EXHIBIT 8.2
HARVAZINSKI & MONTANYE, LLP
CERTIFIED PUBLIC ACCOUNTANTS
21 EVERETT ROAD EXT.
ALBANY, NEW YORK 12205
----------
(518) 453-0636
FAX (518) 459-0208
June 11, 1997
CONFIDENTIAL
------------
Board of Directors
Landmark Community Bank
26 Church Street
Canajoharie, New York 13117
Re: State Tax Consequences Relating to Conversion from
Mutual Savings Institution to Stock Savings Institution
-------------------------------------------------------
Ladies and Gentlemen:
Per your request, following is the opinion of this firm relating to the
state and local tax consequences of the proposed conversion of Landmark
Community Bank (the "Bank") from a federally chartered mutual savings bank to a
federally chartered stock savings bank and the formation of a holding company
parent, Landmark Financial Corp. (the "Holding Company"), to purchase and hold
the stock of the newly-formed federally chartered stock bank (the "Stock Bank")
pursuant to the Plan of Conversion as adopted by the Bank on April 1, 1997 (the
"Plan"). The scope of the firm's opinion and the discussion contained herein
are limited to the following taxes:
- New York State Banking Franchise Tax
- New York State Sales or Use Tax
- New York State License Fee on Foreign Corporations
- New York State Stock Transfer Tax
- New York State Real Estate Transfer Tax
In formulating our opinion, we have examined such documents, corporate
records, and matters of law, as we have deemed necessary for the purposes of
this opinion. In such examination, we have assumed, and have not independently
verified, the authenticity of all original documents, the accuracy of all copies
and the genuineness of all signatures. We have further assumed the absence of
adverse facts not apparent from the face of the instruments and documents we
examined. As to various federal tax law issues and questions of fact material
to the opinions hereinafter set forth, we have relied on the federal tax opinion
prepared by Luse Lehman Gorman Pomerenk & Schick, a Professional Corporation.
In addition, we have assumed, without investigation and without expressing
an opinion, that the Plan has been duly and validly authorized and has been
approved and adopted by the Bank's Board of Directors. Our opinion assumes that
the Bank will comply with the terms and conditions of the Plan and will properly
implement the Plan. The firm's opinion does not, and is not meant to, address
the effects of any variations from the Plan. Any variations may affect the
opinions we are rendering. Our opinion is based on current New York State laws,
regulations thereunder and case law.
Board of Directors
Landmark Community Bank
June 11, 1997
Page 2
Background
----------
Landmark Community Bank, a federally chartered mutual savings bank
organized pursuant to federal law and operated in New York State, desires to
convert to a federal stock institution which similarly, will be organized
pursuant to federal law and operated in New York State. A Delaware holding
parent company will be formed to acquire and hold the stock of the federal
stock institution.
OPINION
-------
New York State
- --------------
A. New York State Banking Franchise Tax
------------------------------------
For purposes of the New York State banking franchise tax, imposed by
Article 32 of the New York Tax Law, the proposed conversion will be tax-free
(NYS Tax Regulation Section 5-2.8(e)). The New York State banking franchise tax
is based on net income for federal income tax purposes, with some New York
modifications (Tax Law Section 1453 (a)). No adjustments to income are provided
with respect to transactions which are tax-free under Internal Revenue Code
Section 368(a)(1)(F). Thus, no gain or loss will be recognized since the
proposed conversion will constitute a tax-free reorganization within the meaning
of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code" or "IRC"). It should be noted, however, that the Holding Company will be
subject to New York State banking franchise tax and will be required to file a
combined New York State banking franchise tax return with the Stock Bank.
B. New York State Sales or Use Tax
-------------------------------
For purposes of the New York State Sales or Use Tax, imposed by Article 28
of the New York Tax Law, the proposed conversion will be tax-free. New York
State places a tax on the sale or use of tangible personal property. Although
broadly defined, "tangible personal property" does not include intangible
personal property. Stock has been defined by New York case law as intangible
personal property. Thus, no tax liability will be incurred due to the exclusion
of stock from the definition of "tangible personal property".
