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LITTLE ROCK, Ark. – Banks and credit unions here have found a common cause – a battle against a proposed state tax on services, including a wide range of banking activities. If passed, HB 1029 and HB 1030 would tax fees for transferring funds from one account to another, stop payment charges, debit card replacement charges, copy and research fees, bill payment fees, returned deposit item fees, fees for issuing certified checks, and any other charges for bank or financial institution services. As of mid-January, the bill had been introduced and put into committee, but no hearings were scheduled. Ron Harrod, lobbyist for the Arkansas Credit Union League, explains the bill would tax services at the same rate as goods and cover virtually every type of service except medical. “It would tax services that we actually provide to members and we would have to collect from our members. Currently we have a 5.125% state sales tax and a local option sales tax that averages an additional 3 cents, for a total of 8.125 cents. The services tax would be identical,” he says. Like other states, Arkansas has been struggling with tough economic times and is eager to find new revenue sources. The crisis has hit schools hard, because the Arkansas Supreme Court has ruled the state education system does not meet the equal and adequate requirement. “The Association of Cities and the Association of Counties saw an opportunity to get a windfall by taxing services, because their (local) taxes are based on the assumption they tax everything the state taxes,” Harrod says. “About 30% of all the money collected under this new tax would go to cities and counties, not to education,” he added. The league has issued a Call to Action advising member credit unions to contact their state representatives and senators and urge them to vote against the bills. The league suggests credit unions point out the costs will have to be passed on to consumers and the tax will put Arkansas businesses at a competitive disadvantage with other states. Harrod says only two states, Hawaii and Iowa, currently impose such a tax. “Our challenge is to educate legislators that this is regressive, would harm our members, and in fact harm all financial institutions in our state,” he states. [email protected]

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