As the Iowa state legislature slogs through plans to give Iowansa tax cut, the state Senate has sets its sights on one source foradditional revenue—credit unions.

Following fierce lobbying by banks and credit unions, the Senatelast month passed a tax cut plan that would—for the first time—usethe same taxation formula for credit unions as is now used forbanks.

But the plan faces a rocky future. Iowa Republican Gov. KimReynolds has not included the tax plan in the budget she sent tothe legislature.

And Republican state Rep. Guy Vander Linden, chairman of theHouse Ways and Means Committee opposes taxing credit unions.

“I would not support an increase of taxation on credit unions,”he told CU Times.

Justin Hupfer, vice president of government affairs at the IowaCredit Union League , said the legislature traditionally has nottackled the issue of credit union taxation. “That's the farthestit's gotten,” he said. “It hasn't happened in decades, ifever.”

“In 2003, we made significant traction to address this issue inIowa, as a credit union tax bill was advanced by a Senatecommittee,” said John Sorensen, president/CEO of the IowaBankers Association.

As state legislatures have been gaveled into session across thecounty, banks and credit unions have continued their annual battlesover the taxation of credit unions. Congress last year enacted atax overhaul that did not include taxes on credit unions—despitethe urging of banking groups. But Senate Finance Chairman Orrin Hatch (R-Utah)has signaled a desire to revisit the issue this year.

Meanwhile, Iowa has become ground zero for a state legislativebattle.

And the lobbying has been aggressive, with bankers emphasizingthat a credit union tax would simply be fair and credit unionsquestioning why legislators would want to increase taxes on anyoneif their intention is to cut taxes.

The Iowa Credit Union League held a rally at the state capitalWednesday. The rally included comments from CUNA President/CEO JimNussle, who previously represented Iowa in the U.S. House ofRepresentatives.

“Giving political speeches about reducing taxes on Iowans andthen turning around and voting for a hidden, back door tax on600,000 Iowans is not pro-growth, not conservative, and not veryRepublican,” said Nussle.

Hupfer said the league was not surprised by the bankers'efforts. He said that once it became clear that thelegislature was going to tackle comprehensive tax legislation, theleague expected the bankers to push their plan.

He added, however, that the league argument that the creditunion tax would represent a tax increase on Iowans has gainedtraction.

“Nobody's looking for a tax increase in Iowa,” he said.

But Dave Caris, CEO of the Community Bankers of Iowa, said hebelieves there is a growing recognition in Iowa that large creditunions essentially operate as banks.

“They've overstepped their bounds,” he said.

“In Iowa, we have a select number of mega credit unions thathave aggressively expanded well beyond the intent of the originaltax exemption provided in the early 1930s,” Sorensen said.

He said that the smallest credit unions would not be taxed,under the Senate plan.

“But small credit unions need to understand that the actions oftheir larger brethren are bringing into question their taxexemption at every level,” Sorensen added.

The bankers and the credit unions are attempting to rallycustomers and members to push their legislators. Forinstance, Iowa credit union members have sent 30,000 emails tolegislators, accoding to Hupfer.

Caris said bankers also have attempted to rally grassrootssupport. “There's nothing magic,” he said.

Hupfer and Caris agreed that it's unclear what the legislatureultimately will do.

Caris downplayed the significance of having the Ways and MeansCommittee Chairman opposing the plan. “He's one legislator,” hesaid. “It's not insurmountable.”

But Hupfer said Vander Linden's opposition is a key development.“He's a very important person as chairman of the committee,” hesaid.

Nonetheless, Hupfer said the league is taking nothing forgranted.

“These legislative sessions are marathons,” he said. “No one'sgoing to know until they adjourn.”