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TRENTON, N.J. – It remains to be seen whether a $1 billion tax hike (S-1556/A-2501) approved by the New Jersey state legislature in an emergency session called by Gov. James McGreevey will raise the necessary money to close a $5.3 billion shortfall in a $23.4-billion, 2003 fiscal year budget. What is known, though, is that the issue has raised to the surface the on-going tax argument between credit unions and banks in the state and nationwide. Credit unions, because of their tax exempt status, are not affected by the new corporate business tax (CBT) law. Banks, however, are, and this has raised mild animosity from banks towards credit unions. “With credit unions getting more and more into the types of businesses banks are in, and with their ability to do business with people other than those under their common bond, and along with their wide regulatory responsibility, they should have the same tax responsibilities as banks,” says Stu Cameron, executive vice president and director of government relations for the New Jersey Bankers Association (NJBA). The NJBA and its member banks have not officially spoken out against credit unions as it relates to the new CBT. The organization, according to Cameron, is now currently focusing on how the law will affect bank assets and dividends, and more importantly, business customers who have loans with the various institutions. Cameron did tell Credit Union Times, colloquially speaking, “If you (credit unions) are going to walk, talk and look like a duck, then you should behave like a duck. In other words, if you are going to act like a bank, then you should be paying taxes like a bank.” John Passuth, director of government affairs at Credit Union Affiliates of New Jersey, responded, “Credit unions do pay taxes – payroll taxes, sales taxes and property taxes. As H.R. 1151 states, credit unions are `exempt from Federal and most state taxes because they are member-owned, democratically-operated, not-for-profit organizations generally managed by volunteer boards of directors.’ “We are not-for-profit financial cooperatives,” Passuth continued. “We exist to serve our members and do not make a profit. Unlike other financial institutions, we do not issue stock or pay dividends to outside stockholders. Instead, earnings are returned to out members. “The credit union motto is `People not Profit.’ When was the last time you heard a bank say that?” asks Passuth. “Until other financial institutions can say that, I say keep quacking by.” Passuth and Cameron both find common ground on the issue that CBT is bad for businesses in this current down economy. “It puts a bad taste in the mouth of New Jersey’s corporate world, especially with the economy being the way it is,” said Passuth. “Only time will tell if the true intentions of the CBT will help the budget and see if this is not some type of vehicle for some other underlying initiative that the (McGreevey) administration might have.” The new law closes corporate tax loopholes that “we have looked upon as tax incentives to keep businesses in New Jersey,” said Cameron. “The same is holds true for banks. We want New Jersey to be business friendly. It’s good for everybody and good for jobs.” Some of the details of the CBT include: * an Alternative Minimum Assessment (AMA) designed to close a loophole that allows thousands of firms to pay a $200 minimum tax. The new AMA is based on a formula using either gross receipts or gross profits to measure a company’s economic presence in the state. The assessment would not be applied to firms with less than $2 million in sales. This provision can be abolished at the end of 2004. * a $150 processing fee on members of New Jersey partnerships, limited liability partnerships and limited liability corporations. It also applies to out-of-state members of firms that are based in New Jersey. * a throw-out rule that would impose higher corporate taxes for companies that have sales in other states but pay no corporate taxes in those states. This would more accurately measure a company’s taxable profits that should be subject to the New Jersey levy. -

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