Recent legislation in Pennsylvania brings several changes to the calculation of the Bank Shares Tax. This is a tax imposed on the apportioned taxable capital of “banks.” The term, “bank,” has been defined to include corporations operating as a bank and having capital stock. It also includes those having the powers of companies commonly known as “trust companies.” The Bank Shares Tax is exclusive of the Mutual Thrift Institution Tax that is imposed by Pennsylvania on savings institutions, savings banks, savings and loan associations, and building and loan associations. Most financial institutions will pay one or the other of these two types of taxes. Credit unions are not subject to tax.
PA House Bill No. 465 eliminated the six-year averaging of taxable share capital, reduced the tax rate from 1.25% to 0.89%, changed from a 3-factor to a single-factor state apportionment calculation, expanded the definition of “receipts” for purposes of the state apportionment calculation, and provides a new choice of two ways to compute the receipts’ factor in the state apportionment calculation. This election is irrevocable, so careful attention should be given to this option.
Legislation added this statement to the existing law: “the taxable amount of shares shall be ascertained and fixed by the book value of total bank equity capital as determined by the Reports of Condition at the end of the preceding calendar year in accordance with the requirements of the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation or other applicable regulatory authority.” It also expanded the definition of a bank “doing business in this Commonwealth.”
These updates are important because they 1) define that the calculation starts with financial statement capital and not regulatory capital (therefore, automatically including all goodwill and forces taxpayers to seek an exclusion) and, 2) expand the definition of the “receipts factor” to ensure that banks with apportioned receipts in excess of $100,000, that are doing business in Pennsylvania, are required to file Bank Shares Tax Return.
The term, “Doing business in this Commonwealth,” has been greatly expanded to encompass such actions as having one or more employees, representatives, independent contractors or agents conducting business in Pennsylvania as well as directly or indirectly soliciting business in Pennsylvania using person-to-person contact, mail, telephone or other electronic means or using advertising published, produced or distributed in Pennsylvania.
All of these changes are applicable for Bank Shares Tax Returns due January 1, 2014.
Contributed by Debby H. Wells, manager, RKL’s Tax Services Group. Debby has over 20 years experience in public accounting. She specializes in middle-market federal and multi-state corporate and pass-through entity tax planning and compliance. She also provides tax outsourcing services to public companies and private businesses to aid them in computing quarterly (and annual) income tax provisions for their financial statements.