C. New York State License and Maintenance Fees on Foreign Corporations
-------------------------------------------------------------------
For purposes of the New York State license and maintenance fees on foreign
corporations, the proposed conversion will result in tax liability. No
liability will be incurred from the Stock Bank issuance of stock to Holding
Company, but a license fee will be imposed on the Holding Company. An exemption
exists for certain banking corporations as defined in Tax Law Section 1452, but
the Holding Company will be unable to qualify for the exemption since the
Holding Company will not be engaged in a "banking business." As such, it will
be subject to a license fee at a rate of one-twentieth of one per centum (1/20%)
of the apportioned par value of shares issued by the foreign corporation
(minimum fee is $10). This fee is a one-time tax which would be imposed on any
additional shares issued by the Holding Company in the future. Furthermore, an
annual maintenance fee of $300.00 is imposed.
Board of Directors
Landmark Community Bank
June 11, 1997
Page 3
D. New York State Stock Transfer Tax
---------------------------------
For purposes of the New York State Stock transfer tax, imposed by
Article 12 of the New York Tax Law, the proposed conversion will be tax-free.
Case law holds that the tax does not apply to a corporation's original
issuance of stock. Thus, no tax will be imposed on the original issuance of
Bank's stock or Holding Company's stock.
E. New York State Real Estate Transfer Tax
---------------------------------------
For purposes of the New York State real estate transfer tax imposed by
Article 31 of the New York Tax Law, the proposed conversion may result in tax
liability. Every conveyance of an interest in real property is subject to the
tax, however, certain exemptions do exist. It should be noted that the issue
of whether a mutual to stock conversion with a publicly-traded foreign holding
company acquiring the stock of the stock institution qualifies as a "mere
change" exemption has not been decided under New York case law or tax law
regulations. Under current regulations and on the basis of private letter
rulings, a position may be taken that the proposed conversion will qualify as a
"mere change" exemption and be tax-free.
ANALYSIS
--------
New York State
- --------------
A. New York State Banking Franchise Tax
------------------------------------
Section 1451 of Article 32 of the New York State Tax Law imposes, annually,
a franchise tax on every banking corporation for the privilege of exercising its
franchise or doing business in New York State in a corporate or organized
capacity.
Section 1455(a) of the Tax Law provides that the basic tax is nine percent
of the taxpayer's entire net income, or portion thereof allocated to New York
State, for the taxable year or part thereof.
Section 1452(a)(2) of the Tax Law provides that every corporation or
association organized under the laws of any other state or country which is
doing a banking business, anywhere, is a banking corporation.
Section 16-2.7 of the Franchise Tax on Banking Corporations Regulations
(hereinafter "Regulations") defines "doing business" as follows:
(a) The term "doing business" is used in a comprehensive sense and
includes all activities which occupy the time or labor of people for
profit. Every corporation organized for profit and carrying out any of
the purposes of its organization is deemed to be doing business for
purposes of the tax. In determining whether a corporation is doing
business, it is immaterial whether its activities actually result in a
profit or a loss.
(b) Whether a corporation is doing business in New York State is
determined by the facts in each case. Consideration is given to such
factors as:
Board of Directors
Landmark Community Bank
June 11, 1997
Page 4
(1) the nature, continuity, frequency and regularity of the
activities of the corporation in New York State;
(2) the purposes for which the corporation was organized;
(3) the location of its offices and other places of business;
(4) the employment in New York State of agents, officers and
employees; and
(5) the location of the actual seat of management or control of the
corporation.
Further, Section 16-2.7(e) states that a corporation will not be deemed to
be doing business in New York State if its activities in New York State are
limited to such things as:
(1) occasionally acquiring a security interest in real or personal
property located in New York State without otherwise doing
business;
(2) occasionally acquiring title to property located in New York
State through the foreclosure of a security interest without
otherwise doing business ....
