§ 155.23. Determination of valuation factors.
(a) Selling price of stock shall be computed as an average price for the taxable year on a daily weighted or mean average. This selling price is that applicable to an active, continuing market involving a substantial number of capital stock transactions, that is, the capital stock of a corporation is registered or traded on a security exchange or over the counter on a regular and orderly basis under circumstances which usually and generally apply to the transactions. However, when the taxpayer’s capital stock is not traded in an active and continuing market and the taxpayer disposes of a substantial number of shares of capital stock or the taxpayer is involved in a substantial number of capital stock transactions during the taxable year, the selling price of stock shall be the average selling price of the disposed stock. Isolated or sporadic sales or sales of fractional interests of minority holdings are generally not determinative of the selling price of stock. Reference should also be made to § 155.22 (relating to definitions) wherein ‘‘corporate earnings’’ is defined. What is determined to be a substantial number of transactions shall depend upon the facts and circumstances pertinent to an individual case.
(b) Earnings of industrial taxpayers shall be capitalized at 10% (10 x earnings); for earnings of public utilities, at 8.0% (12 1/2 x earnings). If the earnings figure shows a loss, it shall be entered as zero. However, in the determination of the average earnings the loss shall be entered as computed. Reference should also be made to § 155.22 (relating to definitions).
(c) Dividends declared by industrial taxpayers shall be capitalized at 8.0% (12 1/2 x annual dividends); for public utilities, at 7.0% (14.285 x annual dividends). Reference should also be made to § 155.22.
(d) Stockholder equity shall be determined by taking the actual value, if available and determinable, of the total corporate assets less the total corporate liabilities.
(1) What is included as corporate assets and liabilities:
(i) Total corporate assets means real property and tangible and intangible personal property recorded on the corporate balance sheet.
(ii) Total corporate liabilities means current liabilities, funded debt and accrued liabilities. Generally, contingent liabilities and surplus reserves may not be considered corporate liabilities. A reserve for deferred Federal taxes may not be included as contingent liability. Other exclusions shall be made on a case-by-case basis.
(2) Valuation when the actual value is not available or cannot be determined:
(i) Real property and tangible and intangible personal property, other than marketable and nonmarketable securities and stock of affiliate and subsidiary corporations, shall be valued at net book value.
(ii) Marketable securities selling in an established market shall be valued at its quoted selling price.
(iii) Nonmarketable securities shall be valued at appraised market values.
(iv) Stock of subsidiary and affiliate corporations are valued on the basis of the capital stock reported by the subsidiary or affiliate corporation for Capital Stock or Foreign Franchise Tax purposes. However, if the subsidiary or affiliate corporation is not subject to Capital Stock or Foreign Franchise taxation, the corporation is valued at stockholder’s equity.
(3) Changes in the taxpayer’s capital structure during the tax year or years in question shall be prorated.
Example 1. The taxpayer acquired treasury stock on July 1. The value of the treasury stock is $300,000. The stockholder equity at the end of the tax year (December 31) is $1,000,000.
The revised stockholder equity is computed as follows:
Stockholder equity $1,000,000 Acquisition of Treasury Stock ($300,000 x 181/365) 148,767 $1,148,767 The revised stockholder equity is $1,148,767.
Example 2. The taxpayer issued common stock on July 1. The value of the common stock issued is $300,000. The stockholder equity at the end of the tax year (December 31) is $1,000,000. The revised stockholder equity is computed as follows:
Stockholder equity $1,000,000 Issuance of Common Stock ($300,000 x 181/365) 148,767 $ 851,233 The revised stockholder equity is $851,233.
Source The provisions of this § 155.23 adopted September 1, 1978, effective September 2, 1978, 8 Pa.B. 2457.
Cross References This section cited in 61 Pa. Code § 155.21 (relaitng to general); 61 Pa. Code § 155.22 (relating to definitions); 61 Pa. Code § 155.24 (relating to valuation methods); and 61 Pa. Code § 155.28 (relating to capital stock value methods—fixed formula).
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