Banks and credit unions have long battled over the fact that credit unions are exempt from the federal income tax. But in Iowa, that argument is coming full circle.
State senators in Iowa will soon vote on a bill that would impose a franchise tax on credit unions. There is currently a 5 percent state franchise tax on net income for banks in Iowa. The pending bill would lower the rate on that tax to 2 percent for the first $7.5 million of net income, and to 4 percent on all net income above $7.5 million for all financial institutions in Iowa including credit unions.
The bill has been heavily pushed by bakers’ trade groups, including the Iowa Bankers Association.
“A typical family of four in Iowa pays more taxes than one of the state’s largest financial institutions that happens to be a credit union that earns $60 million in profits. I mean, if you apply a 5 percent tax to that, that’s $3 million,” Iowa Bankers Association CEO John Sorenson told Radio Iowa. “I think they can probably survive. Most of us do who run a business in this state. We pay our taxes. The banks pay $300 million in taxes when you include state and federal.”
The Iowa Bankers Association in January launched a digital campaign in January to support the bill.
Local and national credit union trade groups are pushing back against the bill, citing the benefits for banks and the true mission of a credit union.
“Iowa’s credit union movement is deeply opposed to and disappointed by the language in today’s Senate bill that proposes to increase taxes on Iowa’s not-for-profit credit unions and our 1.1 million members, while giving bankers another $28 million in tax breaks and raising the cost of financial services,” Patrick Jury, president and CEO of the Iowa Credit Union League, said in a statement.
“This proposed legislation would also effectively eliminate competition and consumer choice, while increasing bank tax breaks at a time when they’ve enjoyed $5.4 billion in record profits the past six years in our state alone,” he added.
Jim Nussle, president and CEO of the Credit Union National Association and an Iowan native, cited data that showed Iowa credit union members saved $105 million in better rates, lower fees and lower interest rates on car loans.
“It would make it more expensive for Iowans to access safe and affordable credit provided by not-for-profit financial cooperatives,” he said in a statement. “This legislation is bad for Iowa and we urge this body to soundly reject it.”
The conversation over credit unions and taxes has been ramping up as of late after Sen. Orrin Hatch (R-Utah), the chairman of the Senate Finance Committee, sent a letter to National Credit Union Administration Chairman Mark McWatters about why the credit union tax exemption should be eliminated.
