The Pennsylvania Bank Shares Tax is determined by aggregating the value of a bank’s book value of capital stock paid in, the book value of surplus and the book value of undivided profits with a deduction from the total thereof of an amount equal to the same percentage of such total as the book value of obligations of the United States bears to the book value of total assets. This value is determined based upon a six year average (the “Share Value”). The Share Value is then multiplied by the applicable Bank Shares Tax rate.

In the event of a combination of two or more institutions into one, the constituent institutions are treated as if they were a single institution prior to as well as after the acquisition. As such, the Share Value subject to taxation is a combined value. Most taxpayers and the Pennsylvania Department of Revenue have taken the position that the combined value includes any entity acquired. However, the Commonwealth Court, in a fairly recent case, First Union National Bank v. Commonwealth has held that entities not subject to the Bank Shares Tax prior to the combination should not be aggregated for purposes of the pre-combination Share Value. An entity is not subject to the Bank Shares Tax if it did not have nexus in Pennsylvania (e.g., a Maryland bank) or it did not fall within the definition of an “Institution” (e.g., a non-bank asset manager) under the Bank Shares Tax Act.

If within the last three years, you have included the pre-combination value of an entity not previously subject to Bank Shares Tax in your six year average Share Value calculation or the Department of Revenue has resettled a Bank Shares Tax return to reflect such a combined value, a Bank Shares Tax refund opportunity may exist. The refund opportunity could equal 1.25% of the difference in value caused by the aggregation of the entities.

If you have any questions about the foregoing, please let us know. We can help you to evaluate any potential refund and can help you to obtain it.