.1-1201. Definitions.
As used in this chapter, unless the context clearly shows otherwise, the term or phrase:
"Affiliated banks" means two or more banks that are members of the same affiliated group as defined under Internal Revenue Code § 1504(a)(1).
"Bank" means any incorporated bank, banking
association, savings bank that is a member of the Federal Reserve System, or
trust company organized by or under the authority of the laws of the
Commonwealth and any bank or banking association organized by or under the
authority of the laws of the United States, doing business or having an office
in the Commonwealth or having a charter which designates any place within the
Commonwealth as the place of its principal office, and any bank which
establishes and maintains a branch in this Commonwealth under Article 6 (§
6.2-836 et seq.) of Title 6.2
or Article 7 (§ 6.2-849 et seq.) of Chapter 8
of Title 6.2, whether such bank or banking association is authorized to
transact business as a trust company or not, and any joint stock land bank or
any other bank organized by or under the authority of the laws of the United
States upon which the Commonwealth is authorized to impose a tax. The Except as
otherwise provided under this chapter, the term shall exclude all corporations organized under the laws
of other states and doing business in the Commonwealth, corporations organized
not as banks under the laws of the Commonwealth,
and all natural persons and partnerships.
"Bank holding company" means any corporation that is organized under the laws of Virginia, is doing business in the Commonwealth, and is a bank holding company under the provisions of the Federal Bank Holding Company Act of 1956.
"Combined return" means a return filed by affiliated banks. For purposes of a combined return, the affiliated banks included on the return shall be treated as a single entity for purposes of computing the amount of Virginia bank franchise tax. The net capital of the affiliated banks shall be computed on a combined basis. The combined net capital shall be allocated to the Commonwealth by computing the apportionment of the affiliated banks on a combined basis.
"Core deposits" shall mean all deposits held by the bank on its books and records except brokered deposits, certificates of deposit greater than $100,000, and deposits by an affiliated bank included on a combined return.
"Core deposits within the Commonwealth" shall include (i) all core deposits assigned to a branch location within the Commonwealth and (ii) all direct banking deposits from customers located within the Commonwealth. Customers shall be located within the Commonwealth if the customer’s address associated with the deposit is within the Commonwealth.
"Direct banking deposits" means core deposits that are associated with an account that was not originated at a branch location. Direct banking deposits include, but are not limited to, (i) deposits associated with a main office and (ii) deposits associated with accounts that were originated using the Internet, the telephone, or other electronic means.
"Doing business" includes, but is not limited to, conducting one or more of the following activities: (i) employing capital in the Commonwealth; (ii) owning or leasing property of $50,000 or more within the Commonwealth; (iii) maintaining an office or branch location within the Commonwealth; (iv) deriving receipts of $500,000 or more from customers located within the Commonwealth; (v) incurring $50,000 or more of payroll within the Commonwealth; or (vi) accepting $500,000 or more of deposits from customers located within the Commonwealth. Customers shall be located within the Commonwealth if the customer’s address is within the Commonwealth.
§ 58.1-1202. Bank capital assessable.
Every bank or trust company doing business in the Commonwealth shall pay an annual franchise tax measured by its net capital as defined in § 58.1-1205. Such tax shall be in lieu of all other taxes whatsoever for state, county or local purposes except the real estate and tangible personal property taxes enumerated in § 58.1-1203, retail sales and use taxes under Chapter 6 (§ 58.1-600 et seq.) of this title, recordation taxes under § 58.1-800 et seq., motor vehicle sales and use taxes under Chapter 24 (§ 58.1-2400 et seq.) of this title, watercraft sales and use taxes under Chapter 14 (§ 58.1-1400 et seq.) of this title, aircraft sales and use taxes under Chapter 15 (§ 58.1-1500 et seq.) of this title, taxes properly assessable upon users of utility services, and local license taxes in connection with the sale of tangible personal property sold by banks in connection with promotions or otherwise.
Affiliated banks may elect to file a combined return for purposes of the tax under this chapter.
§ 58.1-1204. Rate of tax.
The franchise tax imposed under this chapter shall be at the rate of $1 on each $100 of net capital as hereinafter defined. There shall be no deduction in respect to shares owned by exempt institutions.
