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Banking industry lobbyists are attempting to do their part to help budget-strapped state governments cut massive deficits. Like doing their best to get state-chartered credit unions to pony up new tax monies. Banking trade groups even have created a national coordinating committee to share strategies on how to get more credit union money into state coffers. Everyone knows what the Utah Bankers Association (UBA) tried to do. In supposedly trying to help that state, the UBA ended up encouraging state-chartered credit unions to convert to federal charters. That caused the state revenues to dip a bit, exactly the opposite of what the Utah bankers wanted to see happen. Not to be discouraged by the Utah banker blunders, their colleagues in certain select other states are reportedly going to have a go at helping reduce state deficits. Stop right here! If anyone believes that a priority of the banking industry really is to help reduce state budget deficits, and has nothing at all to do with eliminating credit unions as competitors, than you’ll also believe even crazier ways banking lobbyists could possibly dream up under that pretense. Like these: A Credit Union Membership Tax. Every credit union member would have to pay a state tax for belonging to a not-for-profit financial institution rather than doing business at a tax-paying one. The tax would have to be limited only to financial institutions in order to get directly and solely at credit unions. Otherwise, even members of the American Bankers Association (ABA), a not-for-profit, tax-exempt organization, would have to pay a state tax. As would members of all other state and national banking groups. Credit union spokespersons claim there are somewhere over 80 million members of credit unions in the United States. Do the arithmetic. At only a dollar per member, that would be $80 million going into state pockets in proportion to the number of CU members in a state. A Credit Union Executive Privilege Tax. For the privilege of heading up a not-for-profit state-chartered credit union in those states that have a state income tax, a new tax form would be implemented. It would be for the exclusive use of credit union CEOs. It would consist of only three lines. Line one: “How much did you make last year?” Line two: “How much do you have left?” Line Three: “Send it in!” The only thing that could make this new tax even more beneficial to states seeking more revenue would be if it applied to bank CEOs instead. Think how much more money that would bring in based on their annual compensation compared to their CU counterparts. A N-F-P Goods and Services Tax. This state tax would be applied to every purchase of goods and services a credit union makes from another not-for-profit entity rather than a tax-paying supplier. Thus, dues paid to various credit union groups (a service provider) would be subject to this new tax. So would any purchases from a co-op (a goods provider), for example. Add up all the monies credit unions pour in to n-f-ps every year and the states could be looking at an annual windfall. A Conversion Tax. All credit unions that convert their charters would pay this tax. Not once, but on an annual basis. It wouldn’t matter if the credit union converted from a federal to a state charter, or vice versa. The same amount of taxes would be due until and unless they convert back again. The only tax-free charter conversion would be for any credit union that converts to a bank charter. The rationale behind that exclusion is that that number is and will remain so miniscule so as not to be worth the bother. A Loan Lost Tax. This new state tax would apply to every loan that a for-profit, tax-paying financial institution loses to a credit union through the expanding business loan powers credit unions are beginning to enjoy. The tax would not be based on the number of loans but on a percentage of total dollar volume of the lost loans. The state would request that the injured bank be the sole determinant of whether any individual loan qualifies for the tax. Initially this tax would not be expected to generate significant income for the state. But looking ahead at the probable growth of CU business loans, this could be still another windfall of state revenues. A Regulatory Tax. All state-chartered credit unions would be required to pay a tax on all fees paid to state regulatory bodies. It would be based not on the amount of the fees paid, or the size and complexity of the CU, but on the amount of actual time regulators spend in the credit union. A Location Tax. Any credit union located within 500 yards of a tax-paying financial institution would be taxed at a fixed rate based on the distance less than 500 yards. For example, a CU only 350 yards from a bank in downtown Salt Lake City would be assessed a fixed amount on the 150 yards in violation. However, credit unions located at least 100 miles from the nearest bank in the state would receive a one-time credit. If, however, a bank chooses to open a branch within those 100 miles, the credit union would be required to return that credit with interest at a rate to be determined by that bank. Silly? Sure! But are these mythical taxes any sillier than the banking industry trying to convince politicians, lawmakers, regulators, the general public, the media, and anyone else within earshot that they really are trying to help their states’ budget problems rather than harass credit unions? Granted many states are in dire financial straits. But finding ways to tax not-for-profit credit unions that are legitimately tax-exempt, while the banking industry plays increasingly visible games to avoid taxes it is obligated to pay as a for-profit industry, isn’t the answer. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman

Credit Union Times

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