A key lawmaker says a long-simmering argument in the financial sector may be debated as the legislature considers changes in Iowa’s tax code.
“We all need to look at what is fair,” said Senator Randy Feenstra, a Republican from Hull who is chairman of the Senate Ways and Means Committee. “What is a bank and what is a credit union and are they different or are they the same? So these are all things that need to be fleshed out before we go into changing something dramatically.”
The state’s banking industry argues credit unions should lose their non-profit status and should have profits taxed like banks and that message is now being aired in advertising.
“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 five percent tax to that, that’s $3 million,” Iowa Bankers Association CEO John Sorenson said. “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.”
Justin Hupfer, vice president of government affairs for the Iowa Credit Union League, said the 1.1 million Iowans who are shareholder members of a credit union are being urged to contact their legislators.
“We pay property tax. We pay sales tax. We pay payroll taxes just like any other business. The difference between us and banks is that we pay what’s called a moneys and credits tax on our legal reserves and banks pay a franchise tax on net income,” Hupfer said. “The banks like to talk about our largest credit unions. If you look at our five largest, they pay over $13 million in taxes, just those five alone.”
Sorenson, the president of the Iowa Bankers Association, accuses Iowa credit unions of veering from their original mission by doing “a good deal of commercial lending” and placing branches in wealthy neighborhoods.
“A subsidy is being provided to an industry that looks nothing like they started out back in the 1930s when they were given a tax exemption to serve people of modest means,” Sorenson said. “Well, I don’t know how many people of modest means are out by Jordan Creek Town Center, but that’s where the University of Iowa has put their newest branch.”
The Jordan Creek mall is in West Des Moines, one of the state’s fast growing suburbs where yearly household incomes are about $16,000 higher than the statewide average.
Hupfer, from the Iowa Credit Union League, counters that three-quarters of the loans approved by the state’s credit unions go to low-and-moderate income Iowans.
“Eighty-five percent of Iowa credit union loans are consumer loans, meaning they’re mortgage loans, car loans, small-dollar consumer loans,” Hupfer said. “If you commpare that to Iowa bank loan portfolios, only 28 percent of their loan portfolio is consumer. You know, frankly it’s hard to find an Iowa bank that’s interesting in making the $8000 car loan.”
There was a debate in congress last year about federal taxation of banks and credits, but the federal tax bill did not alter the tax status for credit unions. There was a brief debate in the Iowa legislature 15 years ago about increasing state taxes on credit unions after the University of Iowa Credit Union made a bid to buy a bank. However, the bill never made it past the committee level and the credit union didn’t wind up acquiring the bank.
