NASCUS to NCSL: Be Cautious When Considering Taxing CUs

WASHINGTON – Mary Martha Fortney, vice president of regulatory services for NASCUS advised state legislators who are members of the National Conference of State Legislatures to be cautious as they consider whether to tax credit unions. Speaking to the members at NCSL's invitation, Fortney explained that, "Over and over, I have seen state legislators come to the same conclusion Congress reached years ago about taxing federal credit unions. Congress understood that taxation based on income just isn't a good fit for credit unions. That's because credit unions are not stock-issuing corporations and their income statements and balance sheets are very different from those of banks. In effect, they have fewer options for meeting reserve requirements set by state and federal agencies to ensure safety and soundness." While reminding legislators that they need to consider CUs' "unique accounting construction and business model" in assessing the impact of any tax proposal, she also told them they need to think about the dual chartering implications of taxation. "The largest and most successful credit unions are likely to exercise their ability to switch to the federal charter if there is an undo tax disparity. It's painfully obvious that the shift of even a handful of these large state chartered credit unions has the effect of significantly reducing a state regulatory agency's income and thus impairing the state's ability to fulfill its responsibility," said Fortney.