CLIENT ALERT

PENNSYLVANIA BANK SHARES TAX CALCULATION

TO

INCLUDE SHARES OWNED BY EXEMPT ORGANIZATIONS

In October of this year, the Supreme Court of Pennsylvania held that the Bank and Trust Companies Shares Tax ("Bank Shares Tax") is a tax on financial institutions rather than their shareholders.  Allfirst Bank v. Commonwealth of Pennsylvania, 933 A.2d 75 (Pa. 2007).  Therefore, the tax applies even to an institution conducting banking operations in Pennsylvania where the institution is chartered and headquartered in another state, and the institution's sole shareholder is an out-of-state corporation not subject to Pennsylvania taxation.  Following on this decision, the Pennsylvania Department of Revenue has now issued an interpretive bulletin further expanding the reach of the Bank Shares Tax.

  Issued November 28, 2007, Corporation Tax Bulletin 2007-02 provides that in light of the Supreme Court's decision in Allfirst Bank, "there is no basis for an exemption from bank shares tax based upon the identity of the shareholder.  Accordingly, financial institutions are no longer permitted to reduce the taxable amount of shares by the value attributed to shares held by charitable, religious or educational institutions."  This announcement represents a reversal of policy by the Department of Revenue, which as the bulletin implies, formerly allowed a reduction in the taxable amount for shares held by certain tax-exempt organizations.  The change is effective for the calculation of the Bank Shares Tax for January 1, 2008 and thereafter.

  Please do not hesitate to contact Dave Ledermann, Jim Reid or Keith Clark at Shumaker Williams, P.C., with any questions you may have regarding this or other tax matters.