Given that the Bank and Holding Company will maintain headquarters and
officers in New York State, both entities will be subject to the tax. The
Holding Company will be required to file a combined New York State banking
franchise tax return with the Stock Bank. Permission must be requested from New
York State to file a combined return (20 NYCRR Section 21-2.5).
Although the entities will be subject to the New York State banking
franchise tax, the proposed conversion, taken as a single transaction will not
result in tax liability. The New York State banking franchise tax is based on
net income for federal income tax purposes with some New York modifications.
Entire net income is defined in section 1453(a) of the Tax Law as "total
net income from all sources which shall be the same as the entire taxable income
(but not alternative minimum taxable income) ... which the taxpayer is required
to report to the United States treasury department ... subject to the
modifications and adjustments hereinafter provided."
Section 1453(b) through (k) of the Tax Law and sections 18-2.3, 18-2.4 and
18-2.5 of the Franchise Tax on Banking Corporations Regulations, promulgated
thereunder, provide for the modifications and adjustments required by section
1453(a) . However, there is no modification or adjustment applicable to a
transaction where, for Federal income tax purposes, the transaction constitutes
a tax-free exchange within the meaning of sections 351 and 368(a)(1)(F) of the
IRC.
Additionally, Section 5-2.8(e) of the Article 9-A Regulations provides that
for purposes of this section, a disposition does not occur where property is
transferred from a corporation as part of a transaction to which section 381(a)
of the Internal Revenue Code applies; e.g., ... a reorganization under ...
section 368(a)(1)(A) (statutory merger or consolidation) ... As there is no
disposition in these cases, an add back is not required provided that the
property continues in qualified use and is acquired by a corporation subject to
tax under article 9-A. Therefore, for purposes of section 1453 of the Tax Law,
such transaction would be treated the same as it is treated for Federal income
tax purposes (Oswego City Savings Bank March 31, 1995. Advisory Opinion,
TSB-A-95(7)C, Advisory Opinion, TSB-A-95(1)I, 3-31-95).
Board of Directors
Landmark Community Bank
June 11, 1997
Page 5
B. New York State Sales and Use Tax
--------------------------------
New York State imposes a sales and use tax on tangible personal property
and certain enumerated services. Tax Law Section 1101, et seq. The sales tax
is a transactions tax and is imposed on the receipts from the retail sale of
tangible personal property. However, Section 1101(b)(4) of the Tax Law
provides, in pertinent part, as follows:
(iii) The term "retail sale" does not include:
(A) The transfer of tangible personal property to a corporation, solely in
consideration for the issuance of its stock, pursuant to a merger or
consolidation effected under the law of New York or any other
jurisdiction.
Section 526.6(d) of the Sales and Use Tax Regulations provides, in part,
as follows:
(d) Exclusions relating to corporate and partnership transactions. (1) The
following transfers of property are not retail sales:
(i) The transfer of property to a corporation, solely in
consideration for the issuance of its stock, pursuant to a merger
or consideration effected under the law of New York or any other
jurisdiction.
Thus, the proposed conversion will be tax-free for purposes of the New York
State sales and use tax.
C. New York State License Fee on Foreign Corporations
--------------------------------------------------
New York State imposes a license fee on foreign corporations doing business
in the state. The tax is based on the foreign corporation's capital structure
and is separate from the corporate franchise tax. Tax Law Section 181 et seq.
Furthermore, an annual maintenance fee of $300.00 is required. Tax Law Section
181.2. The license tax and maintenance fee are imposed for the privilege of
exercising the corporation's franchise or carrying on business in a corporate
capacity in New York.
Additionally, section 181.1 of the Tax Law provides that a foreign
corporation must pay a license fee for the privilege of carrying on its business
in New York State. This fee is payable only once unless the capital share
structure changes or the amount of capital stock employed in New York State has
increased since the last license fee report, form CT-240, was filed. Advisory
opinion, TSB-A-91(14)C, May 28, 1991.
