Magazine article American Banker

Georgia Court Reverses Itself, Invalidates Bank Tax Formula

Magazine article American Banker

Georgia Court Reverses Itself, Invalidates Bank Tax Formula

Article excerpt

ATLANTA -- Georgia banks are eligible for refunds on state and municipal taxes after the state supreme court reverse itself and invalidated a tax formula that does not allow deductions for Treasury securities.

The state high court took the action at the suggestion of the United States Supreme Court, which last June struck down a bank tax in Texas that also made no allowance for tax-exempt federal obligations.

The state and its municipalities may not count as taxable income that portion of a bank's assets made up by federal securities, the state court said after reconsidering its ruling in the case, titled Bartow County Bank v. Bartow County.

Because the Georgia legislature passed a law last summer prohibiting the taxation of a bank's federal securities, Georgia's supreme court ruling last week applies only to taxes paid before that.

Many banks had already asked for tax refunds for the past three years and had filed 1983 tax returns under protest. They were challenging a 1978 Georgia law that taxed shares held by bank stockholders as tangible personal property but made the banks responsible for paying the tax.

In its decision, the Georgia Supreme Court also released a formula for figuring each bank's refund.

Under the formula, the percentage of a bank's total assets that is government securities is multiplied by the net worth of the bank. The result of that equation is subtracted from the bank's net worth to come up with a new figure for taxable income. …

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