Expanding Your Bank Presence? Do These 5 Things First

If you’re planning to expand your financial institution into another city or state, whether through location based expansion or an M&A approach, proper planning is important. Building a plan before you embark on expansion can help to ensure the success of your growth, secure your compliance, and keep you from costly penalties. 

The process works best with a checklist of each task you will need to consider, including income tax filings, registering with the state, and what documents you need to file. Start with these three questions to begin the process of clarifying your requirements:

1. Will you have a physical presence in the state (i.e., an actual brick and mortar branch)?
2. Will you have employees in the state?
3. Will you have loans secured by real property located in the state?

If you answered yes to any of these questions, it is likely that your bank will be required to register and pay taxes in the state where you intend to do business. The HORNE Banking team has compiled a list of the 5 most important tasks you should address as part of an expansion strategy.

File income and franchise tax returns. 

If you have an actual branch location, an employee, or loans secured by real property within the state, you most likely will have nexus, which requires you to file a state income and/or franchise tax return. If you have nexus in more than one state, you must apportion income to determine income attributable to that state. Keep in mind that many states have changed their method for calculating apportionment, so it is important to examine the rules of your taxing jurisdiction on an annual basis.

Consider sales and use tax regulations for your specific states and activities.  

For most financial services businesses, you will pay sales and/or use tax on items like office supplies, computers, furniture, fixtures, and credit reports. If your company has a server located in a different state, it is important to make sure you are paying the correct tax rate. Some states require a tax on products transferred electronically. Requirements vary, so be sure to check the states where you have activity.

File personal property returns.  

If you have property located within the state, you are required to file personal property taxes for county or city or both. The yearly returns will report personal property located at the branch.

Register with the state unemployment commission.

If you have employees in the state, either working in an actual branch or working from their home, you will pay withholding to the state. Depending on the jurisdiction, withholding returns will need to be filed quarterly and yearly. Some cities also have withholding requirements. Check your taxing jurisdiction.

Register with the state.

If you plan to register as a foreign corporation or LLC with the Secretary of State, you will need to complete Foreign Qualification Application or Statement or Designation – the name varies by state. With the registration, you will provide the name of the business, formation information (date and state of incorporation), name of the principal officer(s), and the name of the registered agent. In addition, each state will require a registration fee, which varies by state.

Considering and managing the many details involved in an expansion is important for ensuring tax compliance and laying a path to sustainable success. Once you begin this process, it is more important than ever to have a partner on your side that is focused on your unique goals, resources, and needs. Even if your financial institution already has undertaken an expansion, the HORNE Banking team can perform an analysis to make certain you have addressed the various and multiple requirements that come with expanding your footprint. . 

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