EXHIBIT 8.2
[letterhead]
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 my opinion 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 my 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 my opinion, I have examined such documents, corporate
records, and matters of law, as I have deemed necessary for the purposes of
this opinion. In such examination, I have assumed, and have not independently
verified, the authenticity of all original documents, the accuracy of all
copies and the genuineness of all signatures. I have further assumed the
absence of adverse facts not apparent from the face of the instruments and
documents I examined. As to various federal tax law issues and questions of
fact material to the opinions hereinafter set forth, I have relied on the
federal tax opinion prepared by Luse Lehman Gorman Pomerenk & Schick, a
Professional Corporation.
In addition, I 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. My opinion
assumes that the Bank will comply with the terms and conditions of the Plan
and will properly implement the Plan. My opinion does not, and is not meant
to, address the effects of any variations from the Plan. Any variations may
affect the opinions I am rendering. My 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 I can be of further
assistance in the preparation and filing of the relevant state and local tax
returns, please do not hesitate to contact me.
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 my prior written consent.
/s/ Eric W. Montanye, CPA