A change in federal law quietly made last month could bring a measure of relief for Georgia’s struggling banking industry.
The change involves a law that allows money-losing businesses to get a refund based on the amount of federal taxes they paid during flusher times.
In the past, businesses were able to recoup up to a third of current losses, with the exact amount depending on how much tax was paid during the previous two years. But in November, Congress extended the time period to five years.
The extra three years are especially critical for Georgia banks, many of which raked in huge profits between 2003 and 2006 but began to lose money in 2007 when the housing market crashed.
The change – included as part of a law that increased the amount of time workers can receive unemployment insurance – means a bank’s total refund will be calculated based on taxes paid from 2003-08 instead of 2007-08.
The typical Georgia bank “was making pretty good money up until two years ago,” said Patrick Tuley, a partner with Atlanta accounting firm Porter Keadle Moore in Atlanta.
Through the first three quarters of the year, 60 percent of Georgia’s banks were losing money, compared to 10 percent in 2005.
When the change was made in early November, Tuley said his phone began ringing off the hook as banking clients, as well as other businesses, clamored to learn how much money they might get back.
The tax rebate program was not extended to banks that received federal taxpayer bailout money through the emergency Troubled Asset Relief Program. In Georgia, 27 banks received TARP funds.
John Kline, a banking consultant based in Decatur, said banks he works with are scrambling to figure out how the change affects them.
About a third of Georgia’s more than 300 banks are under orders from their regulators to raise cash to improve their financial positions. But raising capital is difficult in the current economic climate, Kline said, making the tax rebate program a potential lifeline for some banks.
“We’re finding some banks that have several million dollars they can bring back in and improve their capital,” he said. “This is a wonderful opportunity” for many banks.
Tuley said about 75 percent of banks based in metro Atlanta could benefit from the change, because the fortunes of so many local institutions followed the real estate’s boom-and-bust cycle.
Here’s how the tax refund program works: For every $100 in losses taken this year, banks and other businesses are eligible to receive up to $34 back.
A small Georgia bank that loses, say, $20 million in 2009 is eligible to receive up to $6.8 million back, though the exact amount depends on the taxes paid between 2003 and 2008. For example, if the bank paid $5 million in taxes during that time, it would get a refund of $5 million. If it paid $10 million, it would receive the full $6.8 million it's eligible for.
“That’s real money,” Tuley said. “That's capital. That’s liquidity. It helps banks a great deal.”
For banks, losses are a bit complicated to calculate, said Kline. Bank-owned property, such as a foreclosed home, sold at a loss does count, while funds stashed away to cover potential future losses do not.
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