Document Number
11-151
Tax Type
Bank Franchise Tax
Corporation Income Tax
Description
AMG National Trust Bank v. Commonwealth of Virginia, Department of Taxation
Topic
Court Case
Date Issued
04-07-2011



FOURTH JUDICIAL CIRCUIT OF VIRGINIA
CIRCUIT COURT OF THE CITY OF NORFOLK


April 7, 2011


Mr. Jeffrey T. Talbert
Mr. Andrew M. Hendrick
Shuttleworth, Ruloff, Swain, Haddad & Morecock, P.C.
4525 South Boulevard, Suite 300
Virginia Beach, Virginia 23452


Ms. Elizabeth Myers, Assistant Attorney General
Office of the Attorney General of Virginia
900 East Main Street
Richmond, Virginia 23219

RE: AMG National Trust Bank v. Commonwealth of Virginia,
Department of Taxation
Civil Docket No.: CL10-3031

Dear Counsel:

This matter comes before the Court on the parties' Cross-Motions for Summary Judgment. Plaintiff, AMG National Trust Bank, has filed a Complaint for Declaratory Relief against the Department of Taxation seeking a determination that it is a bank for purposes of the Virginia Bank Franchise Tax Act, Va. Code § 58.1-1200. The parties have agreed to a joint stipulation of facts and have agreed that no material facts remain in dispute. They have agreed that: this case presents a pure question of law and statutory interpretation that may be submitted to the Court for summary judgment.

After consideration of the motions, the agreed stipulation of facts, and the arguments of counsel, the Court hereby GRANTS Plaintiff's Motion for Summary Judgment and DENIES Defendant's Motion for Summary Judgment.

Background


This controversy arises out of letter ruling issued by the Tax Commissioner on March 10, 2010, on the applicability of the Virginia Bank Franchise Act (the "Act") to AMG. The Department had rejected AMG's 2009 bank franchise tax return on the ground that AMG did not meet the definition of 'bank" contained in the Act. In her ruling, attached as exhibit A to the Complaint, Commissioner Bowen determined that AMG was not conducting a banking business in Virginia because the Virginia branch did not accept deposits. She ruled that AMG was therefore not subject to the bank franchise tax, and she directed AMG to file corporate income tax returns for all the years that its trust office has operated in Virginia. AMG asks the Court to determine that it is a "bank" within the meaning of the Act and to order associated relief.
    • The parties have stipulated to the facts, as follows:

AMG was chartered as a national banking association pursuant to the National Bank Act, 12 U.S.C. §§21, et seq., in August, 2001 and maintained that charter continuously throughout 2004 -2009. As a national banking association, AMG had the authority under 12 U.S.C. § 24 to make loans and accept deposits from February 1, 2008-2009. The years in question in this case are 2004 ,2005, 2006, 2007, 2008 and 2009. No other years are in question. Stip. of Facts at ¶¶ 1, 2.

AMG was a member of the Federal Reserve System under the Federal Reserve Act, 12 U.S.C. §221, et seq., continuously throughout 2004 -2009. AMG was an Insured Bank and a member of the Federal Deposit Insurance Corporation ("FDIC") under 12 U.S.C. §§181 1, et seq., as amended, continuously from February 1, 2008 through December 31, 2009. AMG held itself out to the general public as engaged in the banking business continuously from 2004-2009. Id. at ¶¶ 3 - 5.

AMG had an office in Norfolk continuously from March 1, 2004 through 2009 known as Old Dominion Trust Company. Old Dominion Trust Company was merged into AMG on March 1, 2004. AMG did business in Virginia through its Norfolk office, dba Old Dominion Trust Company, offering trust services and investment management services, continuously from March 1, 2004 through 2009. Id at ¶¶ 6 - 9. Both trust services and investment management services are traditional and historical parts of banking. Id., ¶ 10 - 11.

AMG established Old Dominion Trust Company as a branch through an Application for Permission to Acquire Voting Shares of a Virginia Trust Company Pursuant to Chapter 13 of Title 6.1 of the Code of Virginia (later recodified as Chapter 7 of Title 6.2 of the Code of Virginia). From February 1, 2008, through December 31, 2009, AMG, dba Old Dominion Trust Company, began to offer loans and accept deposits from Virginia customers. As of December 31, 2008, AMG had deposits of approximately $155,000,000. Id. at ¶ 12 - 13.

AMG, dba Old Dominion Trust Company, neither solicited nor accepted deposits at its Virginia office from January 1, 2004 through January 31, 2008. After January 31, 2008, AMG, dba Old Dominion Trust Company, solicited deposits and loans from its Virginia office, but did not accept deposits or loans at that location. Deposits and loans were accepted at its main banking office in Boulder, Colorado. Id. at ¶ 14.

AMG was previously known as AMG Guaranty Trust, N.A. Its holding company AMG National Corp. was previously known as AMG Guaranty Corp. AMG has its main office in Boulder, Colorado. During the years at issue, AMG had offices in Norfolk, Denver, Chicago, and Morristown, New Jersey. AMG filed bank franchise tax returns in Virginia for the 2005 through 2009 tax years. At the suggestion of a representative of the Department of Taxation in 2005 and as disclosed in each Virginia tax return filing, AMG used an alternative method of apportionment to compute its capital attributable to Virginia. At the insistence of the Department of Taxation, in 2010 AMG filed Virginia income tax returns for 2004-2009. Id. at ¶ 15 - 19.