The Bank will be subject to a license fee at a rate of 5 cents on each
share of no par value stock and one-twentieth of one per centum (1/20%) of the
apportioned par value of shares issued by the foreign corporation. The minimum
fee is $10. This fee is a one-time tax and would be imposed on any additional
shares issued by the Holding Company in the future.
Board of Directors
Landmark Community Bank
June 11, 1997
Page 6
D. New York State Stock Transfer Tax
---------------------------------
New York State imposes a tax on the sale and transfer of shares of stock on
a transactional basis. Tax Law Section 270 et seq. The original issuance of
stock by a corporation is exempt from the tax. Terminals and Transportation
----------------------------
Corporation v. State, 169 Misc. 703, 8 N.Y.S.2d 282 affirmed 257 App. Div. 1028,
- --------------------
14 N.Y.S.2d 493 (1938). Furthermore, many State Department of Taxation and
Finance Opinions of Counsel confirm this exemption. NYNEX, Advisory Opinion
Petition No. M961003A. Accordingly, no tax will be imposed on the original
issuance of stock pursuant to the proposed conversion.
E. New York State Real Estate Transfer Tax ("NYS RETT")
----------------------------------------------------
New York State imposes a transfer tax on conveyances of interest in realty
located within the state. Tax Law Section 1415. Every conveyance of an
interest in real property located in New York is subject to tax at the time of
transfer of $2.00 for each $500.00 (or fraction thereof) of consideration given
with an additional tax on conveyance of residential real property, where the
consideration is greater than $1,000,000.00. Included in the definition of a
taxable transfer is the transfer of a "controlling interest" in an entity with
New York State real property interests. Tax Law Section 1440. A "controlling
interest" is defined as ownership of fifty percent or more of the combined
voting power of the shares of a corporation (Tax Law Section 1440.2).
The transfer of 100% of the Bank's stock to the Holding Company pursuant to
a proposed conversion will be deemed a transfer of a controlling interest in the
Bank (an entity with an interest in real property located in New York State)
and, thus, potentially subject to the New York State RETT.
Certain exemptions do apply. Tax Law, Section 1405(b)(6) state that to
the extent that a conveyance effectuates a mere change of identity or form of
ownership or organization and there is no change in beneficial ownership, the
real estate transfer tax does not apply.
Some support exists for the contention that the proposed conversion is
tax-free under the "mere change" exemption. Two private letter rulings have
held that the conversion to a mutual savings bank to a stock institution is
exempt from the real estate transfer taxes (the rulings primarily addressed the
repealed New York State Real Property Transfer Gains Tax but the analysis is the
same). It should be noted, however, that both private letter rulings involved
mergers of insolvent banks under IRC Section 368(a)(1)(g). Nevertheless, the
substantive reasoning behind the rulings appear to be applicable to the proposed
conversion. Also, an advisory opinion (Long Shadow, Inc., February 14, 1990)
has held that a tax-free reorganization under IRC Section 368(a)(1)(D) was not
subject to the real estate gains tax. As such, there exists a strong position
that the proposed conversion will qualify as a "mere change" exemption and be
tax-free.
The opinions set forth herein are based on current law, including statutes,
regulations, and judicial and administrative interpretations thereof. Such
statutes and regulations could be amended with retroactive effect, and such
interpretations could change. Additionally, the taxing authorities could
disagree with the conclusions contained in this opinion, and no assurance can be
given that such conclusions would be sustained by a court, if these matters were
contested.
Board of Directors
Landmark Community Bank
June 11, 1997
Page 7
The opinions set forth herein do not, and are not meant to, address the tax
return filing requirements of New York State. If we can be of further
assistance in the preparation and filing of the relevant state and local tax
returns, please do not hesitate to contact us.
The opinions set forth herein are furnished solely for the benefit of the
Board of Directors of Landmark Community Bank in connection with the proposed
conversion and is not to be relied upon or used for any other purposes without
the firm's prior written consent.
/s/ Harvazinski & Montanye, LLP