The Pennsylvania Supreme Court has decided to hear oral argument in the Lebanon Valley Farmers Bank case1, and has scheduled the argument for November 27. The decision in this case could result in either a big tax bill or a big refund opportunity for banks that have, in the past six years, been involved in a merger.
The Lebanon Valley case involves the Pennsylvania bank shares tax. The bank shares tax is based on a six-year average of a bank’s equity. For a bank involved in a merger, the statute includes a combination provision that combines the pre-merger equity of the merged banks. But under the First Union case (which we won five years ago2)—if a bank that is a bank-shares taxpayer (an "institution") merges with a bank that is not a bank-shares taxpayer (a "non-institution"), then the historical equity values are not combined. Instead, for pre-merger years, only the equity of the surviving bank is included in computing the six-year average.
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