Finally, the parties stipulated that their terms "bank," "banking" and "branch" are not intended to have any particular statutory meaning. Neither party conceded that the use of a particular term establishes the application of any statute, except where a specific statute is referenced. Id. at 19.

Analysis


The Virginia Bank Franchise Act (the "Act") requires every bank or trust company to pay annual franchise taxes, which the Department of Taxation calculates based on the net capital of the company. This tax is paid in lieu of an other state or local taxes in Virginia. VA. CODE ANN. § 58.1-1202. The statute provides four separate definitions of "bank," plus a fifth exclusionary clause:

"Bank" means:
    • (1) any incorporated bank, banking association, savings bank that is a member of the Federal Reserve System, or trust company organized by or under the authority of the laws of the Commonwealth;
    • (2) any bank or banking association organized by or under the authority of the laws of the United States, doing business or having an office in the Commonwealth or having a charter which designates any place within the Commonwealth as the place of its principal office
    • (3) any bank which establishes and maintains a branch in this Commonwealth under Article 5.1 (§ 6.1-44.1 et seq.) of Title 6.1 or Article 5.2 (§ 6.1-44.15 et. seq.) of Title 6.1, whether such bank or banking association is authorized to transact business as a trust company or not;
    • (4) any joint stock land bank or any other bank organized by or under the authority of the laws of the United States upon which the Commonwealth is authorized to impose a tax;
    • (5) The term shall exclude all corporations organized, under the laws of other states and doing business in the Commonwealth, corporations organized not as banks under the laws of the Commonwealth and all natural persons and partnerships.

VA. CODE ANN. § 58.1-1201,

AMG appears to meet the definition of "bank" under the second and fourth clauses of the definition, and it is not excluded by the fifth. In determining otherwise, the Department points out that the above statute uses the word "bank" to define "bank;" and the Court must necessarily look to the definition of "bank" included in the Virginia Banking Act: "a corporation authorized by statute to accept deposits and to hold itself out to the public as engaged in the banking business in this Commonwealth." VA. CODE § 6.2-800. Applying this definition, the Department argues that AMG is not a "bank" because it does not accept deposits in Virginia.

The Department also advances its own interpretation of the Act, arguing "doing business or having an office in the Commonwealth" (the second clause of the definition) requires that a bank "maintain an office in this Commonwealth for the conduct of banking business." To arrive at the conclusion that AMG does not "conduct banking business" in Virginia, the Department cites Va. Code § 58.1-1204.1, "Proration for new banks," which states: "For purposes of this section, 'transacting business' shall mean accepting deposits from customers in the regular course of doing business." The Department urges the Court to adapt its conclusion that, for purposes of the Act, an entity that does not accept customer deposits is not a bank.

The Court declines to import the definition of "bank" from the Virginia Banking Act into the definitional section of the Virginia Bank Franchise Act. The definition of "bank" in the Virginia Banking Act is significantly shorter and less detailed than the definition of a bank within the Virginia Bank Franchise Act. "A cardinal rule of statutory interpretation is that `[w]hen one statute addresses a subject in a general manner and another addresses a part of the same subject in a more specific manner, the two statutes should be harmonized, if possible, and when they conflict, the more specific statute prevails.'" Lynchburg Div. of Soc. Servs. v. Cook, 276 Va. 465, 481, 666 S.E.2d 361, 369 (2008) (quoting Alliance to Save the Mattaponi, 270 Va. 423, 439-40, 621 S.E.2d 78, 87).

The definition of "bank" in the Act is more specifically applicable to the issues presented in this case then the definition of "bank" which the Department relies on, included in Virginia Code Title 6.2 - Financial Institutions and Services. Because the statutes have different definitions of a "bank," the more specific statute should prevail. In this case, the Virginia Bank Franchise Act is the more specific statute because this case deals with that precise statute and the issue of whether AMG is required to file a bank franchise tax return.

The Court rejects the Department's conclusion that "in order to be conducting a banking business in Virginia, a bank must be accepting deposits from customers in the regular course of doing business." Plaintiff's Exhibit A at 3. The General Assembly did not include that requirement in the statute. Moreover, the statute expressly permits the definition of "bank" to include trust companies, which are not authorized to accept deposits. See Va. Code § 6.2-­1000.

The Court holds that AMG is a bank as defined in the Act pursuant to Virginia Code § 58.1-1201. AMG has asked for additional relief in its Complaint but has not addressed those additional requests in its motion or in the Stipulation. If the parties cannot resolve those remaining issues in light of the Court's ruling herein, counsel should advise the Court of the issues remaining for resolution and put this matter back on the Court's docket.

Mr. Talbert and Mr. Hedrick are requested to prepare an Order incorporating the ruling articulated herein as well as the related requests for associated relief upon which the parties are able to agree.
                • Sincerely,

                • Mary Jane Hall
                  Judge



MJH/nm


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46