A new tax threat has emerged in an unlikely state from an unlikely source. State Rep. William Smith, a longtime member of NorState FCU, notified credit union representatives he is drafting a bill that would assess the state's franchise (income) tax on credit union.
The main aim of the bill is to help close the gaping hole in the state's finances, which are projected to plunge into the red by as much as $300 million for the 2005 fiscal year, according to Jon Paradise, spokesman for the Maine CU League, which has had conversations with Smith about the bill.
Because the credit union tax would be paired with a bill to boost the existing franchise tax on banks, credit union officials are confident it is not the traditional bank-sponsored credit union attack, said Paradise.
The latest credit union tax threat comes from an unlikely source because of Smith's loyal credit union membership and because the state representative filled out a survey from the Maine league saying he supports the tax exemption.
Smith did not return phone calls from The Credit Union Journal last week.
The credit union lobby, including representatives at Smith's Madawaska-based credit union, were working to dissuade Smith from formally introducing the bill, which would hit Maine's 12 state-chartered credit unions. "We don't even want the dialogue to occur," said Paradise.
Among the arguments against, according to Paradise, is that a tax on credit unions, if it were assessed at a similar rate to the state tax on banks, would only raise about $140,000 a year, a tiny drop in the bucket towards curing the state's fiscal woes, and could even drive state credit unions to the tax-exempt shield of the federal charter, as happened during the tax fight in Utah.
Maine credit unions last faced a tax fight in 1993 when banker-supported lawmakers sought to assess the franchise tax on credit unions. But that effort was successfully defeated by the credit unions.
Meanwhile, in Utah, the anti-credit union initiative advanced last week past a key House committee and was expected to be approved by the full House later in the week, before being sent to the state Senate. The non-binding resolution would ask Congress to intervene in the decade-old war between banks and credit unions by, among other things, allowing states to tax federally chartered credit unions.
The ire of several anti-credit union lawmakers and their banking supporters was raised in 2003 when during debate over a possible tax on large credit unions the targeted credit unions fled the state charter for the tax-exempt shield of a federal charter. The move, by at least 10 state-chartered credit unions, deprived the state of millions of dollars in sales tax and other revenues.