A bank or affiliated banks doing business within and without the Commonwealth shall apportion net capital to the Commonwealth as set forth in Section 58.1-1211.1.
§ 58.1-1205. Computation of net capital.
The net capital of any bank or
affiliated banks shall be ascertained by adding together its their capital,
surplus, undivided profits, and one half of any reserve for loan losses net of
applicable deferred tax to obtain gross capital and deducting therefrom (i) the
assessed value of real estate as provided in § 58.1-1206, (ii) the book value
of tangible personal property under § 58.1-1206, (iii) the pro rata share of
government obligations as set forth in § 58.1-1206, (iv) the capital accounts
of any bank subsidiaries under § 58.1-1206, (v) the amount of any reserve for
marketable securities valuation which is included in capital, surplus and
undivided profits as defined hereinabove to the extent that such reserve
reflects the difference between the book value and the market value of such
marketable securities on December 31 next preceding the date for filing the
bank's return under § 58.1-1207, and (vi) the value of goodwill described under
subdivision A 5 of § 58.1-1206.
§ 58.1-1208. City tax.
Any city in this Commonwealth in which is located any bank may, by ordinance, impose a tax not to exceed 80 percent of the state rate of taxation on each $100 of the net capital of such bank located in such city. If such bank also has offices that are located outside the corporate limits of such city, the tax shall be apportioned as provided in § 58.1-1211.
Affiliated banks that elect to file a combined return under Section 58.1-1202 shall compute their tax within any city on a combined return.
§ 58.1-1209. Town tax.
Any incorporated town in this Commonwealth in which is located a bank may, by ordinance, impose a tax not to exceed 80 percent of the state rate of taxation for each $100 of the net capital of a bank located in such town. If such bank also has offices that are located outside the corporate limits of such town, the tax shall be apportioned as provided in § 58.1-1211.
Affiliated banks that elect to file a combined return under Section 58.1-1202 shall compute their tax within any town on a combined return.
§ 58.1-1210. County tax.
Any county of this Commonwealth in which is located any bank outside any incorporated town therein may, by ordinance, impose a tax not to exceed 80 percent of the state rate of taxation for each $100 of the net capital of the bank so located in such county outside the corporate limits of any town therein. If such bank also has offices that are located outside such county or within the corporate limits of any town therein, the tax shall be apportioned as provided in § 58.1-1211.
Affiliated banks that elect to file a combined return under Section 58.1-1202 shall compute their tax within any county on a combined return.
§ 58.1-1211. Branch banks.
If any bank has offices located in two or more political subdivisions, which includes cities, towns and counties, the tax which may be imposed by any subdivision under §§ 58.1-1208, 58.1-1209 or § 58.1-1210 shall be imposed upon only such proportion of the taxable value of the net capital under § 58.1-1204 as the total core deposits of such bank, or offices located inside the taxing subdivision, bears to total core deposits as of the end of the preceding year. For the purposes of this section, offices located within an incorporated town shall be deemed not within the county where such banks are located.
§ 58.1-1211.1. Allocation to the Commonwealth.
Any bank or affiliated banks doing business within and without this Commonwealth shall allocate its net capital as computed under Section 58.1-1205 within and without the Commonwealth by multiplying its total net capital by a fraction, the numerator of which is the bank’s total core deposits within the Commonwealth and the denominator of which is the bank’s total core deposits everywhere.
§ 58.1-1211.2. Alternative Apportionment.
If the standard formula apportionment method under § 58.1-1211.1 does not fairly represent the extent of a bank’s tax base attributable to the Commonwealth, the bank may petition for, or the Department may require, in respect of all or any part of the bank’s tax base, if reasonable, any of the following: a separate accounting, the exclusion of any one or more factors, the inclusion of one or more additional factors that fairly represent the taxpayer's tax base attributable to the Commonwealth, or the employment of any other method that will produce an equitable apportionment.
2. That the provisions of this act shall become effective on January 1, 2016.
3. That the Tax Commissioner shall develop and publish guidelines implementing the provisions of this act. The guidelines shall be exempt from the provisions of the Administrative Process Act (§ 2.2-4000 et seq.).