Could a bank holding company deduct dividends from subsidiaries that were subject to New Hampshire BPT but had rarely paid it?

Plain-English summary

P, a holding company, received dividends from subsidiary banks that filed New Hampshire business profits tax (BPT) returns but had rarely paid BPT because of losses and a credit for taxes paid under RSA 84. P asked whether it could still deduct those dividends under RSA 77-A:4, IV.

The Department said yes, subject to two conditions: the banks had been and remained subject to BPT, and the dividends did not exceed accumulated earnings from years subject to BPT. The statutory phrase that gross business profits were “subject to taxation” required the earnings to come from a year when the payor was subject to the BPT law. It did not require actual BPT payment on the particular earnings distributed.

What this means for you

For the represented bank group, a small or zero actual BPT payment by a subsidiary did not alone defeat the holding company's dividend deduction. The parent still had to connect the dividends to qualifying accumulated earnings and the payor's BPT status. The source does not compute the qualifying earnings balance.

Common questions

Q: Did the subsidiary have to pay BPT on the exact dollars distributed? A: No. The Department interpreted “subject to taxation” as referring to the payor's tax status in the earnings year, not payment on particular income.

Q: Could P deduct every dividend from the banks?
A: Only if the banks remained subject to BPT and the dividends did not exceed accumulated earnings from qualifying years.

Q: Why had the banks paid little BPT?
A: The petition described tax losses and a credit for RSA 84 bank taxes.

Q: May another holding company rely on this ruling?
A: No. The official archive limits declaratory rulings to the petitioner and represented facts.

Citations and source limits

The holding interprets RSA 77-A:4, IV and mentions the RSA 84 tax credit as background. The PDF labels “DOC #2520, Effective October 5, 1983” but gives no separate issue date. It supplies no accumulated-earnings calculation.

Source

• Official archive: New Hampshire declaratory rulings
• Official PDF: DOC #2520

Original ruling text

In The Matter of the Petition of "P"
for a Declaratory Ruling

DOC #2520, Effective October 5, 1983

Pursuant to RSA 541-A:1, IV, RSA 541-A:2, I(d), and Rev 104.04, New Hampshire Code of Administrative Rules, "P" (EIN), a holding company having its principal office at New Hampshire, has petitioned the Department of Revenue Administration for a declaratory ruling with respect to the tax consequences of receiving dividends from its subsidiaries when the subsidiary banks have almost never paid a New Hampshire Business Profits Tax. The parent corporation and each of the subsidiaries files a business profits tax return as required by RSA 77-A.

Since January 1, 1973, the various subsidiary banks have had taxable income or losses while having invested in U.S. Government securities and tax-exempt municipal obligations, the income of which is excluded from gross business profits. The subsidiary banks have paid and may continue to pay dividends to the parent. As a result of the tax losses and the credit to banks for taxes paid under RSA 84, the subsidiaries have, in .most instances, never paid a New Hampshire Business Profits Tax.

In view of the foregoing representations, and specifically based upon them, the Department of Revenue Administration finds the following:

1. That the clause "whose gross business profits have already been subject to taxation under
   this chapter", contained in RSA 77-A:4, IV requires that the earnings from which the dividends are paid be from a tax year in which the payor was subject to the business profits tax law, and does not require a tax to have been paid on the particular income.

2. Provided that the subsidiary banks have been subject to, and continue to be subject to the
   business profits tax, and that the dividends paid do not exceed the accumulated earnings which have been subject to taxation, the holding company, "P" , is entitled to the dividend deduction contained in RSA 77-A:4, IV.

Lloyd M. Price, Commissioner