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CITIZENS NATIONAL BANK & TRUST CO. v. COMMONWEALTH PENNSYLVANIA (12/23/81)

decided: December 23, 1981.

CITIZENS NATIONAL BANK & TRUST CO., PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, RESPONDENT



Appeal from the Order of the Board of Finance and Revenue in case of Citizens National Bank & Trust Co. v. Commonwealth of Pennsylvania, No. C-5324.

COUNSEL

Alphonsus R. Romeika, Romeika, Fish & Scheckter, for petitioner.

Vincent J. Dopko, Deputy Attorney General, for respondent.

President Judge Crumlish, Jr. and Judges Rogers, Blatt, MacPhail and Palladino. Opinion by Judge Palladino.

Author: Palladino

[ 63 Pa. Commw. Page 384]

This is an appeal by Citizens National Bank and Trust Company (Taxpayer) from an Order of the Board of Finance and Revenue refusing Taxpayer's Petition for Refund of a portion of its Bank Shares Tax. We affirm.

We adopt as our findings the facts stipulated by the parties.

Taxpayer, a banking institution, is subject to the annual Bank Shares Tax imposed by Section 701 of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, 72 P.S. ยง 701 (Bank Shares Tax), and uses an accrual system of accounting.*fn1 Taxpayer's Shares and Loans Tax Report conformed to the Department's Rules and Regulations, but taxpayer attached a rider reserving its right to challenge the Department's practice regarding Taxpayer's Reserve for Losses on Loans.

[ 63 Pa. Commw. Page 385]

Taxpayer's Shares and Loans Tax Report showed the actual value subject to tax to be $2,596,569. On April 26, 1978, the Department made a settlement of Taxpayer's Shares and Loans Tax Report and set Taxpayer's actual value subject to tax at $2,669,431. On May 1, 1978, the settlement was approved by the Department of the Auditor General.

In calculating the settlement, the Department determined Taxpayer's capital value by (1) including as undivided profits $170,044 contained in Taxpayer's Reserve for Losses on Loans (a contingency reserve of $108,440 plus a valuation reserve of $61,604) and (2) allowing Taxpayer a credit of $6,807, an amount based upon the yearly average of Taxpayer's actual loan losses for the five-year period immediately preceding the tax year in question.

Taxpayer's $170,044 Reserve for Losses on Loans is the sum of (a) $88,923, originally extracted from undivided profits to establish the Reserve, and (b) $81,121 not extracted from undivided profits. Taxpayer does not dispute the inclusion of the first sum but does dispute the inclusion of the second. If the entire $170,044 is included in Taxpayer's undivided profits, and consequently in its ...


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