1. A. Generally. In addition to items explained in 23VAC10-330-20 B, deductions from gross capital include the (i) assessed value of real estate, (ii) book value of certain tangible personal property, (iii) capital attributable to qualifying U.S. government obligations, and (iv) amount of capital accounts of certain bank subsidiaries. These items are regulated in this section.

2. B. Assessed value of real estate.

   1. 1. Deductible assessed value of real estate for bank franchise tax purposes is limited to the assessed value of real estate:

      1. a. If otherwise taxed in this Commonwealth that is (i) owned by such bank or (ii) used or occupied by such bank if held in the name of (a) a majority-owned subsidiary of the bank, (b) a bank holding company that owns a majority of the capital stock of such bank, or (c) any wholly owned subsidiary of the bank holding company that owns a majority of the capital stock of such bank.

      2. b. If real estate is in the nature of improvements to real estate owned by and assessed in the name of another person (the underlying land owner) and such improvements are (i) owned by the bank or (ii) used or occupied by the bank and owned by a majority-owned subsidiary or by a wholly owned subsidiary of a bank holding company, the assessed value up to the amount of unencumbered equity is deductible. The unencumbered equity shall be deemed to mean the assessed value of such improvements less the unpaid balance of all encumbrances thereto.

         Example: Bank F constructs a bank building on land owned by and leased from Corporation C. While the total value is assessed in the name of Corporation C, the land owner, Bank F may deduct the portion of the total real estate tax assessment attributable to the value of the building to the extent not encumbered.

   2. 2. Real estate used or occupied by a subsidiary or real estate originally conveyed as collateral for loans made by a subsidiary of the bank and reacquired upon foreclosure of mortgage loans will be deemed to be used or occupied by the bank.

      1. a. The assessed value for the deduction of real estate shall be the value for the most recent tax assessment made prior to January 1 of the current bank franchise tax year for real estate owned by the bank or affiliate on January 1 of the current franchise tax return year and shall include the assessment for real estate acquired during the preceding year even though assessed for such preceding year in the name of the prior owner.
      2. b. If the same real estate is assessed by more than one taxing jurisdiction, such as town, district and county, the assessed value of only one of such jurisdictions may be deducted from gross capital.
      3. c. If the real estate is owned by a majority-owned subsidiary of a bank, and the bank does not own all the stock of such subsidiary, the bank shall be entitled to deduct only such portion of the assessed value of the real estate as the common stock it owns in such subsidiary bears to the outstanding common stock of such corporation.

3. C. Book value of certain tangible personal property. Tangible personal property qualifying for deduction must be (i) owned by the bank or a majority-owned subsidiary of the bank, (ii) held for lease, and (iii) otherwise taxed in Virginia.

   1. 1. The deductible amount shall be the book value of the qualifying tangible personal property owned as of January 1 of the current year franchise tax return.
   2. 2. If the tangible personal property is owned by a majority-owned subsidiary, and the bank does not own all the stock of such subsidiary, the bank shall be entitled to deduct only such portion of the book value of such tangible personal property as the common stock it owns in such subsidiary bears to the whole issue of common stock of such corporation.

4. D. Capital attributed to U.S. obligations. The allowable deduction for U.S. obligations shall be an amount which shall equal the same percentage of the gross capital account at December 31 next preceding the bank franchise tax year, as the obligations of the United States bear to the total assets of the bank. Qualifying U.S. obligations means all obligations of (i) the United States exempt from taxation under 31 USC § 3124, the United States Constitution, or any other statute, or (ii) any instrumentality or agency of the United States which obligations shall be exempt from state or local taxation under the United States Constitution or any statute of the United States.

   1. 1. Computation of deduction. The percentage of U.S. obligations shall be determined by averaging the percentage of U.S. obligations to total assets for the four most recent (or less in case of a new bank) Reports of Condition. The average percentage shall be multiplied by the gross capital of the bank as defined in 23VAC10-330-20. The result shall be the capital attributed to U.S. obligations and is the deduction.

   2. 2. Merger of banks. Banks merging during the year must use the four most recent quarterly Reports of Condition, including any reports filed in the name of the banks prior to merger, to compute the capital attributable to U.S. obligations. Those quarterly Reports of Condition filed in the name of each bank prior to merger, and used in the computation of capital attributed to U.S. obligations, must be combined on a quarterly basis to properly reflect the total U.S. obligations and total assets of the merging banks.

      Gross capital account means the capital, surplus and undivided profits at December 31 next preceding the tax year. See 23VAC10-330-20.

5. E. Retained earnings and surplus of certain subsidiaries. The deduction from gross capital of the bank is limited to the amount of increase in the bank's recorded investment in its subsidiaries resulting from undistributed earnings of such subsidiaries.

   The deduction from gross capital of the bank is limited to the amount included in gross capital on the bank's report of condition which represents the undistributed earnings of its subsidiaries during the period of the bank's investment in such subsidiaries. Accordingly, it may be applicable only if a bank reports its subsidiary investment accounts at equity values.

6. F. Interest expenses and costs paid by a related member. Any portion of the amount added to federal taxable income pursuant to subdivision B 9 of § 58.1-402 of the Code of Virginia by a corporation that is for interest expenses and costs paid to the bank for a loan or other obligation made by the bank to such corporation shall be deducted from the gross capital of the bank provided that the requirements set forth in subdivision A 4 of § 58.1-1206 of the Code of Virginia are satisfied.

Statutory Authority

§ 58.1-203 of the Code of Virginia.

Historical Notes

Derived from VR630-15-1206, eff. January 1, 1985; amended, Virginia Register Volume 33, Issue 25, eff. October 23, 2017.