Constitution Applies for Federal Charter
WALLINGFORD, Conn. - The $1.7 billion Constitution Corporate has applied to convert to a federal charter. The corporate said the driving force is a $100,000 per year savings it will see as a federal charter. The savings comes from no longer having to pay a state sales tax and a lower annual assessment from NCUA versus the state regulator. Constitution Corporate CU EVP Bill White said the IRS' Unrelated Business Income Tax had nothing to do with the conversion. Constitution, and all state charters in Connecticut were audited by the IRS in 2004 for UBIT, which requires non-profits to pay on income that is not related to their core business. Constitution came under further scrutiny when a local IRS office questioned whether the corporate should even be tax exempt. The IRS office issued a Technical Advice Memorandum to IRS headquarters in Washington D.C. to be ruled on. The matter is still pending, as is the UBIT question in general for credit unions. "UBIT was not the driving factor. It was the economics, the savings," said White. White noted that it is not a done deal yet. If it gets preliminary approval from regulators to convert it then needs to get its members' approval. It needs two-thirds approval of members voting. Constitution has one of the more successful corporate CUSOs in the corporate network in Smart Source Solutions Inc. which offers Web site development and an online board communication solution among other technology solutions. This type of non-financial business may have raised eyebrows at the IRS as CU groups involved in the UBIT watch said they're amazed at the lack of knowledge some of the IRS examiners have about CU operations and how CUSOs fit in. There are currently 17 state chartered corporates and 13 federal charters. (See chart on this page).