Allfirst Bank v. Commonwealth, 032706 PACCA, 619 FR 2003

Docket Nº:619 FR 2003
Party Name:Allfirst Bank v. Commonwealth
Case Date:March 27, 2006
Court:Court of Appeals of Pennsylvania

Allfirst Bank, Petitioner


Commonwealth of Pennsylvania, Respondent

Nos. 619 F.R. 2003, 620 F.R. 2003

Court of Appeals of Pennsylvania

March 27, 2006

Argued: February 1, 2006




This is an appeal by Allfirst Bank (Allfirst) from the Orders of the Board of Finance and Revenue (Board) that refused Allfirst’s Petitions for Review, in which Allfirst alleged it was not subject to the Bank and Trust Company Shares Tax (“Bank Shares Tax”), imposed by Section 701 of the Tax Reform Code of 1971, Act of March 4, 1971, as amended, 72 P.S. § 7701, for the tax periods January 1, 1999, and January 1, 2000.

The parties entered into a stipulation of facts (Stipulation) in accordance with Rule 1571(f) of the Pennsylvania Rules of Appellate Procedure.1 The Stipulation was filed with this Court on August 25, 2005. Allfirst was a wholly-owned subsidiary of First Maryland Bancorp (FMB), until September 15, 1999, when FMB merged with and into Allfirst Financial, Inc. (AFI). Stipulation at Paragraph 3. FMB was incorporated in Maryland. Stipulation at Paragraph 4. AFI is incorporated in Delaware. Stipulation at Paragraph 5. At all relevant times FMB’s and AFI’s primary place of business was located in Baltimore, Maryland. At all relevant times neither FMB nor AFI engaged in banking activities in Pennsylvania. Stipulation at Paragraphs 6-7.

Pursuant to Section 701 of the Act, 72 P.S. § 7701, every banking institution located in Pennsylvania must file a written report with the Department of Revenue (Department) on or before March 15th of each calendar year which sets forth the number of shares of capital stock subscribed for or issued as of the preceding January 1st. Thereafter, the “Bank Shares Tax” is imposed at the rate of 1.25% upon the taxable value of the shares that are apportioned to Pennsylvania. 72 P.S. § 7701. The Act permits banking institutions located in Pennsylvania to compute and pay the “Bank Shares Tax” from either their general fund or funds that they collect from their shareholders. Id. (emphasis added).

Allfirst filed its reports for the tax periods January 1, 1999, and January 1, 2000. Stipulation at Paragraph 8. Allfirst paid the tax liabilities as indicated on the reports. Stipulation at Paragraph 9. The Department resettled Allfirst’s reports for the January 1, 1999, and January 1, 2000, on January 24, 2003. Stipulation at Paragraph 10. Allfirst’s Petitions for Review were denied by the Board. Stipulation at Paragraph 11. This appeal followed.

On appeal Allfirst contends: 1) that the “Bank Shares Tax” improperly taxes the intangible personal property of its shareholders; and 2) that the Fourteenth Amendment to the United States Constitution prohibits the imposition of the “Bank Shares Tax” on Allfirst, AFI or its shareholders because they are neither incorporated nor domiciled in Pennsylvania.2

I. Is the Bank Shares Tax a property tax levied upon the owners of stock in banking institutions?

The instructions which accompanied the report that banking institutions were required to file for the 1999 and 2000 tax years in conjunction with the “Bank Shares Tax” state:

The Bank and Trust Company Shares Tax is a property tax imposed on the shareholders of banks having capital stock, trust companies having capital stock, and trust companies having capital stock; incorporated by or under any law of Pennsylvania or the United States or any other jurisdiction and located in Pennsylvania.

Stipulation at Paragraph 13 and Exhibit I.

Since the Department’s own documents identify the “Bank Shares Tax” as a “property tax imposed on the shareholders,” Allfirst contends that the Commonwealth is foreclosed from successfully contending that the “Bank Shares Tax” is specifically a tax on the bank rather than on the bank’s shareholders.

In further support of its argument, Allfirst references the Department of Revenue’s internet website section dealing with the “Bank Shares Tax.” The internet website section states that shares of stock held by exempt holders (including charitable, religious, and educational institutions) are exempt from the “Bank Shares Tax.” Stipulation at Paragraph 14 and Exhibit L. The reports for the 1999-2000 tax years also noted, that the value of stock owned by exempt holders is not included in the calculation of the “Bank Shares Tax” owed.

Finally, Allfirst alleges that since the “Bank Shares Tax” is a tax levied upon shares of stock it is therefore a tax upon the shareholders of the bank. In support of its argument Allfirst relies on Commonwealth v. The First National Bank of Scranton, 48 Pa. D. & C. 399 (1943), where the Court of Common Pleas of Dauphin County, sitting as the Commonwealth Court, concluded that the “Bank Shares Tax” “is a tax not upon the bank but upon the shareholders.”

Allfirst’s reliance on Scranton is misplaced because there the Court analyzed the 1933 Bank Shares Tax, Act of May 31, 1933, P.L. 1130, rather than the “Bank Shares Tax” promulgated by the General Assembly in the Act in effect today. The 1933 Bank Shares Tax required the tax be collected from the shareholders of the bank. In contrast, the “Banks Shares Tax” in effect today gives the bank the option of paying the tax from its general fund or from an amount collected from its shareholders. 72 P.S. § 7701. It does not require the tax be collected from the shareholders.

Furthermore, the characterization of the tax is not significant, rather the Court should consider the practical effect of...

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