HomeMy WebLinkAboutIR 7377 INFORMAL REPORT TO CITY COUNCIL MEMBERS No .
• `�#••«% To the Mayor and Munbers of the City Council
April 25, 19$9
X Subject:
••� STATE BANK FRANCHISE TAX REFUND
1
Your recent Texas court decisions have resulted in a potential liability
for the City through repayment of bank franchise taxes from the years
1985, 1985 and 1987. Not all of the information and claims are yet
available, however we can currently estimate the impact and the options
available as well its latent effect on this years collection.
COURT ISSUE
Your corporations filed claims against taxing entities on the grounds of
four court cases dealing with franchise tax. The cases and the major
issue involved were.
Bullock v. Sage Energy - Books and Records
State v. Sun Oil Co. - Contingent Liabilities
State v. Sun Refining & Marketing - Pre-Acquisition Earnings
Bullock v. Shell Oil Co. - Impairment Reserves
These decisions allow claims for the bank franchise taxes on two primary
issues:
-allowing a holding company to compute its investment in
securities based on the lower-of-cost-or-market basis, and/or
-allowing companies to adjust surplus to report certain items on a
tax basis accounting method (cash versus accrual basis for
depreciation, loan losses and accretion) (Sage)
CLAIMS
Thirty-three (33) claims have been filed on the City to date for the
years 1985, 1986 and 1987 (of a potential 126 claims.) Claims for 1985
had to be filed by March 15, 1989 and these totalled $ 340,995.95 (from
seventeen of the 37 banks paid).
Total claims for all years filed total $ 689,150.43 however more claims
for 1986 and 1987 are expected.
The percentage decrease on the amended returns varies greatly and makes
final estimates difficult. With one major bank's claim (NCNB) for 1986
and 1987 missing, the estimated refund for all three years increases to
$ 1.1 million.
Three banks are also filing for interest on these previous payments.
ACTION OPTION
There is a bill (HB 3032) before the current legislature which would
permit repayment of these claims from future franchise taxes at the
option of the bank company. This would provide for a 25% bank credit in
1990, 35% in 1991 and 40% in 1992 (except not to result in a net credit
return to the bank).
ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS---
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REPORT TO crry COUNCIL MEMBERS 7377 P.2
4pril 25, 1989
STATE BANK F RAN CHISE TAX REFUND
Hearings on this bill began on April 12th. It is recommended that no
refund action be taken until action on this legislation is final. A
letter so informing the banks will be sent in April 1989.
1989 REVENUE IMPACT
Perhaps the most significant impact of these court actions will be on
future revenues from bank franchise tax. Revenue in 1988-89 was budgeted
at $ 950,000 and is now estimated at $ 460,000. These court actions,
applied to the significantly weaker positions of the banks currently,
will probably halve our normally estimated revenues for some years in the
future. On a very conservative basis the impact could appear as critical
Normal Estimate Amended Refund Total
1990 $1 million $500,000 <$275,000> $225,000
1991 $1.1 million $550,000 <$385,000> $165,000
1992 $1.2 million $600,000 <$440,000> $160,000
uglas
Manager
city it,
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