Pennsylvania Act 52 (Act 52), signed into law on July 9, 2013, expands the reach of the Pennsylvania bank shares tax and allows the Commonwealth to impose the bank shares tax on a bank with no offices or branches in Pennsylvania if the bank transacts business with Pennsylvania customers.

Under current law, the bank shares tax is imposed on the apportionable share of equity capital of "banks," defined as banks operating as such and having capital stock, operating companies having capital stock and having the powers of companies commonly known as trust companies, companies organized as bank and trust companies under the laws of any jurisdiction that have capital stock owned by a company subject to the bank shares tax, corporations organized under 12 U.S.C. Ch. 6 (relating to organization of corporations to do foreign banking), and agencies or branches of a foreign depository as defined in 12 U.S.C. Section 3101. Banks that are subject to the bank shares tax are not subject to the Pennsylvania corporate net income tax or capital stock tax.

Until Act 52, the bank shares tax was imposed only on banks that had a physical presence in Pennsylvania. Effective January 1, 2014, Pennsylvania law will impose the bank shares tax on all banks that are "doing business" in Pennsylvania, without regard to whether such banks have capital stock or offices or branches in Pennsylvania. Under Act 52, a bank will be subject to the bank shares tax if it generates $100,000 or more of gross receipts that are apportionable to Pennsylvania and satisfies any of the following conditions:

  • The bank has an office or branch in Pennsylvania.

  • Its employees, representatives, independent contractors, or agents conduct business activities on its behalf in Pennsylvania.

  • Any person solicits business on the bank's behalf in Pennsylvania through person-to-person contact, mail, telephone, or electronic means, or advertising that is produced, published, or distributed in Pennsylvania.

  • The bank holds a security interest, mortgage, or lien in real or personal property located in Pennsylvania.

  • Any basis exists under Pennsylvania law or the U.S. Constitution to apportion the bank's receipts to Pennsylvania.

A bank is not considered to be doing business in Pennsylvania merely because the bank uses independent professionals to perform services for it in Pennsylvania if such services are not significantly associated with creating a market in Pennsylvania, or the bank uses financial intermediaries in Pennsylvania to process or transfer checks, credit card receivables, commercial paper, or other similar items.

Because Act 52 allows Pennsylvania to tax banks to the extent allowed by the U.S. Constitution, virtually all banks that derive $100,000 or more of revenue from Pennsylvania customers will be subject to the bank shares tax beginning in 2014, even if such banks do not have a physical presence in Pennsylvania, dramatically expanding the number of banks that are subject to the Pennsylvania bank shares tax.

Other Changes to the Calculation of Bank Shares Tax in Act 52

In addition to expanding the reach of the bank shares tax, Act 52 also changed the calculation of the bank shares tax. First, Act 52 expressly provides that the apportionable tax base is determined based on the amount reported to federal bank regulators in the bank's quarterly Statement of Condition, making clear that non-controlling interests in consolidated subsidiaries are excluded when calculating the tax base.

Additionally, under prior law, the value of a bank's capital stock shares was calculated using a six-year average; Act 52 replaces this calculation with a one-year valuation formula. Act 52 also replaces a three-factor apportionment percentage (payroll, deposits, and receipts) with a single receipts factor based on receipts from Pennsylvania customers and makes clear that the receipts for these purposes are determined on a separate company basis. Finally, Act 52 reduces the bank shares tax rate from 1.25 percent to 0.89 percent.

New Appeals Procedure for Bank Shares Tax

Act 52 also changes the appeals procedure for the bank shares tax. Under current law, to challenge an assessment, banks must pay the tax and appeal directly to the Board of Finance and Revenue within two years of such payment. Act 52 eliminates, effective immediately, the special appeal provision for the bank shares tax and includes the bank shares tax in the general Pennsylvania tax appeals process.

Under the general appeal procedure, petitions for the refund of tax paid as a result of assessment must be filed within six months of the assessment. It is unclear how the Department of Revenue will treat banks that would still be eligible to seek a refund under the old procedure but that arguably are barred from seeking a refund under the general appellate procedure. In any event, banks should pay close attention to the new appeal dates resulting from Act 52.

Department of Revenue To Report on the Changes within 18 Months

Act 52 directs the Department of Revenue, working together with the Secretary of Banking and Securities and representatives from the banking industry, to prepare a report within 18 months of July 9, 2013. The Department is charged with analyzing the changes to the bank shares tax and proposing changes to the revised bank shares tax (including the rate and apportionment formula) to ensure that Pennsylvania generates a reasonable amount of revenue but remains competitive with other states.

For more information on Act 52, please contact Alan S. Kaplinsky at 215.864.8544 or, Wendi L. Kotzen at 215.864.8305 or

Copyright © 2013 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.



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